Why the local economy matters

originally published on the Lewes Pound website

A lot of you, perhaps most of you, will have caught sight of the article in recent Sussex Express ‘Hotel application must be resisted’. It highlights proposals for a 62-bed hotel and shops on the site of the former Magistrates’ Court in Lewes.  Premier Inn are the front runners and while little detail is given about the retail mix, a separate article in the Argus quotes Ben Ellis, a director of Quora as saying “We believe this will not only increase footfall in Lewes town centre but also help to support the local economy” with the creation of 60 full and part time jobs.

That’s a powerful argument at a time of prolonged economic recession especially when it means turning a disused building in the town centre into a vibrant leisure and shopping centre. What’s not to like?

If only it were that easy. As with all such planning proposals, it all looks good on paper – from glamourous architectural designs and the size of inward investment, to the promise of much needed jobs. The assumption is that money will improve the area, eventually “trickling down” to those that need it.

The reality however, is that it can just as easily “trickle out”. Why? because large inflows of capital investment usually come with the arrival of equally large businesses and high street chains headquartered elsewhere in the UK. The new hotel and retail centre  may increase footfall  and money spent by locals, as well as out of town visitors, but Lewes will see little of it. It will flow straight  out again because ultimately the real beneficiaries are head offices and shareholders, not local communities. Moreover such businesses have the  financial firepower to undercut local businesses at a loss until competition is crushed and consumer choice reduced  to different high street brands who replace local shops. You are in Lewes but actually you could be anywhere in the UK.

Nor is this just about  profits re-invested locally.   It is also about supply chains and the dis-connections between big businesses and small local suppiers. In general, big businesses only deal with other big businesses. They employ  large accountancy firms, not the local accountant. They hire in cleaning contractors not individual cleaners. They buy in bulk, from stationery and printed materials to floral supplies and fine wines – and they do this  at a scale that no small local business can provide.  This is one of the reasons why so many new start-ups fail: they simply cannot break into local markets when these come to be dominated by the big established players.

So any proposed inward investment needs to answer two key questions – not easy to answer but vital nevertheless.

The first is: what are the web of  linkages that can be made to ensure that the inward investment circulates around the local economy rather than flowing straight out? Do new businesses have the potential to complement local businesses and tap into the skills and education of the local workforce?  In other words will the inward investment increase local linkages with local contractors and businesses? Are they able to source suitably qualified labour and human capital or must they go outside? A rich web of local linkages ensures that money inward investments circulates and sustains the local economy, but where those linkages don’t exist, it is much harder to see local benefit. It is one of the key reasons why the Lewes Pound exists: money spent locally stays within the community and is re-used many times, multiplying wealth and building resilience in the local economy.

The second is: what is the likely economic displacement? However finely tuned  and sensitive to local needs, inward investment and regeneration initiatives do result in some disruption in the form of job losses and failed businesses even as they create new jobs and businesses. So when Ben Ellis from Quora quotes the figure of 60 full and part-time jobs, is this a ‘net’ estimation of jobs created?

Either way his figure needs to be treated with some caution given the track record of failed promises over job creation by big supermarkets such as Tesco, Asda and Sainsbury’s. Between 2008 and 2010, they pledged to create 67,000 new jobs. They fell far short of this target, creating just 28, 217 jobs.[1] If  Ben Ellis’s figure is based just on jobs created by the combined retail centre and hotel, then it needs to be set against an estimate of 276 jobs lost locally every time a new supermarket opens[2]

All this puts the proposal for a premier inn hotel in a very different light and the concerns expressed by John Anderson of the Lewes Town and Country B&B group, are re-inforced by an  older but still relevant study  of tourism in Tayside . This found that while  while tourists in hotels spent 70% more than those in B and B accommodation, the total income generated locally was in fact higher for B and Bs, because the money was re-spent locally on  wages and local produce.

And here lies the rub; it is not the size of inward investment that matters but the degree to which it circulates and irrigates all corners of the local economy. When  inward investment results in the creation of more supermarkets and chain stores, it is equivalent to punching a large hole in the local economy. Money simply gushes out, for while half of the turnover of an independent local retailer goes back into the local community,  just 5% of the turnover of a supermarket does[3]. Clever inward investment creates and strengthens local linkages to ensure that money circulates and is re-spent, not once but many times. Are we being clever? all the signs are that we are being the opposite.

[1]  Craven, N. 2012. Riddle of Phantom Shop Jobs: Supermarkets Fail to Deliver 39,000 Promised Positions>>>

[2] Porter and Raistrick. 1998. The Impact of Out of Centre Food Superstores on Local Retail Employment c/o National Retail Planning Forum>>>

[3] Federation of Small Businesses. 2008. Keep Trade Local Manifesto>>>

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