After a forest fire, recovery begins at the bottom

In the rush to rebuild our economy following the damage caused by the Covid 19 lockdown, there is a danger that we will hastily patch up what was there before and follow the same paradigms and economic mantras, in the mistaken belief that this will bring back prosperity and growth. There is a growing body of people using the hashtag “Build back better” and I am one of them. I have set out below some steps which can be taken easily and soon which can form the start of that – they aren’t the whole answer but they are a part of it.

At the Macro-level

The corona virus has emphasized the huge inequalities in our society and has made the need for a “levelling up” agenda even more pressing. The response by Government (national and devolved) and to some extent the media has demonstrated clearly a disconnect in their attitude towards and understanding of the people who are at the margins of our economy. As a result, their support has left out many people and, having seen some of the questions and proposals for recovery, looks set to continue to do so.

“There are no iron laws of economics keeping us from building a more humane world, but there are many people whose blind faith, self-interest or simple lack of understanding of economics make them claim that there is”

This is a quote from “Good Economics” by Abhijit Banerjee and Esther Duflo. Each chapter in this book challenges some of the long-held mantras which have formed economic policy over the last 50 years – that wealth created at the top benefits everyone in society, that high taxes are damaging, that cash-handouts like benefits or Universal Basic Income encourage sloth – for these and many others, they show that there is no evidence that any of them are true, and quite a bit of evidence which suggests that they are not. They say that economies at national and local level are so wildly different that it isn’t really possible to know what encourages growth and prosperity, nor even whether they are good things per se.

Do we really want to return to a normal when it was producing a massively unequal society characterized by vulnerability and insecurity, with a small number of people accumulating most of the wealth and large parts of the population left to cope with precarious lives and insufficient income? That “normal” was creating an increasingly polarized and discontented society and a poor quality of life for millions. What we should be doing is asking bigger, fundamental questions and building our recovery plans around the answers. Questions such as:

  • What is the economy for?
  • Who is the economy meant to benefit?

It is true that capitalism is the only economic system that has proved capable of generating mass prosperity but it last worked well, according to Paul Collier’s book “The Future of Capitalism”, between 1945 and 1970 – during that time, there was a need to recover from the ravages of war and so there was a sense of solidarity, a need to rebuild the nation together, and a sense of obligation and responsibility to others. But this has changed – since the 1970s there has been the promotion of individualism as a virtue, an “every man for himself” culture and ideas of obligation and duty towards others have been very much sidelined. 

Both books referred to above (and no doubt others) suggest solutions to many of these issues – this article doesn’t go into all of these as that isn’t my area of expertise – however there is one thing at the macro-level which could be implemented relatively easily and quickly which would encourage a more humane economy.

The Profit Motive

We need to abandon the notion that autonomous individuals and companies acting in their own interests and generating wealth for themselves will benefit the wider community – the old neoliberal “trickle down” mechanism simply does not happen. The corona lockdown has shown us the importance of relationships with others – and relationships come with obligations. We have largely abdicated these and expect the state to meet them but this is beyond the capacity of any state – so companies and people need to step up.

The traditional view is that it is the shareholders who have taken the risk in any company by investing their money in it and so they should control what it does and reap the rewards of any profits. Enshrined in Company Law is the obligation on all directors to maximize profit for their shareholders. BUT should profit be the sole motivation? There are other risk takers involved in companies – long term employees who develop skills useful for the company but not easily transferrable elsewhere, all employees who organize their lives around a job at the company, customers, lenders and the wider community where the company or its suppliers are located and which is impacted by what it does – and yet none of these people have any say in what the company does nor any share in its benefits, although they do bear the brunt of any failings.

There needs to be a change in Company Law which forces directors to consider other things as well as maximizing profit for their shareholders – such as environmental impact, the good of their employees and their impact and contribution to local communities, with sanctions if they fail to do so.

Paul Collier cites the example of ICI if anyone is about to suggest that the above proposal could be damaging to companies. Anyone over 40 like me will remember ICI as a great British company but it went into decline, got taken over, broken up and disappeared. Studies and ex-executives of the company all agree that the decline coincided with a change in its focus and direction. In its early days, it was focussed on being a world-class chemical company with high quality, innovative products and a good reputation amongst its customers – but then it changed that emphasis to maximizing shareholder value and that change proved disastrous. We need good companies who take responsibility for their people and for their wider impact in the world – not narrowly working to benefit a few, disregarding anything else.

At the Micro-Level

This is the world of the sole traders running small businesses and of individuals trying to make ends meet on the margins of our economy. A large group and yet almost universally undervalued by those in power and overlooked by many others.

Microbusinesses are undervalued and yet are a significant contributor to the economy.   99.4% of all businesses in Wales are SMEs, and of that figure, 95% are microbusinesses. They provide 35% of all employment in Wales and figures show that they have contributed more than half of the total employment growth in Wales in the last 10 years; even in the last 12 months, where overall employment growth was 1.8%, growth in microbusinesses was 3%. There is evidence that microbusinesses are capable of growth even in an economic downturn.

These are the businesses which Purple Shoots funds – and without exception, all the people we fund to start these businesses have found it impossible to find financial support anywhere else to get started. There are organizations supporting microbusinesses with finance – the British Business Bank and its start up loans scheme – but none of them will help someone wanting to start a business who has a poor credit score or no funds to put in. We do. We know that the benefits system ensures that any individual who is on benefits is not able to save – and even if he does, he cannot save much before his benefits are cut and he is expected to use his savings to live. So saving up to start a business is not possible – so for those who do start, they start without any sort of cushion to fall back on if times get hard – as in a lockdown for instance when they weren’t able to trade! The benefits system or the life of insecure, temporary and low paid jobs will mean that individuals struggle to make ends meet and a poor credit score is often the result. These things, in our view, should not rule them out of being allowed an opportunity to try self-employment – but without our support, for many people this would be the case.

The current crisis meant that many of our businesses had to stop trading and for many there was no financial support. A few with premises had some, and some of the more established sole traders were able to get something meaningful – but for most it meant a return to Universal Credit and trying to hang on. Universal Credit, of course, is only designed to support living costs (and for many it is inadequate for that) but not business costs, so this has created hardship for many. The total absence of support for sole traders from any Government has puzzled me and I did wonder if it was deliberate – do they think they aren’t real businesses, or perhaps not worth saving? Or perhaps they simply don’t understand the reality. However, what has surprised and encouraged me has been the response of our borrowers – some have adapted to online or delivery or outdoor working (depending on the business) and others have been planning and designing changes and new strategies for their businesses. I think only one has had to give up. Now some have restarted – re-enforcing my belief that recovery from this economic crisis is going to begin from the bottom, with these resilient and resourceful people who didn’t give up in the face of so many knock backs before they found us, and haven’t given up now.

The other thing we do alongside our lending is the development and facilitation of self-reliant groups – these are for people held back by circumstances who want to change things for themselves but don’t know where to begin. The groups save together and explore ideas for income generation which can lead to business ideas. Many of our group members with long term health conditions would like an opportunity to try these out but the benefits system makes that extremely difficult. It ought to be possible for people to try earning in a limited way without jeopardising the benefits they have fought to get – this could improve their circumstances and reduce the vulnerability, which was exposed by the corona pandemic, but at the moment, the benefits system forces them to remain economically inactive and on the margins.

Bannerjee and Duflo suggest that there are two extremes in the design of social policy for those left behind in our economy:

  • “Those who believe the best we can do for people who have not flourished in the market economy is to hand them some cash and walk away, leaving them to find their own way in the world
  • Those who have little faith in the ability of the poor to take care of themselves and as a result either want to abandon them to their fate or intrude heavily into their lives, restricting choices and punishing them for not falling into line

The suspicion that the poor are poor because they lack the will to achieve – give them any excuse and they will check out –  and the idea that welfare causes dependency, a welfare culture, is overwhelming”

I would not argue with that analysis – I suspect that the difficulties we encounter with fundraising for what we do has something to do with those two extremes – either we shouldn’t be lending to people who are already poor or we shouldn’t be lending to them because they are no good. We have enough success stories behind us now to know that both those attitudes are wrong. Most people genuinely want to do something positive with their lives and often only lack an opportunity and a small amount of money to take the first steps, which we can provide.

So I would propose the following changes to address some of these issues and allow those undervalued people at the bottom of our economy to lead the way towards recovery:

  • Change the benefits system to allow people to save funds
  • Change the benefits system to enable people to try out business ideas/self-employment without sanctions or loss of benefits until they have something which will work for them. The NEA system does not do this.
  • Support organizations like ours who understand our client group and know how to support them


The Good Economy – Abhijit V Bannerjee and Esther Duflo

The Future of Capitalism – Paul Collier