What KasiNomics Reveals About Localism and the Shrinking Economy

An Economy Growing Beneath the Surface

While economists, governments and financial institutions concentrate upon GDP, employment figures, investment and economic growth, another kind of economy is developing beneath the surface.

In South Africa, it is already enormous.

In his book KasiNomics Unleashed, GG Alcock describes a world of small traders, household businesses, food producers, repairers, transport operators and countless other enterprises operating outside much of the conventional corporate economy.

These businesses are not generally the products of government economic development programmes. They have emerged because people need to earn a living, obtain essential goods and provide services which conventional businesses often fail to supply.

What makes Alcock’s account particularly interesting is that it describes an economy developing from the bottom upwards.

This is remarkably close to the process which will become increasingly important as the British economy begins to shrink.

There is, however, a fundamental difference. Alcock sees the informal economy as an enormous opportunity for growth. I see similar developments as a likely consequence of the end of sustained economic growth.

The same economic behaviour may therefore arise for quite different reasons.

The Failure of Conventional Employment

For generations, economic development has been associated with the movement of people into formal employment.

People left the land, abandoned household production and entered factories, offices, shops and large organisations. Their livelihoods became increasingly dependent upon employers, wages and the wider monetary economy.

The process was made possible by abundant energy, industrialisation, mechanisation and increasingly complex systems of production and distribution.

It also created enormous dependence.

Most households in Britain today produce very little of what they consume. Food, clothing, heating, transport and almost every other necessity depend upon an elaborate network of businesses, infrastructure and public services.

Employment provides the money required to purchase these essentials.

But what happens when conventional employment becomes less available?

South Africa offers one possible answer.

People do not necessarily remain economically inactive. They find other ways of earning money, producing goods and exchanging services.

A person may repair machinery, prepare food, sell vegetables, transport goods or undertake building work without becoming an employee of a conventional business.

Some activities are registered and taxed. Others are informal or only partially recorded.

The distinction between employment and economic activity becomes increasingly important.

An economy can contain a great deal of useful work which is not adequately represented by conventional measures of employment and business activity.

What the South African Experience Reveals

Alcock describes an extraordinary variety of small enterprises.

Many require little capital. They operate from homes, backyards, roadside premises or small workshops. They serve customers who live nearby and whose requirements they understand.

Their strength lies in simplicity, flexibility and their ability to respond directly to demand.

They do not necessarily require expensive offices, elaborate management structures or extensive advertising.

Personal relationships and local knowledge are often more important.

This does not mean that such businesses are prosperous. Many provide only modest incomes and little financial security.

Nevertheless, they demonstrate something important.

Economic activity does not have to be organised through large corporations and conventional employment.

People can organise production and exchange for themselves.

That is one of the essential principles of Localism.

The Shrinking Economy Changes Everything

My argument is that the modern growth economy is approaching fundamental constraints.

Industrial civilisation developed through access to increasingly abundant and relatively inexpensive energy.

Coal, oil and natural gas made possible mechanised agriculture, mass production, motor transport, aviation, modern communications and the enormous infrastructure upon which society now depends.

But obtaining usable energy requires energy.

As the energy cost of obtaining energy rises, the surplus available to support the rest of the economy comes under pressure.

This is the importance of the Energy Cost of Energy, or ECoE.

The relationship is not simple. Technology, renewable energy, resource quality and investment all influence the outcome. Nevertheless, an economy cannot indefinitely increase its complexity without sufficient surplus energy to sustain it.

My expectation is that increasing energy and infrastructure costs, combined with debt and other resource constraints, will make sustained economic growth progressively more difficult.

The first effects will be experienced in discretionary activities.

Households struggling to afford food, energy, housing and essential services will reduce spending upon holidays, entertainment, restaurants, luxury goods and other non-essential purchases.

Businesses serving these markets will contract.

Employment opportunities will decline.

Governments will find it increasingly difficult to maintain public services and infrastructure at their present scale.

The result will not necessarily be a sudden collapse. It may be a long, uneven process of economic contraction, interrupted by temporary recoveries.

Within this process, people will have to find different ways of supporting themselves.

And this is where the South African experience becomes particularly interesting.

Localism Will Not Need to Be Invented

There is a tendency to imagine that a new economic system must be designed, legislated for and introduced by government.

I believe this misunderstands how Localism is likely to emerge.

It will develop because people find it necessary.

A redundant office worker may begin repairing household equipment.

A family with suitable land may grow vegetables for sale or exchange.

A former delivery driver may establish a small local distribution service.

A household may produce bread, preserves, clothing or furniture for neighbours.

Someone with practical skills may exchange labour for food, fuel or assistance.

Initially, these activities may supplement conventional employment.

As economic contraction continues, they could become increasingly important sources of livelihood.

There need be no grand plan.

People will respond to circumstances, using whatever resources, skills and opportunities are available to them.

That is precisely the kind of spontaneous economic organisation which Alcock describes.

Localism, in this sense, is not an ideology which must be imposed upon society.

It is a possible outcome of people adapting to changing economic conditions.

But There Is an Important Difference

South Africa’s informal economy still depends heavily upon the wider industrial economy.

A small shop may sell goods manufactured hundreds or thousands of miles away.

A local delivery business may depend upon imported vehicles, diesel, replacement parts and telecommunications.

A food trader may depend upon industrial agriculture, refrigeration and national wholesale distribution.

The enterprise is local, but much of its economic foundation is not.

This distinction becomes crucial in a shrinking economy.

If energy and transport become progressively more expensive, many existing informal businesses will face the same pressures as conventional enterprises.

Simply replacing a supermarket with a small shop does not eliminate dependence upon distant suppliers.

A more fundamental change will be necessary.

Production itself will have to become increasingly local wherever this is practical.

Food production, repair, maintenance, basic manufacturing, building materials and some forms of energy supply may need to be organised much closer to the people who use them.

The future local economy may therefore resemble the South African informal economy in its organisation, but differ considerably in the methods and resources it employs.

It may be less dependent upon manufactured goods arriving from distant factories.

It may use more human labour and less machinery.

It may make greater use of wood, water, locally available materials and equipment capable of being repaired rather than replaced.

Above all, it will have to concentrate upon essentials.

The Return of the Household Economy

One of the most important consequences may be a change in the economic role of the household.

Before industrialisation, many households were places of production as well as consumption.

Food was grown, preserved and prepared. Clothing was made and repaired. Tools and household equipment were maintained. Small workshops operated alongside domestic accommodation.

Industrialisation progressively separated employment from the home.

The household became principally a place where wages were spent rather than goods were produced.

Localism could reverse part of this process.

Homes, gardens, outbuildings and small plots of land may become economically productive once again.

This will not be possible for everyone. Many households lack land, suitable premises, equipment or the physical ability to undertake such work.

Consequently, the local economy will also need shared facilities, small workshops, communal growing areas and arrangements through which people can contribute according to their abilities.

The important change is that production and everyday life may become more closely connected.

What Happens to Government?

An expanding informal economy raises difficult questions for government.

Modern taxation and regulation have developed around identifiable employers, registered businesses, property ownership and recorded financial transactions.

An economy containing growing numbers of small, irregular and partly informal activities will be harder to administer through these arrangements.

This does not mean that taxation, safety standards or legal protections become unnecessary.

It means that the cost and complexity of applying existing systems may become increasingly difficult to justify.

Government may have to distinguish between functions which genuinely require national organisation and those which can be undertaken more simply within localities.

Defence, national communications, specialist hospitals, taxation and certain major transport systems will still require national coordination.

But much everyday economic activity may become increasingly local.

The essential task will be to allow useful grassroots enterprise to develop while maintaining proportionate safeguards.

An attempt to force every small household activity into the administrative structures designed for large businesses could discourage precisely the economic adaptation which society needs.

Will Britain Follow South Africa?

Britain is not South Africa.

The two countries have different histories, institutions, levels of wealth and social arrangements.

It would be misleading to assume that Britain’s future will simply reproduce South Africa’s present informal economy.

Nor should informal enterprise be romanticised.

Poverty, insecure incomes and the absence of social protection are serious disadvantages. The objective should not be to recreate these conditions.

Nevertheless, Alcock’s account provides an important demonstration of human adaptability.

When conventional economic arrangements fail to provide sufficient opportunities, people develop alternatives.

They make use of local knowledge, personal relationships, practical skills and modest amounts of capital.

They organise economic activity without waiting for instructions from government.

This is the process which I expect to become increasingly visible in Britain as the growth economy comes under pressure.

It may already be beginning, although changes in official employment statistics alone cannot establish that this is happening.

The Economy Beneath the Economy

Perhaps the most important lesson is that the formal economy is not the whole economy.

Economic activity is not confined to salaried employment, registered companies and transactions recorded in national accounts.

People can produce, repair, exchange and support one another through arrangements which conventional economic analysis does not always describe adequately.

In an expanding industrial economy, such activities may be regarded as marginal.

In a shrinking economy, they may become central.

The significance of KasiNomics Unleashed is therefore greater than its account of South African entrepreneurship.

It invites us to consider how economies organise themselves when conventional institutions do not provide sufficient livelihoods.

Alcock sees an enormous economic opportunity.

I see evidence of a capacity for grassroots economic adaptation which may become increasingly necessary.

The difference is one of circumstances and expectations.

What is developing alongside the conventional economy in South Africa may help us understand how a future local economy could emerge in Britain.

Localism will not necessarily arrive through government policy, economic planning or political reform.

It may arise gradually, locality by locality, as people discover that the most reliable way to obtain essential goods and services is increasingly to produce and exchange them closer to home.

The economy of the future may be smaller, simpler and less wealthy in conventional monetary terms.

But it need not be devoid of economic activity, enterprise or human ingenuity.

Indeed, the need for those qualities may become greater than ever.

And perhaps that is the most important lesson to be drawn from GG Alcock’s book.