Welcome to Localism 2.0
The Scottish referendum has (re)ignited a national debate about the devolution. Many different ideas and proposals are being bandied around, but, as usually is the case in life (and as the recent history of Scottish and Wales devolutions have demonstrated), it’s very easy to get things wrong, leading to disappointing outcomes.
Note: The blue text at the start of each section is the executive summary of that section, giving you a convenient bird’s eye view of its content.
What Is Localism 2.0?
Many of the problems UK has been struggling with, will only be possible to solve under a properly-implemented Localism system.
Localism 2.0 is the answer to the “How to do the devolution right?” question. It has been modeled after the best practices in the world and is designed to sustainably address all the big issues the country has been struggling with. The country is more than ready for it, and this plan has the potential of transforming the British politics in a major way.
In a nutshell, Localism 2.0 is a systemic and comprehensive answer to the “How to do the devolution right?” question. It is modeled after the best practices in the world and would sustainably address the big issues the country is facing. Issues like:
- The cost of living
- Social mobility and education
- Governance (devolutions, including the localism dilemma)
Based on the extensive research, on delivering my “Localism 2.0 pitch” to over 700 people, as well as the most recent political events, it is abundantly clear that UK is not only ready, but is in desperate need for this solution. People are tired of never-ending succession of half-measures that never seem to fix the problems. Localism 2.0 is something fresh, more comprehensive and exciting, and very much in line with what most people instinctively feel is right.
The Localism 2.0 Blueprint has the potential of transforming Great Britain and the British politics in a big way, including having a major impact on the outcomes of the future elections.
Why Is This Important?
Country’s success is to a large degree dependent on its political system. We are now experiencing a period of one of the greatest political upheavals in the modern British history. People’s trust in politicians is low, and they are lashing out. People want new solutions and meaningful change. The era of 2-party politics is over. Localism 2.0 is a comprehensive solution to this problem.
What makes a country great and prosperous is not the genetic makeup of its inhabitants (as no country is genetically superior to others). What makes a country great is the best system for all people – the system, under which people are empowered, free and able to achieve their full potential, to become the best they can be, to realise their dreams, to prosper, to develop and to make their country an amazing place for all future generations. Isn’t that what everyone wants and deserves?
We are now in the middle of one of the greatest political upheavals in the modern British history. There is a lot of anxiety (if not desperation) in the country right now because people don’t see a credible way out of the current situation.
It is becoming clear that the old “business as usual” ways are no longer working. People want new thinking, new solutions; they are hungry for a meaningful change. Too many of them have lost their trust in the politicians’ ability to deliver it.
In this document, I would like to present an alternative strategic vision – a plan that goes to the roots of the problems and can generate new hope and excitement for the entire country. This plan is a direct result of a thorough and comprehensive analysis of the economic and political situation the country is currently going through.
Localism 2.0 reform goes well beyond tinkering around the edges of the system, or seeking to plug a leak here or to stick a Band-Aid there. This is a more systemic and comprehensive solution, modeled after the best practices in the world. And last but not least, the message has been market-tested with impressive results.
If this project is successfully brought to fruition, it will transform UK into a place that is more prosperous and with a much happier citizenry. This country deserves nothing less.
The Current Situation
The cost of living is one of the most important (but often overlooked and under-appreciated) factors affecting lives in the UK. This problem been decades in the making, and is now responsible for consuming 30% of UK government budget, depressing the economy and making the British economy even less competitive in the modern global race.
It is the root cause of a vicious cycle. This vicious cycle can only be resolved if the underlying root causes have been adequately addressed.
The damaging economic policies (centralized, bureaucratic, regulation-heavy, high-tax, expansive welfare state) will continue to enjoy a substantial popular support for as long as there are enough people who believe that they will not be able to survive without the welfare state’s help.
There are several distinct groups in that camp, but the reasons for thinking or feeling that way tend to be clustered around two main issues:
- The feeling of economic insecurity (whether actual or perceived, current or future), which has as much to do with the cost of living, as with the levels of income.
- The lack of economic education (lack of understanding of how economy works, what is wealth and how it’s created, as well as the twisted understanding of morality and the “unintended” consequences of the forced equalization).
For these reasons, I took a close look at the roots and mechanisms of poverty and the cost of living in this country; and what it would take to diminish it significantly and sustainably.
The prosperity and life’s comfort is not determined solely by how much money one makes, but by what that money, after taxes, can buy. In this context, the cost of living is a very important (but frequently overlooked) factor, because it affects almost everything: the growth of the economy, the economic competitiveness domestically and internationally, the size of the welfare payments needed to sustain those who wouldn’t be able to live without them + the tax burden accompanying the need to support this many people (which in turn further exacerbates the whole situation).
The cost of living topic is a genuinely important matter, and it has been a major problem for a very long time. The seriousness of this problem is indicated in part by the fact that e.g. in 2012-13, £200 billion (or 30% of the UK government’s budget) was spent on the living subsidies, just to ensure that people could afford to live where they do. In fact, the government has become a major income provider for well over half of the population, and for 40% of the population, more than half of their income comes from the state.
Despite the frequently-heard complaints about the “hostility of the current system towards the poor”, the conventional distinction between a high-spending “Nordic model” and austere, low-spending “Anglo-Saxon model” has become a thing of the past, as UK now spends a greater proportion of national income on welfare transfers than many Germanic and Scandinavian countries: the extent of redistribution through state welfare system is as great as that of Sweden, and in terms of spending on family-related benefits, the UK has overtaken all of the Nordic countries.
All of this inevitably causes a very significant extra tax burden, which further exacerbates the situation by depressing the economy, increasing the unemployment and making the British economy even less competitive in this modern global race. It’s a vicious cycle, which cannot be resolved until the underlying root causes have been adequately addressed.
The Cost of Living
The cost of living has 3 major components: cost of taxes, cost of regulations and the cost of real estate.
The key to disentangling the vicious cycle is the price of real estate: due to the fact that the rate of new dwelling construction has been lagging behind the population growth for decades, the price competition for this limited supply is fierce, therefore its price will always bid up to the limit of people’s ability to pay.
For this reason, anything the government can possibly do to enable people to afford to pay more for it (whether by mandating higher wages, making borrowing easier, helping with the deposit or increasing the housing benefits), just raises those prices even higher until the new affordability limit equilibrium is reached.
In other words, it is the shortage of houses (and not the shortage of money in the people’s hands) that’s at the root of the problem, therefore any proposed solution, which does not adequately resolve the housing shortage, is destined to fail.
It does nothing in terms of reducing the local opposition to the new residential construction, therefore its net impact on the price of residential real estate (and the cost of living) will be inconsequential.
The most challenging obstacle to new construction is the opposition from the local residents, and the primary reason for this opposition: the new construction rarely brings tangible benefits to the people already living in that area. Therefore, the only democratic way of resolving it is to give the residents reasons to want to permit the new development.
Nothing currently proposed or pursued by the government is designed to effectively address this problem.
The cost of living has 3 major components:
- The cost of taxes (businesses have to pay their employees enough money, so that after taxes they have enough money left to be able to buy what they need to live on. This means that businesses have to charge their customers significantly more for their services in order to have enough to be able to pay their employees. All other businesses have to do the same; hence, everything one buys in this country inevitably ends up being significantly more expensive, which ends up hurting the poor more than any other group. Very few people appear to be consciously aware of this mechanism, esp. the “let’s raise taxes to help the poor” crowd.
- The cost of regulations (extra people need to be hired just to take care of the regulatory compliances, even though those services often don’t add any value to the product or service, but they most certainly add to the cost of it).
- The price of real estate: both commercial (higher rent rates get passed on to the customers) and residential (employees need to be paid more to afford their overpriced lodgings).
The key to disentangling this vicious cycle is actually the 3rd item: the price of real estate that gets bid up to the limit of people’s ability to pay because of the chronic supply shortage: the rate of new dwelling construction has been lagging behind the population growth for decades, which means the price competition for this limited supply is fierce.
For this reason, anything the government can possibly do to enable people to afford to pay more for it (whether by mandating higher wages, or increasing the housing benefits), just raises those prices even higher until the new affordability limit equilibrium is reached, because it’s still the same people competing with their money for the same limited housing stock.
This is why “help to buy” scheme was not such a good idea: while it did enable some people to move in, it ended up making homes even harder to afford for those who didn’t manage to “get in” during this round.
In other words, it’s a shortage of houses (and not the shortage of money in the people’s hands) that’s the problem.
After all, money it not wealth: it’s merely a voucher for good and services that are being produced by other people who work. The stuff we want has to exist before we can buy it from somebody with the money we’ve got. Money does not cause items we want to appear magically out of the thin air, or the services we want to just “get done”.
So if the main problem is not enough construction, then what are the obstacles to the new construction?
The biggest one (and the hardest to overcome) is the opposition of the current local residents to the new proposed developments.
The reason for this opposition? New construction brings no benefit to the existing residents, only cost and loss (reduces the appreciation potential of their homes, causes more traffic, loss of view, place to walk dogs, less tranquillity, etc.). Given this, why anybody in their right mind would NOT be opposed to the new construction near where they live?
This is where we also start getting into the “Localism dilemma” issues, where the wishes of the local population get overruled by the central government because “nimbyism is interfering too much with the national interests”.
The bottom line: no matter which way we look at it, it all comes down to the fact that under the current system, our ability to affect major improvements in any of these 3 cost of living components is more or less near its limit. That’s why a new way is needed.
Since the primary reason for the local opposition is the fact that the new construction rarely brings tangible benefits to the people already living in that area, then the only democratic and sustainable way of resolving it is to give the residents tangible reasons to want to permit new developments in their area. Under the current system that is not possible.
The solution: to institute a system where good local governance (including good resource management, as well as attracting new businesses and new tax-paying residents) would tangibly reward the local residents by making their local economies thrive and lowering the residents’ tax bill by thousands of £’s each year.
The incentive system of this kind is only possible if most of the individuals’ and businesses’ taxes are levied by the local (rather than central) government.
Countries with strong local governance (e.g. Switzerland) enjoy prosperous economies and low tax rates. UK, meanwhile, is one of the most centralized countries in Europe, making it poorer and less competitive.
Localism Act of 2011 was a step in the right direction, but it was not systemic and comprehensive enough. Previous Scottish and Welsh devolutions didn’t work too well for a similar reason. “Localism 2.0” will bring this process to its logical conclusion.
There is only one sustainable way out of this “local resistance” problem: we need to give the existing residents tangible reasons to want to allow new developments in their area.
Under the current system that is not possible, but there is a relatively simple solution that would make it possible.
Imagine the new reality, where good local governance (including good resource management, as well as attracting new businesses and new tax-paying residents) would tangibly reward the local residents by:
- Making their local economies thrive, and
- Lowering the residents’ tax bill by thousands of £’s each year!
This would be possible if most of the individuals’ and businesses’ taxes were levied by the local (rather than central) government.
In Switzerland, for example, a resident pays ~40% of their taxes to their “commune” (the town/parish equivalent), another ~40% to their canton (the county equivalent), and only about 20% of their taxes go to the federal government in Bern (most of it from 7.9% VAT and customs fees). The top marginal tax rate in most localities is in the mid-20% range (NOT the 45% + 20% VAT like in the UK!). Despite being natural-resource poor, Switzerland is one of the most prosperous countries in the world, and this high degree of localism is the main reason why. Germany is the 2nd most “localised” country in Europe, and by many measures it’s the 2nd most economically successful in Europe (after Switzerland).
Compare this to the current system in the UK, where 95% of taxes go straight to Westminster, some of them subsequently to be redistributed back to the localities, based on the “need” (which usually means that those, who are the least good and responsible at managing their affairs (hence are in the worst financial state), get more money because they “need” more). This encourages bad governance, raises the costs on everybody, and makes the whole country poorer and less competitive. How competitive in the international arena can a country really be when it’s burdened with taxes that often amount to well over 50% (once income, NI, VAT and a long list of other taxes are all added up)?
Even France, considered by many to be the embodiment of a centralized state, in some aspects is less centralized than UK: there only 87% of taxes go straight to Paris.
I have named this new proposed solution “Localism 2.0” – to differentiate from the “Localism Act of 2011”, which, while was a step in the right direction, did not bring the process to its logical conclusion because it was not systemic enough: while it did produce significant improvements in some aspects, it also ended up creating new problems, esp. exacerbating the conflict between the local will and the national interests.
The fuller Localism 2.0 definition is as follows:
Decisions should be made as close as possible to the people that affect them.
Therefore, shift as many as possible of the fiscal and regulatory powers from Westminster to the local councils (county and below), leaving to the central government only the functions that only it can perform (foreign policy, defence, border control, major disasters and local disturbances that are beyond the ability of the local authorities to deal with).
One of the main reasons why Scottish and Welsh devolutions didn’t work out too well was because they didn’t go granular enough: they basically replaced one big central government (presiding over 64 million people) with 1 almost as big + 2 partially devolved smaller big central governments (presiding over 55, 5.5 and 3.2 million people respectively), the latter two inheriting all of the problems of the centralized government model + made worse by the fact that the people, running these new entities, are even less experienced and less competent than the ones in London. They were given extra powers to spend, but no responsibility to raise the revenue. They also know that no matter how big of an economic mess they create, they can always count on being bailed out by the national government. This leaves them feeling free to play politics with no regard for the economic consequences. This is childish, and it’s time for our leaders to grow up. And with this new round of devolutions, it’s important to make sure we don’t make the same kinds of costly mistakes again.
Other Benefits of Localism 2.0
In addition to effectively tackling the unaffordable cost of living problem in the UK, Localism 2.0 brings a number of other significant benefits.
One of the major examples is the possibility of revitalizing the chronically economically depressed areas of the UK, e.g. the North of England – something that is not possible under the current centralized system.
- Greater government’s responsiveness and accountability,
- More direct democracy,
- Giving people more power and control to improve their lives and communities,
- Enhanced economic development,
- Improved UK’s competitiveness in the world,
- Greater social mobility via more opportunities and better education,
Localism 2.0 reform will also bring the political system into greater alignment and harmony with the British culture in all parts of the country, which is proven to be a strong determinant of the economic success.
The benefits of the “Localism 2.0” system don’t just end with making life more affordable for everybody: it also opens up exciting possibilities of revitalizing places like the North of England, hence potentially making the whole country economically successful, not just the South East: if the local councils in the North of England had the ability to attract businesses and inward investments by making themselves significantly more attractive tax- and regulation-wise, this could cause an economic renaissance of proportions not seen in this lifetime! Under the current system, they are not permitted to do that because most of the laws are national. Until this is changed, significant improvements in those areas are not possible, and whoever is sitting in power in Westminster, will continue to be blamed for the failure to achieve something that under the current system is not achievable.
Furthermore, during the process of my studying this problem, I became aware of an interesting phenomenon, which I call “the cultural fit”. In essence, it means that when the laws are in harmony with the local culture, that locality prospers, and when the laws are ill-fitting to the local culture, the area suffers and stagnates. This law is amazingly versatile, applying from the scale of individuals and all the way to the whole countries.
Let’s look at the Eurozone as an example: its laws, regulations and currency were designed by (and optimized to fit the culture of) the workaholic, manufacturing-focused Northern-European countries, esp. Germany, and indeed Germany is doing well inside of it. But let’s look at the PIGS countries of the Southern Europe, where the economies are much less focused on manufacturing, the productivity is lower, and the culture is more relaxed: they are in a serious decline, which started or accelerated when they joined the Euro. This “cultural dissonance” is one of the main reasons why.
The way things currently stand in the UK, most of the laws are passed in London (hence harmonized with the South-Eastern culture), but the whole of the UK are required to abide by them. It’s not surprising then, that the South East is “the economic engine” of the country, while the North is permanently depressed and needs to be supported by the taxpayers of the South East just to make the material existence of the Northerners “less uncomfortable”.
The proposed solutions then usually consist of the combination of sending more of the South East taxpayers’ money to the North, as well as looking for ways of expanding the size of the London commuter belt by making the commuting faster (e.g. via the proposed HS2), so that more people from farther away can get to London “where all the well-paying jobs are”.
As a result of all this, everybody loses: the North is permanently depressed, never reaching its full potential, while the South East is burdened with unnecessarily high taxes and unaffordably expensive housing, all of which inevitably and significantly affects the UK’s global competitiveness. That’s not the way human beings should live, especially in a highly-developed country, where we clearly have the means of getting out of it!
“In dealing with poverty here and around the world, welfare and foreign aid are a Band-Aid. Free enterprise is a cure” – Bono
Localism 2.0 is by far the most effective vehicle of addressing all 3 of the abovementioned factors affecting the cost of living (taxes, regulations and the real estate prices). But what I find even more encouraging is the fact that Localism 2.0 also appears to be the most effective answer to many other important issues:
- Greater government’s responsiveness and accountability,
- More direct democracy,
- Giving people more power and control to improve their lives and communities,
- Enhanced economic development,
- Improved UK’s competitiveness in the world,
- Greater social mobility via more opportunities and better education.
Despite what some people might (habitually) believe, a highly centralized state is not the long-standing British tradition, but rather a quite recent political development, spearheaded in the late 1920’s by none other than Neville Chamberlain (yes, that same “fountain of common sense and sound judgment” Neville Chamberlain!). Therefore, the transition to Localism 2.0 is actually a return to the best parts of the culture and traditions of this country, to the proud democratic values going back all the way to the days of Magna Carta.
To put it another way, Localism 2.0 will be a more genuine, more faithful embodiment of the community-oriented British culture than the current “distant central authority-focused” centralized state that entrenched itself less than 90 years ago. Some might argue that maybe in some ways it did make sense to have it back then, but the world has moved on a great deal since then, and the reason why so many countries are continuing to move towards greater centralization has much more to do with the personal ambitions of a relatively small handful of bureaucrats than with the common good of the people who are being forced to live under this system.
From the “cultural fit” perspective, Localism 2.0 reform will be bringing the political system into greater alignment and harmony with the British culture(s) in all parts of the country, with all of its accompanying benefits for everybody to enjoy.
The Way Forward
Localism 2.0 is a vision and a message with broad appeal that resonates strongly with the majority of the UK’s population because it appeals to peoples’ aspirations at a level that goes beyond the party affiliation. For this reason, it has the potential to become a decisive factor in the future British general elections by making a portion of the population excited about participating in politics for the first time in their lives (the way it happened in the Scottish referendum).
If we want this to happen, the time to act is now.
When I talk to people, it quickly becomes abundantly obvious that everybody instinctively feels that Localism is the right way to go. What this plan does is to make the whole plan more specific and actionable, as well as resolve some of the teething problems and dilemmas we are currently experiencing when it comes to the localism-related issues.
In addition to the above benefits, Localism 2.0 is also bound to transform the whole “party politics” situation that so many people are fed up with: the truth is – everybody agrees that everyone deserves to have a decent lifestyle. That’s the common ground. The “splitting into the political parties” occurs at a more superficial level, because different people have:
- Varying definitions for things like “fairness”, “equality”, “help” etc., and
- Varying ideas of HOW those can be achieved (i.e. what sort of plan would get us there).
Localism 2.0 is the kind of message that appeals to that common ground and speaks to the peoples’ sensibilities almost universally. It gives a more credible vision of a more prosperous and fulfilling life, compared to what the centralised welfare state could offer, under which:
- If you are an achiever, you get punished by confiscatory taxes,
- If you are poor, you’ll be kept alive “by the government” the way farm animals are kept by a farmer. That’s demeaning. When you think about it, the implied message is quite insulting to the people they claim to protect and represent: “you are worthless tossers who can’t survive without our (i.e. welfare state’s) help”. There is a term for that: “the soft bigotry of low expectations”, and no moral person should be willing to accept it!
Based on the above ideas (and a few others), I’ve composed a “Localism 2.0” pitch, which so far I’ve market-tested on around 300 people of varying political persuasions (including apoliticals). The reaction I’ve received to date has been overwhelmingly positive, ranging from the hungry excitement at the high end to “I agree it’s a good idea, but the people in power won’t let us have it” at the low end. So far, by the time I was done with the pitch and answering one or two optional follow-up questions, I’ve managed to have not a single person remaining of the opinion “It’s a bad idea. I don’t want it”.
In fact, on most occasions, this didn’t even feel at all like “selling”; it felt more like “impatient customers grabbing merchandise out of my hands”. Quite a few people have begged me not to stop promoting Localism 2.0.
And the “politically apathetic younger people” quite often were the ones getting excited the most! This is during the times when political party membership is tumbling because the members are dying off from old age and younger people don’t see much of a point in joining (or voting) because they don’t see how that investment of their time and energy could possibly make a difference in their lives. Feeling that, what you do will make a difference, is a powerful motivating factor.
We don’t have to go far to find an example of what happens when people get energised when they believe that their destiny is in their hands, and what they do is going to make a big difference: more than 85% of the Scottish population voted in the Scottish referendum. People, who were usually disengaged from politics, had turned out in record numbers.
The UK parliamentary elections voter turnout has ranged around 60-65% during the last four general elections. Imagine the difference it would make if the general elections’ turnout were more like Scotland’s!
All of this means – a credibly structured and presented Localism message is going to resonate strongly with the majority of the UK’s population because it appeals to peoples’ aspirations at a level that goes beyond the party affiliation: nobody wants to have a depressed economy, and who could possibly object to a more democratic government that is less wasteful and more responsive to the population’s needs?
This is one of those rare occasions in politics where a message can gather a virtually universal support. Specifically:
- For the Conservative supporters, it shows a viable way towards greater personal empowerment, greater economic prosperity, less repressive taxes and regulations via a more accountable and more responsive governance system.
- For the Labour supporters, it shows a way of significantly reducing the poverty problem in a sustainable manner while honouring their fears of “being given to the free market’s wolves if the government were to get too small”. Not even Labour supporters want a big inefficient government – they choose it only because they believe that the alternative is even scarier. A more accountable and more responsive government is something everybody wants.
- For the “apoliticals”, it gives them new reasons to get involved, because now it will matter what they do, which will empower them.
Given the positive and often enthusiastic response I have received so far, this has the potential of becoming one of the biggest developments in the British politics in decades and to become the decisive factor in the future elections, creating an unprecedented renewed excitement in the country.
Then it gets even better: while this message has a virtually universal appeal, and the whole country will benefit from its implementation, it will be the democratic, entrepreneurial free market ideology that will benefit from its success the most: under a much greater local rule, the electoral focus will shift away from the national party politics (with its accompanying grand-standing, rhetoric and demagogy) and towards the effective local results. This means that the importance of political parties (with their corresponding branding issues (where people vote for the party label rather than the ideas behind it)) will become less central, and the local elected leaders’ ability to produce tangible results will become much more important. Good ideas will be adapted more readily, and the bad, damaging ideas will be pushed out quicker. And as we all know, the democratic free market solutions work much better than the centralized command economy.
Let’s do what’s right! The Localism Act 2011 has already unleashed a torrent of local innovations, but what’s been achieved so far is just a tiny fraction of what’s possible under the genuine local rule! Imagine hundreds of laboratories of democratic innovation coming up with unique solutions and then sharing the best ideas with each other, for the benefit of all!
The future can be very exciting if we make a decision to make it so.
The Next Step
Following what I consider a very successful stage of beta-testing of the message, the next logical step is scaling up the distribution of the message by creating a series of videos, a website and a social media campaign.
The longer-term, bigger picture
Localism 2.0 is not an end to itself, but rather the first step, a framework within which a lot of new and exciting things will become possible: if life-improving ideas are the metaphorical seeds, then Localism 2.0 is the metaphorical soil where those seeds will be planted.
There are many good ideas floating around that are not being adopted. The price we all pay – the life for most people is not improving (or not improving fast enough). This would be understandable if nothing could be done about it, but that is not so: we have the means; what’s missing is the will (and the awareness).
This is where the bigger part of the picture – the Terraform Project – comes in.
If you are intrigued to find out more, I invite you to read the Terraform Manifesto.