Author Mark Richards

The local economy and high streets are increasingly under threat from online retailers. Could initiatives like local currencies and local lending help communities to fight back and redress the balance?

Earlier this week Toys R Us filed for bankruptcy protection in the US and Canada as it tries to restructure its debts. Once a dominant player in the toys market the company has struggled in the face of competition from larger rivals such as Amazon and Walmart, and now the company’s 1,600 stores and 64,000 employees are threatened.

A judge has approved a loan of $2bn to stabilise the company and allow it to prepare for the Christmas period – and the good news is that the company’s European operations are not part of the bankruptcy proceedings, and the firm does not expect there to be any impact on the UK stores.

…At least in the short term.

In the long run, the problems in the US must raise a serious question. Are Amazon and other internet retailers starting to do to out of town shopping what they have already done to so many high streets in the UK?

Maybe it is time for local economies to fight back – and that appears to be exactly what an increasing number of them are doing.

Local Economy? Starbucks and Costa need not apply

There is a simple – and very basic – fact regarding shopping. If I buy a coffee in Starbucks, a burger in McDonald’s or my lunch in KFC then by and large that money is lost to the local economy. Yes, national and international chains employ local labour – but they do not purchase ingredients locally, nor do they use local tradesmen or shopfitters. So some of my £2.80 for a coffee will stay in my local economy via wages: the rest of it is going to head office and – eventually – to shareholders.

Supporting the Local Economy

Clearly, that does not benefit my local economy – so now local communities are starting to fight back, with the growing trend towards local currencies. Technically known as LETS (Local Exchange Trading Systems) local currencies are limited to a specific geographical area and intended to keep money in the local economy. One such example is in Liverpool, where an Israeli company called Colu has launched the Local Pound Liverpool, only open to locally owned businesses – so Starbucks and Costa need not apply.

The currency is purely digital – no problem there, with developed nations around the world, rapidly moving towards cashless economies – and it joins other local currencies in the UK such as the Brixton Pound and the Bristol Pound.

What are the advantages of a local currency?

With local currencies operating all over the world, three distinct advantages have emerged for them.

Local currencies seem to circulate more quickly. There is no real advantage to ‘saving’ in a local currency as inflation will erode the value: therefore local currencies are spent quickly, speeding up economic activity within the area

Local currencies boost local businesses and encourage the employment of local labour: being paid in Bristol Pounds is absolutely fine if you live in Bristol – totally useless if you are a contractor from Birmingham

They also offer a degree of flexibility regarding payments in the community: this will no doubt have the taxman scenting blood, but it does appear that people doing ‘odd jobs’ are happy to be paid in local currencies. In some countries (it is especially prevalent in Japan, apparently) children often support older parents by gifting them money in the relevant local currency.

The rise of local lending

So local currencies can help local businesses – but today, many local businesses, especially new ones in the technology field, face a growing problem: how to find the money to start and expand the business. All too often, start-ups do not meet the traditional banking criteria for a loan: an app, or an idea, is not security for a loan and, almost by definition, the businesses do not have a track record.

Step forward an idea that has been around at least since the 16th century – and which certainly pre-dates the UK’s banks and building societies. There is an increasing movement back towards local lending, with the concept captured by the Folk2Folk website.

Lending organisations like this can not only offer savers a far better rate of interest than they would be able to find on the high street – Folk2Folk is advertising a rate of 6.5% paid monthly this morning – but they can take a much wider look at a business than the strict lending criteria of the banks will normally allow. What contribution will the business make to the local economy? Does it have the potential to create local jobs and keep talented young people from moving away?

Folk2Folk originated with Parnalls Solicitors in Cornwall, who had been involved in arranging private mortgages. “Our purpose is to sustain local and regional communities around the UK,” said their marketing officer, Giles Cross. “It is about people clubbing together to make a difference.”

…And it proves that there is nothing new under the sun – especially in Cornwall. Many you will remember the local solicitor putting Ross Poldark in touch with local investors, who helped to fund his business…

Where will it end?

These are interesting times: on the one hand, Amazon and the ever-growing army of internet retailers are inflicting serious damage on the UK’s high street. They are doing to the high street what the supermarkets did to the corner shop. But the news about Toys R Us from the US is worrying, especially as one report suggests that 25% of American shopping malls could go out of business in the next five years. Could the same thing happen in the UK? Only a fool would dismiss the possibility.

…And that makes initiatives like local currencies and local lending ever more important. The community we live in is an integral part of our quality of life. If our community is thriving and vibrant then we all benefit. If Amazon drones are flying past empty shops then the outlook is much more depressing. Maybe it is time for all of us to do our weekend shopping in ‘local pounds…’