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Making communities work

TASC’s Tom McDonnell explains why investing in communities benefits not only society but is the surest route to long-term sustainable economic development.

Major cuts to community development initiatives are planned for both parts of the island. The new ConDem coalition government in Westminster is signalling cuts to communities on a scale not even imagined by Thatcher in the 1980s. In Dublin, it is anticipated that community development budgets will be cut by between 12 and 20 per cent. This scale of cuts will exact an immense social cost and will undermine the vital social capital that has been gradually built up by community development programmes.

The provision of public services by community organisations represents excellent value for money; they are provided with minimal overheads; and, crucially, they are flexible and respond to the needs of their communities – which is something that the state is often unable to do.

Research by Brian Harvey has concluded that the cumulative effects of cuts of 5 percent to 25 percent to the community sector in Ireland would be a loss of between 2,124 and 10,260 jobs. The result will be fewer training courses and services for job-seekers, fewer recreational facilities and meeting places, fewer youth services, and reduced availability of childcare.

It has been shown in numerous international studies that cutbacks affecting disadvantaged areas and low income earners will be more damaging to the economy than cuts or tax increases targeting high earners. This is because low income households tend to spend a very high proportion of their income, whereas higher earners are more likely to spend on imports or to save.

Those on lower incomes also tend to spend almost all their income locally, which helps local businesses and protects local jobs. A related effect is that public spending in disadvantaged areas is more likely to recycle back to the Exchequer in the form of higher VAT and excise receipts.

If we cannot kick-start consumer spending we face years of stagnation. If spending continues to dry up, more businesses will go to the wall and the vicious cycle of decline will persist. As people become increasingly fearful of losing their jobs, they will curtail their spending even further, leading to further business collapses, and so the cycle continues. Thus, Government should seek to avoid cuts that will hurt low income earners.

Governments do have choices. To give just one example, we continue to effectively ‘spend’ billions in tax breaks each year.

Many of these tax breaks, particularly in the areas of pensions and property, disproportionately benefit the wealthiest in society. The Commission on Taxation recommended the abolition of a swathe of these tax breaks on both equity and economic efficiency grounds. So far most of these recommendations have not been implemented.

University College Dublin Economics Professor Karl Whelan recently referred jokingly to an ‘omerta’ or ‘code of silence’ regarding the low levels of taxation in the Republic. The European Commissioner for Economic and Monetary Affairs, Olli Rehn, cast aside this silence when he declared that Ireland would have to become a ‘normal’ European economy when it came to taxation.

To put this into context, Eurostat figures for 2008 show that raising our tax take (including social security contributions) to the European Union average would have equated to 18 billion euro in additional revenue. At the same time, the public expenditure rate was below the European Union average. How we tax and spend is a political choice.

Should we be imposing cuts on communities when the major problems in the public finances stem from chronic under-taxation?

Even if we do accept the need for savings in public expenditure, it is unclear why community development programmes would be an appropriate candidate for cuts. There seems to be a tendency to regard community development as a luxury rather than a necessity – an act of charity by the state, to be indulged in when times are good. But such a tendency reveals a fundamental lack of understanding about how economies develop. The problem is perhaps one of perception.

Even if we do accept the need for savings in public expenditure, it is unclear why community develop- ment programmes would be an appropriate candidate for cuts. There seems to be a tendency to regard community development as a luxury rather than a necessity – an act of charity by the state, to be indulged in when times are good. But such a tendency reveals a fundamental lack of understanding about how economies develop. The problem is perhaps one of perception.

Roads add to the country’s physical capital, while education facilitates the development of human capital. In other words these types of spending are justified, in part, because they are investments in the future strength of the economy.

But community development programmes should also be seen as in- vestment spending, because one of the purposes of this type of spending is to help increase the long-term productive capacity of the economy.

Ultimately, economic development results from the exploitation of new ideas.

Indeed, seminal research by Robert Solow and other Nobel Prize- winning economists has shown that up to 90 per cent of all economic growth comes from the discovery and use of new ideas.

Reducing the costs of knowledge generation, and removing barriers to knowledge access, are the keys to economic development.

This does not mean that new growth comes from the invention of ultra high-tech gadgets. Rather, it means that such growth results from combining two existing ideas, or putting an existing idea in a new context. The level of social capital in the individual community and the wider economy is an important factor in this process.

The environment we live in constantly influences our exposure to new ideas, and indeed influences our propensity and receptiveness to learning and doing new things.

Community development spending is best understood as an in- vestment in this social capital. By nurturing this social capital, we create educational and economic opportunities while reinforcing civic pride and fostering community engagement.

Community development programmes often act as the glue holding communities together by providing employment and services to job-seekers, literacy courses and other education services – not to mention social care and recreational opportunities for the young.

To put it another way, cutting spending on disadvantaged communities will reduce the level of social and human capital in such communities and will have a profoundly damaging effect on the ability of people within those communities to break the cycle of disadvantage.

Cutting spending on communities is a false economy. In the short- term, it will damage consumer demand, hurt growth potential, and begin a process of disengaging households from their communities and from society as a whole.

In the medium-to-long term, it will erode social capital and make it much more difficult for people from disadvantaged backgrounds to exploit their own potential.

This would not only be a tragedy for the individual and for the community; it would also represent an economic loss to the wider society.

This article first appeared in LookLeft magazine Nov/Dec 2010

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