Community Economics – THE new model


Community Economics - a new paradigm
Moving to a new model?

We strive for a fairer world, with a more balanced wealth and reward distribution, coupled to a stronger feeling of community response and renewal from the econo-political systems that govern our lives.

This life is a complex and often contradictory experience, with cognitive dissonance – the ability to hold two competing and conflicting beliefs at the same time, particularly evident in our view of economics, trade and banking.

We accept outrageous levels of pay and reward for the minority as a way of perpetuating the systems and processes which provide the rewards for the few. Or do we? Is it rather that we co-operate with a dissonant system of reward and effort in order to preserve our own interests, whilst still feeling uncomfortable about the less well off, the least effective and the disenfranchised communities across the globe?

From the individual view point this might appear rational. From the viewpoint of mainstream commercial and financial mega-corporations this might appear rational. But is there another paradigm emerging in modern economic structures that will gradually change the foci of these denizens of the corporate depths?

SEEM’s meta-view when looking at the financial and social landscape is well stated on our main website…

We think there is another way of doing business that takes a more balanced and blended approach to profits, people and the planet…

This article argues that the new model emerging, which others have called Community Economics and which we have explored in individual elemental form in recent Mining the SEEM journal posts, is a critical driver of perhaps monumental change in the financial world.

Arguably, as powerful a shape shifter as the emergence of Manchester Liberalism in the nineteenth century, or the infamous Quants of the late twentieth century.

Ben Hughes, recently writing for the Community Development Finance Association (CDFA), highlighted the work done by the CDFA and the Community Development Foundation (CDF) in mapping a new Community Economics (CE) framework for the UK. His article also nicely defined the CE concept in the context of this article…

Community Economics is a model that harnesses the skills, knowledge and capability present in all communities; it has the potential to bridge the gap between rich and poor that current, free market economics create, and that we know is failing an increasing percentage of the population denied access to the finance needed to create jobs, opportunity and capability.

The CDFA work goes on to detail some significant structural changes that are under way or which are needed.

  • Recognising that the local supply chain and enterprise drivers are the bedrock of durable economic change and effectiveness. Community finance, social business and patient capital investors are key lenses through which to view this focal change.
  • (Not a trace of irony here though. We would argue that the constituent players in a Community Bank infrastructure, wholly committed to ethical business, social value and community outcome would truly need only ‘light touch’ regulation, unlike the historic performance of their mainstream predecessors).
  • Make double and triple bottom line accounting and accountability the norm, not the exception.
  • Banks are going to release their spatial lending data. Use it to plug gaps in the community ‘capital deserts’ so identified. Exact a Community Investment levy of 25% on bank profits and ensure that investment in areas of high social need becomes a priority.
  • Develop a nationally recognised score card for banks, tilted towards their social investment performance.
  • (But couple this to a national advertising and media campaign to make communities both aware of its significance, but also make its value part of the social norm and conceptual thinking for bank mainstream customers…and bankers, we would argue).

Ben Hughes argues that much of this structural development is already extant, which if properly capitalised and managed could transform the CDFI landscape.

To summarise to this point. There is arguably a philosophical change in the economic, enterprise and banking landscape. This is, by the above analysis, realised in two ways.

First, the naked, free market capitalism of the nineteenth century has now been subject to a prolonged critique, which over time has seen the emergence of Social Finance organisations with powerful ethical and community drivers and, most importantly, the emergence of a new form of investment and investor, responding to the community critique.

Second, the complete disconnect between banking, investment and communities has itself been under attack. The activities of the Quants, essentially gambling with others money, the loss of which only realised inflows of more public money, is itself discredited.

The Social Finance movement, the concept of Community Banks et al, are all about re-aligning capital, markets and communities. Where the economic activity takes place and what the human effect will be really matter. In a system where machine trading with capital takes place, this local impact is totally irrelevant, whilst at the same time being the most transformative outcome to be expected, we would argue. (Cognitive dissonance at play…).

There is a third change in the twenty first century which is intimately aligned to the two structural tensions detailed above. It is also connected to the delivery of the Community Economics model. Without a delivery ‘vehicle’, the practical application of theory, then concepts remain just that. Interesting, but none the less, useless as a mechanism to increase human capital and self reliance.

The last part of this article delineates this third conceptual change and stresses the importance of its emergence to social finance. The arrival of the Social Entrepreneur.

Elizabeth Chell, in her book The Entrepreneurial Personality – a social construction, charts the emergence of the entrepreneur from the start of the Industrial Revolution and the claim and counter-claim of mainstream economic theory over the centuries.

Chell cites the contribution to economic theory of the economist Israel Kirzner (born 1930) a member of the Austrian economic school. For Kirzner the entrepreneur is critical to the market. He or she is always alert to ‘profit opportunities’. Kirzner, in his theory of the entrepreneur is also aware of the importance of ‘vision’. Seeing an opportunity extant in front of you is one thing, imagining the effect of the opportunity after investment and development is, Kirchner argues, a completely different skill set.

Kirzner’s concepts build upon the theories of Joseph Schumpeter (1883 – 1950). For Schumpeter the entrepreneur’s role is to ‘…disturb the economic status quo through innovations’. Arguably, Schumpeter was conceptualising about entrepreneurs still deeply embedded in mainstream economic activity. Profit and return on investment for the welfare of the few.

Chell goes on to examine the work of sociologist Anthony Giddens (b.1938) and the Evolutionary Economist Ulrich Witt (b.1946) – exploring the argument around structure and agency and how the entrepreneur fits a contemporary economic model. Giddens argues that the structure and a means of delivery adopted by the entrepreneur depend on the social norms of his or her day. Witt argues that creation of enterprise by an individual depends upon imagination, force of argument and a conceptual belief by others.

It is in this evolved and evolving complex socio-economic structure that the social entrepreneur inhabits in the twenty first century. To return to Kirzner. He has a dictum ‘…the entrepreneurial function is to notice what people have overlooked’. Nothing could be truer with regard to the final player in our own argument.

Creating a World Without Poverty – Social Business and the Future of Capitalism is a book by Muhammad Yunus (b.1940). In it Yunus argues that ‘...unfettered markets in their current form are not meant to solve social problems and instead may actually exacerbate poverty, disease, pollution, corruption, crime and inequality’.

Whilst recognising the important contribution made by large charities to resolve some of these issues, Yunus argues that the solution, a permanent solution to them, does not lie in the hands of charitable endeavour. In third sector settings demand always outstrips supply.

Yunus also argues that Corporate Social Responsibility (CSR) is a good thing. However, the unscrupulous capitalist can still turn CSR to profit by adopting the word, but not the spirit, of a belief in social action and outcome, he argues.

He proffers a solution, a hybrid if you will, which combines the key concepts of a profit maximising business (PMB) with the passionate commitment of the social entrepreneur. For Yunus the Social Entrepreneur is driven by egalitarian, social and ethical drivers – to achieve community change by using the PMB processes for social ends.

A social business, her argues, which donates surpluses to useful charitable ends is to be welcomed, but for Yunus it is the Social Entrepreneur, using technology, new investment models and innovative conceptual thinking that will sustain the social business model.

We would liken it to something we might call the SEEM ‘Knowing Watchmaker paradigm’. I need a watch which is accurate, reliable, fully functioning and comfortable to wear. I need it to get to my next social business meeting on time…but it does not have to be a Faberge timepiece!

Deploying our Knowing Watchmaker paradigm as a metaphor for business structure, it is interesting in all this debate about structural change, social business and community outcome, the old Left, rearguard arguments of the destruction of capitalism and levelling all have completely disappeared. They have been replaced by observation, data and philosophical change that put community and charismatic social leadership to the fore.

Our Knowing  Watchmaker can, in an imperfect global economy, as a social entrepreneur still recognise an opportunity to sell his masterful timepieces at a ‘luxury’ rate. In this imperfect world there will continue to be individuals or corporations who wish to spend their surpluses on luxury items.

This neither diminishes capitalism, nor does it redact his technical expertise, long in  the acquiring – but where our Knowing Watchmaker differs is that his or her hypothetical workshop is a social business, (…created with professional support from SEEM of course), where the profits are certainly deployed to restock and energise the business with R & D, but the majority surplus is dedicated to the community that both makes up his or her workforce or from which they and their families emerge.

This is still the market at play, striving for equilibrium, but where the failing ‘invisible hand‘ of Adam Smith has become the contemporary guiding hand of social conscience.

If we are rapidly approaching a new Giddens/Witt economic nodality, which we would argue is evident, then having Knowing Watchmakers in the economy is both vital and their proliferation evidence that we have reached a tipping point with capitalism.

In a key section in his book (Where will social business come from?) Yunus extols the energy of youth as being a key motivator in extending the social business franchise across the globe….

…young people fresh out of college or business school may choose to launch social businesses rather than traditional PMBs, motivated by the idealism of youth and the excitement of having an opportunity to change the world.

We couldn’t agree more. If you know a budding social entrepreneur help them verbalise and form their delivery – invest in them. Their time has come. Long live the Knowing Watchmaker…

The SEEM Team – working with interesting ideas.

Useful reading:

Elizabeth Chell, The Entrepreneurial Personality – A Social Constructionpubl. Routledge, 2008

Muhammad Yunus, Creating a World Without Poverty – Social Business and the Future of Capitalism: publ. Public Affairs, 2007

Ethical business with a social dimension...
Ethical business with a social dimension…

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