economics transition towns

Three kinds of investment

One of the things I picked up from Rob Hopkins’ book The Power of Just Doing Stuff is a useful way of thinking about how to fund transition initiatives and regeneration efforts. He describes three main sources of investment: extractive, inward, and internal.

‘Extractive investment’ is the kind you get when big companies do business in your town. Jobs are created and money enters the economy, but the primary motivation of the business is to extract money from the community. Most high street shops are in this category. The wages paid to staff will be spent locally, but any profit is destined elsewhere, siphoned off to corporate headquarters and shareholders. There may be benefits or regeneration locally, but it will always be secondary to the primary business of making money out of the town.

The second type is ‘inward investment’, which is development finance from outside sources entering a community. It could be government money or a regional fund, lottery grants or trust funding. In this case the money is supposed to generate activity locally and should be more directed towards broader social aims than extractive investment. The downside is that this sort of funding is usually aimed at promoting economic growth, and that can often be a trade-off with community resilience. Where I live in Luton for example, there’s always one plan or another on the table to expand the airport. Residents are wooed with talk of growth and jobs, but the airport is already the biggest employer in the town. Another oil price spike and a round of airline failures, and those jobs will be gone again.

Another problem with inward investment is that it is often competitive. You have to ‘win’ or ‘attract’ the investment, usually from limited funds. That means funding tends to flow to those who are well organised and able to put together better bids, rather than those that need the money the most. Trust funding is a zero-sum game, so for every bid funded there are plenty of others that didn’t get the money.

The third form of investment, and the one Hopkins is recommending, is internal investment. This is “a community investing in itself”, through co-ops or share schemes or any other mechanism that allows people to pool their resources. This keeps ownership in the local area, and ensures that profits are cycled back into the community. The Brighton Energy Cooperative, whose representatives I met at the Ecotech exhibition the other week, would be a good example. In 2012 they raised £230,000 for large solar installations on roofs around the city, and they expect to raise three times that this year.

There are limits to how much you can raise this way, but you don’t have to wait around on somebody else to get regeneration started. You remain in control, directing the funds according to local priorities and reaping the rewards. You might have to start small and build up if you’re planning  to do something major, but anybody can do it.

Hopkins calls internal investment “the economic development model of the future”, but of course it was there long before the other two. It wasn’t corporate sponsorship or government regeneration funding that built Britain’s cathedrals. It was local craftsmen and citizens pooling their time and money to do something that put their town on the map. And if local funding could build cathedrals, there’s no reason to see internal investment as a second-class or idealistic option.


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