Foundational economy and foundational politics

Any consensus on what is required by way of placebased policies is fragile and time limited. In broad historical perspective, what we have is a continuing debate about what we see in the economy, and positions taken in that debate connect with how we see the political and institutional challenges and possibilities. In every period there will be radicals pressing new problem definitions and conservatives defending existing concepts and measures.


Introduction
Any consensus on what is required by way of placebased policies is fragile and time limited.In broad historical perspective, what we have is a continuing debate about what we see in the economy, and positions taken in that debate connect with how we see the political and institutional challenges and possibilities.In every period there will be radicals pressing new problem definitions and conservatives defending existing concepts and measures.
The current generation of mainstream academic economists and technocrats are mainly in defensive mode.They are intellectually invested in generic regional recipes like better transport and training, and industrial strategies for building competitive industries of the future, with growth (of national gross domestic product (GDP) or regional gross value added (GVA)) and job creation as success indicators.
Amongst the radical critics is a collective of European academics whose new book, Foundational Economy (Foundational Economy Collective, 2018) argues for recognising the heterogeneity of economic activity and the importance of basic services for citizens in a new civic politics of place.As noted in this article, the position is partly about recovery and restatement of what was taken for granted by an earlier generation of English economists and social theorists like Keynes and Beveridge.This paper which makes these points is organised into three sections.
The first section explains what the foundational economy is and why it matters; the second section considers the problems of implementing foundational politics.The first two sections contain some illustrative Welsh material, while the third and final section considers how Welsh Government has begun to use foundational economy language in policy documents such as the 2017 Economic Action Plan, and whether this has the potential to bring real change in policy directions.

What is the foundational economy and why does it matter?
For the past thirty years or more, economic policy has privileged individual consumption, partly through the preoccupation with (growth of) GDP which is of course more than 60% consumption in the UK case; the bias is reinforced by the focus on jobs and job creation as a way of distributing market income.The inherent limits of GDP as a measure of economic welfare are rehearsed in all the standard histories of the concept (Coyle, 2014;Fioramonti, 2013).These difficulties are compounded when increases in national GDP (or regional GVA) per capita are socially divisive, because they are unequally distributed between working households, As Figure 1 shows, over the past 50 years the top 20% of working households claim nearly half the nominal income growth, while the bottom 20% claim a negligible share.This paper suggests a change of lens, and argues for a new focus on the social wellbeing of citizens, which in the developmental frame of Sen (1999), is a matter of capabilities which maintain or expand opportunity and freedom for individuals to make meaningful life choices.In our view wellbeing depends on collective consumption of essential goods and services.These are distributed to all households via networks and branches which are the infrastructure of everyday life.Providential services include health services and care, universal primary and secondary schooling; while a material infrastructure of pipes and cables connect every house.Altogether, these systems make everyday life possible, safe and civilised.
In the late 19th century, clean water and sewerage had added 25 years to life expectancy in large cities; and social insurance was the major socio-technic innovation of the first half of the twentieth century.In the period 1920-1950, the importance of foundational infrastructure was selfevident for economists, social theorists and social democratic politicians.Tawney (1931, pp. 134-5) praised piped water and sanitation as 'collective provision for needs which no ordinary individual, even if he works overtime all his life, can provide himself'.Aneurin Bevan (1952, p.73) valued 'social codes that have the collective wellbeing for their aim' and contrasted a civic health service for all citizens with systems under which the 'small well to do classes' looked after their own needs'.
By the late 1950s, Galbraith (1958, p. 187) warned about a problem of 'social balance'.In the United States, individual incomes were rising while public transport decayed and air pollution increased so that 'the discussion of this public poverty was matched by the stories of ever increasing private opulence'.However, for the past fifty years the UK and other high income countries, have been feeding this imbalance.Foundational networks and branches require maintenance and new investment which is not provided automatically out of rising individual incomes.Problems about access to basic services can recur at shows, in Wales providential services account for 33% of employment and material infrastructure for another 15%, and these shares will vary across Wales.Most of this employment is sheltered with wages and conditions not determined by international competition; although supply chains, as with food and energy, often extend nationally and internationally.
The foundational provision of essentials is crucial to wellbeing on the demand side; and, large enough by any metric on the supply side.However, it is only part of a larger whole and one of the crucial intellectual questions is how we think of that larger economy.In mainstream economics, the larger whole is a singular 'economy' whose elements can be added together as in calculations of GDP and are classically underpinned by one supposed law of value.In foundational thinking, the larger whole is reconceptualised as a complex totality which, in Figure 3

This conceptualisation has two implications:
 When policy makers talk about the economy, they almost always talk about just part of the economy because they are concerned with the part that is competitive and tradeable.Consequently, their industrial or regional policy will be narrowly focused on building high tech industries of the future and attracting inward investment.We are practically concerned with what is in the rest of the economy, which, as Figure 2 shows, accounts for at least two thirds of employment in Wales; and should be intellectually concerned not to repeat the old policy mistake of confusing the part for the whole.services provided by decently paid workers.

Foundational politics and how to do it
The established paradigm of economic policy for national and regional policy starts from a narrow concept of how to make the economy work (so as to generate growth and jobs) through a generic recipe: any/every region can boost growth by adding 'economic infrastructure' (narrowly defined as transport improvements) plus training and skills which will together make the labour market work better.This can be backed nationally by industrial policy which, in the Department of Business, Energy and Industrial Strategy (2017) white paper, 'industrial strategy' is about supporting early stage innovation in industries of the future.For a laggard region like Wales, regional policy is all of the above plus an attempt to attract mobile investment to large projects.
In this frame, economic policy is top-down because economic policy is something done by political and technical elites to, and for, ordinary citizens.The model is that political elites should choose from a menu of policy options which is decided and costed by experts who know what to do.Thus, transport improvement and training usually involve negotiation with business interests and competition for limited funding but little engagement with citizens, except where there are objectors who need to be conciliated or more usually talked out.Economic and social policy operate in different silos.The social problem of poverty and deprivation is to be tackled using different policies, as with the Welsh Government's Communities First programme, sponsored by a separate group of ministers and experts.
On this basis, the standard political offer is 'vote for us and we will make the economy work for you'.And the immediate problem is that national economic policy rests on a misunderstanding about growth drivers; and regional economic policy does not by its own criteria deliver relative improvement.Since the 1980s, the UK economy is not productively driven but consumption and debt led by a system of 'privatized Keynesianism' (Crouch, 2009) In historical perspective, the foundational economy (public or privately owned) had historically been low risk, steady return with long time horizons and expectations of a 5% return on capital.Privatization in the 1980s, and outsourcing in the 1990s then brought in stock market quoted corporates, private equity houses and fund investors with market-driven requirements for a return of more than 10%, and financialised business models developed in high risk, high return, short time horizon activities.
As we have explained elsewhere (Bowman et al., 2015) Delivery Plan promises 'the number of jobs in the foundational economy will be increased' without justifying the objective or explaining how this is to be achieved.
The Welsh Government has borrowed the new foundational language but it is not clear whether it can move from talking foundational economy in an often confused way to doing foundational economy in a new and radical way.And the fundamental issues at stake here are not about economic policy objectives and policy levers.The question is whether Welsh Government can take an active role in sponsoring a new municipal politics which is prerequisite if the foundational project is to gain form and substance.

Figure 1 :
Figure 1: UK non-retired household share of (nominal) income growth

•Figure 3 :
Figure 3: Interdependent economic activities as characterised by foundational economy principles.

Foundational Economy employment, Wales and Swansea Bay City Region.
Source: UK Business Register and Employment Survey, ONS.