The last few years has seen growing interest in what has been termed the ‘foundational economy’ and its potential value for achieving economic security and social sustainability. Accounting for around 44% of UK employment, it has been argued that supporting this section of the economy could ultimately improve productivity. And the current pandemic has placed even more emphasis on the importance of the foundational economy – the part of the economy that cannot be shut down.
What is the foundational economy?
The foundational economy provides universal basic services built from the activities which provide the essential goods and services for everyday life, regardless of the social status of consumers. Primarily delivered locally, these goods and services encompass infrastructures, utilities, food, retailing and distribution, education, health and welfare. Because of this, it is thought to have considerable potential to regenerate the areas where the local economy is relatively weak – perhaps the perfect solution for the levelling up agenda?
The initial manifesto for the foundational economy from researchers at the University of Manchester resulted from dissatisfaction with generic industrial and regional policy focused on promoting competition and markets; with success measured in terms of job creation and GDP growth. According to the manifesto, the foundational economy is “the mundane production of everyday necessities” which is taken for granted by all members of the population. As such, it is often also referred to as the ‘sheltered’ or ‘invisible’ economy.
Scale and value
In providing the infrastructure for everyday life, the foundational economy is also very large. It has been noted that in all European countries, it directly employs around 40% of the workforce. In the UK, around 44% of the workforce is employed in foundational activities. In Germany, it is 41% and Italy it is 37%. The value of foundational output and volume and diversity of foundational employment is therefore much larger than in high-tech and tradeable services, with which policymakers are determinedly focused on.
Other measures of value have also been highlighted, such as household expenditure. The initial manifesto notes the importance of weekly spend on the foundational economy with nearly 30% of all household expenditure going on foundational activities.
Despite providing vital services, and employing a significant portion of the UK population, the foundational economy is marked by low-tech, low-wage, part time and often precarious employment and is potentially at risk from automation, despite the significant ‘human’ element to many of the different job roles which make up this part of the economy. Within society a lot of foundational jobs are still considered by many (often who don’t work in the sector) to be “jobs you move on from” where in reality, for many people, particularly women and migrant workers, this isn’t the case.
But where would we be without these roles providing for all citizens’ basic needs? Job creation and GDP growth may suggest a successful economy but this, it is argued, does not show the wellbeing of all society or sustainability. In the face of current, and indeed future, crises, it seems perceptions may be starting to change as more and more people become concerned with health and wellbeing and the environment. Indeed, it has long been argued that necessity is only recognised in times of crises.
Has Covid-19 shone a vital light on the foundational economy?
While many sectors were shut down due to the coronavirus pandemic, the foundational economy remained open as it was considered systemically important for meeting basic needs. The pandemic has highlighted that this part of the economy is needed at all times, including at times of crisis.
Healthcare staff have become frontline heroes and food delivery drivers are recognised as key workers. But this enhanced status has also highlighted the poor pay and conditions of many key workers delivering these essential goods and services and the inherent inequality that exists in society.
Just like other crises, from natural disasters to large scale economic shocks, these bear most heavily on the poor and vulnerable. The pandemic has shown that these inequalities must be addressed so that basic everyday services are more equally available.
The pandemic has also shown that economies are about more than market economies. It has been argued that there needs to be a move towards meeting a population’s basic needs rather than on individual consumption.
Advocates of the foundational economy argue that public policy should focus on securing the supply of basic goods and services for all citizens in a socially responsible way.
- better health and care
- housing and energy
- food supply
- social licensing
- tax reform
- disintermediation of investment from pension funds and insurance companies
- shorter supply chains in foundational commodities
- citizen engagement
- better technical and administrative capacity at all levels of government
- international constructive responsibility
It has been widely agreed that a return to business-as-usual approach following the pandemic is not the way forward and that there needs to be a shift in economic policies in order to achieve a more socially and economically just society. Perhaps if such policy change is achieved, a more balanced economy that provides a good quality of life for all can eventually be realised.
If you enjoyed this, you may also be interested on some of our previous posts:
- The case for universal basic services
- How well is your economy? Moving beyond GDP as an indicator of success
- The year of living differently: reviewing The Knowledge Exchange blog in 2020
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