Wednesday 13 July 2011

The Emilia-Romagna Model

Joe Sarler writes:

In the last few months I've written about some key economic issues faced by regions up and down the UK.

There is a need for local enterprise within communities, the UK needs to shift its economic focus, young entrepreneurs should not be dismissed, ignoring local procurement is a false economy, and more local power can yield greater benefits.

These articles set the agenda and highlight the theory behind these new ideas. But now is the time for detail. If we truly want to rebalance the economy, and take the opportunity to reshape how the economy operates, we have to be radical.

Some of the lessons the UK should learn can be told by comparing two stories: those of the East Midlands and the Emilia-Romagna region of Italy.

Italy; UK
Emilia-Romagna; East Midlands
Population of region 4,377,435; 4,413,206
Population of country 60,340,328; 61,191,951
Proportion of population in the region % 7.3; 7.2
Proportion of country's GDP from region % 9; 6
National GDP per capita (€) 26,200; 29,600
Regional GDP per capita (€) 32,200; 25,800
Proportion of country’s patents from region % 15.1; 7.4
Unemployment in region % 4.8; 6.4
Number of co-ops 8000; 261
Population in a co-op % 57; 23

There are 8000 co-operatives in the Emilia-Romagna region, with over half of the regional population taking part in one in some capacity. This structure has contributed to a GDP per capita level higher than that of the UK average, with an enviable unemployment rate of 4.8%.

Whilst the Emilia-Romagna region has 7% of Italy’s population, it produces 9% of the GDP. Contrast this to the East Midlands, which has 7% of the UK population but contributes 6% of GDP.

And it is innovative too: the Emilia-Romagna region contributes 15% of Italy’s patents (in 2009) whilst the East Midlands contributes 7% of ours.

What has made this region a success?

After fascism’s defeat in 1945, co-operatives grew out of three national movements. The political left was represented by the Lega; the Catholic centre-right by ‘Confco-op’ and; the centre-left by the 'Associazione'. Whilst in their formation there was a political and religious influence, those differences have narrowed and cross co-operation increased.

Concurrently, the number of small-medium enterprises in the area increased as business clusters were created, promoting the sharing of information, research, technology and skills.

In order to formalise the role and importance of co-operatives, article 45 of the Italian Constitution states:

“The Republic recognises the social function of co-operation characterised by mutual aid and not private profit. The law promotes and favours the growth of these structures using the most appropriate means and guarantees that their character and purpose will be inspected accordingly.”

Co-operatives are encouraged by preferential tax rates (saving 40%) to encourage self-capitalisation, which has led to the idea of an ‘indivisible resource’ – a resource which exists to the benefit of future employees and members, thanks to the firm’s sustainability.

More recently, the law has been amended to require co-operatives to contribute 3% of profits in order to fund future projects of the same kind, which the regional co-operatives control.

This has allowed co-operatives to innovate and grow, increasing their ability to adapt to market conditions whilst maintaining an empowered and reliable workforce.

Reciprocity is clearly at the heart of these businesses.

Reciprocity between employee and employer. Between the firm and its region. In the collaboration of businesses in projects or in tenders for contracts. And in the trust and social understanding between members.

These structures are only possible if the local authority can wield a significant amount of power. The Emilia-Romagna region has a strong government and so is able to endorse the right SMEs, with their local knowledge and understanding of the region’s resources.

What can we learn?

It is clear that the region of Emilia-Romagna can offer important ideas as to how we can reshape our economy.

Promotion of SMEs, backed by regional funding streams (who have the knowledge and experience to assess risk) is absolutely key.

Incorporating co-operatives will increase worker representation and decrease inequality. Fostering the longevity of social capital which builds trust and co-operation will ensure these firms continue to grow and be at the heart of the local community.

Whilst GDP per capita may not be the best measure of society’s success, a strong and distinct co-operative structure can improve this figure whilst simultaneously enhancing more qualitative measures.

Blue Labour has relationships, trust and reciprocity at its core. This requires support from central government, but also a philosophy of localism and self-capitalisation, which brings the knowledge and expertise of local decision-makers to the fore.

Most importantly, blue Labour should lead the change in thinking on our regional economies. We need an alternative to the status quo, and international experience shows us that co-operatives are the way forward.

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