A British Towns Novel Solution to Austerity   16%

PRESTON, England—For years, almost all of Britain’s political energy has been consumed by the country’s withdrawal from the European Union. The issue has dominated evening news programs, front pages, and conversation in London.

Yet beyond Brexit, and outside the British capital, a great change is taking place, one that is refashioning Britons’ relationship to their government, and what they can expect it to do for them. The country has been cutting official spending on public services for nearly a decade, a policy of austerity that began in the wake of the 2008 global financial crisis. The effort to reduce Britain’s debt load, led by the Conservative Party of David Cameron and now Theresa May, has been, the government argues, a necessary belt-tightening, a period of sacrifice needed to get the country on a firmer financial footing.

Much of the responsibility for these cuts has been passed on to local councils, the lowest level of government in Britain. Councils have long been reliant on the national government for the funds they need to keep streets clean, run schools, and take care of the vulnerable. Yet on average, they now receive 60 percent less than they did in 2010, according to the Local Government Association, with funding for almost half of the councils set to expire entirely this year. Those cuts have been felt unevenly across the country, with poorer parts of Britain suffering significant pullbacks in services. To make up the shortfall, councils have sought difficult solutions: Services have been outsourced to private companies; public spaces such as parks and libraries have been sold; experienced public servants have lost their jobs. The situation could still worsen—one council has declared that it cannot balance its books, leading government inspectors to conclude that it should be abolished entirely.

[Read: The rare businesses that can’t wait for Brexit]

Here in Preston, in northern England, local officials are trying something different: The authorities are prioritizing their public spending on businesses based and run here and encouraging the creation of worker-owned co-operatives. It is an effort—already under way in places as disparate as Ohio and Spain—that aims not just to limit the fallout of the funding cuts, but also, its proponents argue, to reshape how business is done.

Preston’s move, born out of necessity, has been seen by some as the extension of a protectionist agenda that starts with Brexit and ends with Britain turning into an island of city-states. But councils, teetering on bankruptcy, are desperate for solutions. The Labour Party has seized on the so-called Preston model and formed a unit to work on rolling out the experiment across the United Kingdom. Many are watching to see whether Preston provides answers to the question of how government will be organized, should public spending remain permanently lower.

Preston, population 114,300, is tucked in from the northwestern English coast along the River Ribble, and lies in the orbit of much bigger cities such as Manchester and Liverpool. On a wet day, the columns of the imposing Harris Museum, an art gallery and library, are reflected in puddles on the yellow slabs of the market square. Once a textile hub, its city center is now dotted with empty storefronts and homeless people wrapped in sleeping bags.

In 2010, two years after the financial crisis, a Conservative-led coalition government took power in the United Kingdom. For years, Preston had planned to buoy its economic prospects by building a £700 million, or $915 million, shopping mall, which local officials expected would provide retail jobs and kick-start local commerce. But as businesses lost confidence, the plan fell apart, and the city was left looking for alternatives. A meeting in a pub here offered one.

[Read: There’s no escaping Brexit, even at the pub]

Over a pint of beer in the Grey Friar in early 2013, Neil McInroy, the director of the Center for Local Economic Strategies (CLES), a Manchester-based think tank, suggested to Matthew Brown, an elected local councillor in the city, that the authorities could use the power of the purse to promote Preston businesses. CLES data for 2012–13 showed that six local Preston institutions, from the council to the local university, had a combined annual spending power of nearly £750 million, but that only 5 percent of that stayed within the city. While councils often felt under pressure to accept the lowest bid for contracts, McInroy pushed for Preston to prioritize homegrown companies with stronger social and environmental policies instead.

Brown had already been seeking to revive co-ops in the local area, and thought that McInroy’s proposal dovetailed nicely with his own. The government here could spend more of its money locally and, in theory, support worker-owned businesses to supply everything from butter for cafeterias to pencils for schools. “Let the citizens provide the services for themselves,” McInroy told me.

Using a law introduced in 2012, officials in Preston began picking contractors that promised more than just financial value. Local companies are, for example, able to compete for construction contracts by providing training to local apprentices, or by offering a smaller carbon footprint through employing tradesmen who don’t have to travel far. The council teamed up with five other institutions, including the police and the local university, to split big procurement contracts—in one case, Brown told me, a £1.6 million catering contract was broken up into smaller ones, to advantage local farmers.

Over time, spending began to shift. The institutions that signed up increased how much they spent in Preston from £38 million in 2012–13 to £112 million in 2016-17. In the same period, spending in the wider district of Lancashire increased from £289 million to £489 million, and the Preston council doubled the proportion of the money it spent locally to 28 percent, despite a shrinking overall pool of funds.

As the city has sought to ramp up local spending further, it has come up against the limits of the area’s economy. Officials have embarked on the long process of developing co-ops, in which workers own a business, to try to address that issue.

In February, the first co-op to be established since the authorities began refocusing spending opened in Preston’s city center. The Larder sells food made from ingredients sourced locally and teaches people in disadvantaged areas of the city to make their own healthy meals. The café is the culmination of five years of hard work for its founder, Kay Johnson, and while winning catering contracts with local businesses has proved tricky, she and others here hope that the Larder’s efforts will be emulated. “We’re trying to develop a system where small farmers and producers can sell directly to organizations,” Johnson says. “It sounds like it’s not that difficult, but it is.”

The project here is influenced in large part by the work of the Democracy Collaborative, a think tank based in Cleveland, Ohio. Starting in 2009, the Democracy Collaborative helped establish three co-ops—an industrial laundry, an urban farm, and a solar-energy refitter—to sell services back to local businesses, including the Cleveland Clinic, a major health-care provider. The Democracy Collaborative says the co-ops now employ 200 people in the poorest neighborhoods of a city that has lost 40 percent of its population over the past four decades. The total numbers of those employed may be small, but “it takes a long time to succeed in a strategy that’s based on incubating new businesses,” argues Jessica Rose, the director of employee ownership at the Democracy Collaborative.

[Read: Why is Brexit so expensive?]

Critics of Preston’s experiment argue that the city is limiting itself. Should it not help small businesses nationwide apply for its contracts? “The most successful places in the world have more firms that trade outside their locality than inside their locality,” says Andrew Carter, the chief executive of the Center for Cities, a London-based think tank.

The success of the Mondragon Corporation, a federation of 110 co-ops in Spain’s Basque region, offers an example of the co-op model working at scale. Founded in 1956, Mondragon was established to address the devastation of Basque communities in the aftermath of the Spanish Civil War. It now employs about 80,000 people in Spain, in co-ops across industries such as finance, manufacturing, and retail. It also has plants outside of the country, including elsewhere in Europe as well as in Latin America and Asia, though not all of them are co-ops. When times are good, profits are distributed to workers through salaries and benefits. But when times are bad, such as during the 2008 financial crisis, Mondragon businesses have frequently opted to reduce wages and relocate staff to other parts of the corporation rather than fire workers.

It took decades to build Mondragon. Preston and other local councils have much less time to adapt. McInroy acknowledged that the principles behind the Preston model will play out differently elsewhere. But he imagines a future in which every city has multiple suppliers of goods and services to compete with multinationals for contracts; one in which councils, as well as hospitals, universities, and other institutions, strategically use their purchasing power. With government spending running dry, he said, it’s worth a shot.

“We’re in the age of experimentation,” he said. “So let’s try stuff, because we’re sure as hell in a flipping crisis.”

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