The Evidence

As part of Fountainour initial Mainstreaming Community Economic Development research in 2012-13, we conducted a literature review into existing evidence around the social benefits (inclusion, income distribution, diversity, local distinctiveness) of more localised economies.

Surprisingly little research had been done into this before, so the review was significant and innovative work in bringing this evidence together.

It identified strong evidence that local economies with higher levels of SMEs and local ownership perform better in terms of employment growth (especially in disadvantaged and peripheral areas), the local multiplier effect, social and economic inclusion, income redistribution, health, civic engagement, wellbeing, local distinctiveness and cultural diversity.

Facts & figures briefing on why localising prosperity works (pdf)

Some quick stats

  • The public cost per job is 80% higher for Foreign Direct Investment than for indigenous businesses
  • 92% of movements from unemployment or non-participation in the private sector, are down to SMEs
  • 2/3rds of the world economy is controlled by 500 companies accounting for only 1% of employment
  • In a study of 3,000 US counties, those with a larger density of small, locally owned businesses had greater per capita income growth between 2000 & 2007

Below is a brief summary of the main findings; or see the full literature review on our website.

– Localised and community economies deliver better on job creation that more centralised approaches do; and particularly in disadvantaged and peripheral areas. This has a potentially positive impact on economic inclusion.

– Localised and community economies also deliver better on resilience, stability and economic returns to an area; there is little data available on who disbenefits from that localised economic return. There is also little empirical evidence assessing public subsidies for different approaches for proportionate socio-economic impacts.

– Small businesses are significantly more likely to employ disadvantaged individuals and those vulnerable to unemployment than large businesses, which has a potentially positive impact on social and economic inclusion.

– Centralised and remotely owned economic development deliver better pay and formal conditions than localised economic development and yet more localised economies have a better quality of life, job satisfaction, security (for the workforce), civic welfare, civic participation, local economic power, and perhaps (less evidence) income equality.

– For most, but by no means all, economic sectors, it does not seem feasible that small businesses’ profit margins can support anything like the 100:1 income differentials found in the largest firms. Larger businesses may help raise the income share of those at the lowest end of the scale in an area, although their higher executive pay rates will increase societal income inequality at the same time. Co-operatives tend to have specific policies to reduce income inequalities within their firms and on the basis of case studies seem to provide higher wages and better working conditions.

– It is persuasive that a model of economy which is driven by shareholder value above business longevity, which encourages mergers and their resultant labour-shedding, and which concentrates economic power in few hands, must create more income inequality than a decentralised economy driven by local profitability and with the priorities of local economic decision-making. Employee ownership also has a part to play in addressing income equality. But addressing income inequality through local economic approaches seems to be at least partly conditional on the detail of the approach taken.

– Regional income disparities can be exacerbated by Government economic development spending based on over-estimates of benefits from any resulting inward investment.

– Both purposive localised approaches (CED), and non-purposive in the form of rural food supply chain employment, deliver accessible employment opportunities for many people who are vulnerable to economic and social exclusion.

– CED approaches are in themselves a form of civic participation which is a major factor in social inclusion. The socio-economic outcome focus of many social enterprises plus their strong local multiplier ensures that they will have a role in addressing areas of disadvantage.

Read the full literature review on our website for more information and a list of valuable sources.

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