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A shocking state of affairs

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Economic shocks and recession have seen central government taking a lead via Keynesian inspired remedies.

Neil McInroy has returned from a global study into securing local economic resilience about what we can learn in the UK. He visited Poland, Portland, USA; Culiacan, Mexico; Coimbatore, India; Haiphong, Vietnam and Yokkaichi, Japan.

Shocks as this need decisive action and we have seen policy remedies as regards improving liquidity, intervening into markets and having stakes, including controlling stakes, in banks.

We have also seen a focus on the effects of the downturn with efforts to ease the pain of unemployment and more strategically a long term vision via the New Opportunities white paper .

However, is this enough? Will it help in dealing with the most longstanding shocking situation of all? - that is inequality and high levels of poverty in the UK. This is not just a problem which we should park, for when the economy hopefully starts to normalise.

As Professor Joseph Stiglitz , a nobel laureate and former chief economist at the world bank highlighted on the BBC Today programme, tackling inequality is part of the solution and that unless we do something about this inequality, both globally and in the UK, then it may be difficult to restore the kind of prosperity we would like.

Excluded

The problem we have in terms of the credit crunch and lack of confidence in the markets, is intrinsically bound up with significant number of localities having low levels of disposable income, worklessness, unemployment, financial deserts where people and communities who are excluded from credit and banks.

The credit markets, and credit institutions need to feel secure and start directly lending to them again. Job loss, and subsequent drop in spending power, is not going to make these institutions feel any better.

It will be probably shocking for many banks and financial institutions, but these institutions need the poor, the low waged, the debt ridden, those on fixed incomes, more than any other time.

Stiglitz highlighting trickle up - the notion that the poor are more likely to spend and that money flows from the poor to the wealthy - stated that ‘the people who would spend do not have it’. Our economy needs the poor to be not poor and start earning and spending.

Shocking

This relationship and odd symbiosis means that from this present shocking of affairs, we have an irrefutable economic rationale for dealing with this shocking situation as regards poverty.

The poor need well-paid work, inclusive banking policy and the financial institutions need new markets and a return of confidence.

This is not about a return to a shocking practice of sub-prime and a chimeric economy. This is about a return to local branches and banks having relationship with the communities they serve.

It is about the central and local state, and the banks they have controlling stakes in, having policy which recognises that small scale credit is a public good.

Stimulus

It is also about support for and stimulus to the third sector and jobs. We need job creation investment in council housing and the growth sectors of alternative energy, infrastructure and rail electrification.

The economy is about communities, people and their lives - as such financial institutions and our global economy, are never going to recover unless it starts paying attention to their needs and serving them more.

Poverty should always be front page economic news and be recognised as a shocking economic state of affairs, and as worrying as a drop in the FT index.

Neil McInroy is Chief Executive of the Centre for Local Economic Strategies

Neil is chairing Economic Development in a Recession on 26 February 2009. Speakers include Local Government Association chair Margaret Eaton CBE and Pat McFadden MP, Department for Business, Enterprise and Regulatory Reform.

PRESS RELEASE

Earlier blogs:

Local matters

Thinking about production

Ordered state of local economics

India's pulsing economy

Recovery for the economy

Forging an economy to work for all

A place for business

Forget the economy...it's the place, stupid

Back at base - reflecting

Search for a holy grail

Praising Poland's pithy pragmatism

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