By investing in social infrastructure, we could breathe new life into places – “the lungs of the economy”

Let us do away with the ‘growth, growth, growth’ mantra. History tells us that growth per se is not a panacea. Since the publication of Oliver Twist in the mid-19th century, the UK economy has grown by 5,000 per cent – why then do we have 4.5 million ‘Oliver Twists’ in our midst?

 

Financialisation has led to the City of London’s phenomenal growth, so why does the UK have an under-investment problem? Living standards in 60% of our communities are on a par with the worst regions of Eastern Europe and the USA. All that growth, all that finance, but no sign of ‘mass flourishing’ (Edmund Phelps) or ‘the good society’ (JK Galbraith).

 

To change course, the UK needs a long-term social infrastructure strategy covering housing, health and education and other foundational economy sectors including transport and communications, clean energy and utilities and basic human services like libraries and community centres. 

 

Horribly, by OECD measures, the UK is a second or even third-rate country on housing and health. This is morally repugnant from a human development perspective.

 

 

Worse still, neglecting healthcare will cause deep and lasting economic damage. 

This is because the next long wave of economic dynamism and growth will be led by product and process innovation in Holistic Health, AI and the Internet of Things and the Green Economy. Knowing this, the NHS should not be treated as a political football but as the most valuable piece of social infrastructure in the country that needs to be highly prioritised in international trade and FDI policies.

 

Research by Diane Coyle and her colleagues at the Bennett Institute has clearly shown that investment in social infrastructure generates economic dynamism and inclusive job growth in every region of the country. As such, it is good for balanced and inclusive growth – what successive governments have been saying they want to achieve for many a decade.

 

Investing in social infrastructure will counter-balance the uneven cluster geography of the key sectors prioritised in the National Industrial Strategy. Quite simply, the UK economy needs to stand on two legs: A National Industrial Strategy and a National Social Infrastructure Strategy. Place-based economic development – my preferred approach to national renewal – would involve forging policy linkages between these Strategies at the national, regional and local levels.

 

Well before the Trump circus came to town, I published my Good Domestic Economy vision of the UK’s future. Resilience, resilience, resilience. The world’s most successful countries boast excellent social infrastructure and high levels of local and regional government capability. By investing in social infrastructure all around the country, we could breathe new life into places – “the lungs of the economy”.

 

 

As Jonathan Werran, chief executive, Localis, said: “There is for obvious reasons a great deal of attention being paid to the role of devolution guiding regional and sub-regionally directed economic growth. But we must never ignore the fact that place-based impact investment is ultimately about communities and enriching the social bonds. Social infrastructure is the locus of the small-scale connections that are created from people who share a common interest that builds up civic life.”

 

There is an opportunity for institutional investors to collaborate with local government and other key social infrastructure service providers to invest in social infrastructure in a way that strengthens local economies and social welfare. However, lessons must be learnt from the Private Finance Initiative (PFI) experience, where some investments led to high, long-term financing costs and poor-quality infrastructure contributing to negative rather than positive social outcomes.

 

We need new public-private investment partnerships built on good governance, innovative financial models, alignment around delivering better outcomes, fair sharing of risk and rewards, and transparent financial and impact performance reporting.

 

 

Despite the ESG backlash, increasingly we are seeing from our work on place-based impact investment (PBII) that UK investors across the market – from pension funds to investment managers – want to be more intentional about having a positive impact in the UK. This bodes well for Britain.

 

We will continue to build our PBII Network to share knowledge and build trust between local government and investors. And we encourage LGPS and other asset allocators to look at the opportunities to scale-up investment in affordable housing, wider social and community infrastructure, outcomes-based partnerships, and SMEs that deliver services that improve health and wellbeing.

 

Only world class, universal social infrastructure will deliver true economic progress and sustainable welfare across the length and breadth of the UK. The mission of local government is to play a lead role in delivering this social infrastructure. And yes, of course, the Government should ensure that it has the enabling power and influence and requisite financial and other capital assets to meet this challenge.

 

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Mark Hepworth is a multidisciplinary economist and entrepreneur whose international career spans academia, public policy and business consultancy. As co-founder of The Good Economy, he leads the firm’s Place-Based Impact Investing (PBII) work which includes research and policy thinking