Forging a Transformative Vision

Building economic power through community ownership is the antidote to the systemic failures of our current system.

Despite its great wealth, the United States today faces enormous difficulties, with no easily discernible answers in sight. Elections occur and debates ensue, but many of the most pressing problems facing ordinary citizens are only marginally affected. For the average American, the trends have been bad for a very long time. Real wages for 80 percent of American workers have been stagnant for decades. At the same time, income for the top 1 percent has jumped from roughly 10 percent of all income to roughly 20 percent. Put another way, virtually all the gains of the entire economic system have gone to a tiny, tiny group at the top for at least three decades.

At the most superficial level, Washington—as the saying goes—is broken. The political system is simply incapable of dealing with the challenges. It focuses on deficits, not assets or answers. Long-term, unchanging trends are a clear signal that it’s not simply partisan bickering and congressional stalemate that are causing the problems. We all know that something different is going on—both with the economy and, more fundamentally, with democracy itself.

While there are growing difficulties in our nation’s suburban and rural areas, nowhere are the problems more evident than in far too many of our nation’s cities. The National League of Cities (NLC), which annually publishes a research brief on city fiscal conditions, has documented the rapid deterioration of municipal finance. The NLC’s most recent brief, published last year, found general revenue declines for six consecutive years, an unprecedented average annual decrease of more than 2.5 percent per year, and a cumulative decline in excess of 15 percent.

Detroit’s bankruptcy filing in July 2013, full of drama that included the imposition of a state emergency manager, has received outsized attention, but Detroit is not alone. In California, the city of Vallejo (a Bay Area port suburb with over 100,000 people) and the inland mid-sized cities of San Bernardino and Stockton (both with more than 200,000 people) have all been forced into declaring bankruptcy.

Obscenely, the money is actually there—just not for community-building purposes! Even as Detroit is in bankruptcy court, state and city taxpayers are slated to pick up two-thirds of the tab for a new hockey arena, a cool $444 million (including expected interest payments). This reflects a broader trend: Last December, based on research from Good Jobs First and others, The New York Times reported that cities and states collectively spend an estimated $80 billion a year to subsidize for-profit corporations through economic development incentive packages. The fact that this “Robin Hood in reverse” phenomenon is so pervasive is further evidence that we face systemic, not simply political, problems.

Community economic development is by its nature often block-by-block, project-by-project, and deal-by-deal. Yet a key question the movement faces is of a different order: How do we deal with a systemic crisis—something built into the way the political-economic world works?

A serious answer demands both a call to arms and a clear strategy. In my judgment, “We shall overcome” is not simply a slogan, but in fact the likely, though not inevitable, outcome of the long struggle ahead. I think it is possible that working from the bottom up we may slowly, step-by-step, lay the groundwork for a truly American form of long-term community-sustaining, wealth-democratizing transformative change—and thereby also for the reconstitution of genuine democracy.

Learning the Right Lessons

Of course, it is hard to even understand community economic development today without appreciating its civil rights roots. We must build on that legacy, but we also should be careful in recalling all of its lessons. A couple of points to consider: First, much of the Civil Rights Movement has been about getting into the existing system instead of about changing it. The battle for equality has largely been about rights and about fulfilling the “American (individualistic) Dream.” My point is not to denigrate the drive for equality—far from it. My concern, however, is also to keep the critical long-decaying deeper economic trends in focus. Schools are now as, or more, segregated than before. And as the black professional middle class has left the city, many neighborhoods have become less, not more, stable. Trends in poverty rates in general—and for black Americans in particular—have reversed: rising for the latter from a historic low of 22.5 percent in 2000 to 27.6 percent in 2011.

Martin Luther King Jr. confronted the depth of the systemic challenge in the mid-1960s and again shortly before his death in 1968. The fight to end discrimination was one thing; challenging the economic system was another. One member of his staff recalled that King “asked us to turn off the tape recorder … and he talked about the fact that he didn’t believe that capitalism as it was constructed could meet the needs of poor people, and that what we might need to look at was a kind of socialism, but a democratic form of socialism.”

Leave aside the word socialism for the moment. The challenge, King declared shortly before he was assassinated, was systemic, not simply political: “We are dealing with issues that cannot be solved without the nation . . . undergoing a radical redistribution of economic power.”

King’s final judgment stands as instructive evidence of his understanding of the nature of the challenge—and is a reminder that given the failures of both traditional socialism and corporate capitalism, we must get serious about clarifying not only our strategy, but what, in fact, the meaning of “changing the system” in a truly democratic direction might one day entail.

Community Wealth: Building Institutions of Community Ownership

In a society in which a mere 400 individuals own more wealth than the bottom 180 million taken together, one part of linking project-based work to systemic change efforts must involve creating institutions of democratized ownership of wealth (rather than elite individual ownership)—institutions that can generate revenue, provide jobs, and build up an independent economic base for the community over time. For the past decade, my colleagues and I at the Democracy Collaborative have documented the wide range of bottom-up innovations that are, in fact, now creating new ways for workers, communities, and local publics to build and retain ownership and wealth.

For a start, more than 130 million Americans—40 percent of the population—are member-owners of one or another form of cooperative, a traditional organizational form that includes agricultural co-ops, our widespread rural electrical co-ops, insurance co-ops, food co-ops, retail co-ops (such as the outdoor recreational company REI and the hardware purchasing cooperative ACE), health care co-ops, artist co-ops, credit unions, and many more.

A number are high-tech and innovative—like Isthmus Engineering and Manufacturing Company in Madison, Wis., a worker-owned cooperative for more than 30 years that specializes in precision robotic assembly machinery, custom machining, large-scale integrated assemblies, and custom packaging robots. In North Carolina, the Sandhill Farm to Table Cooperative brings together farmers, consumers, and workers in a food production and distribution system that delivers locally grown food to 1,250 households.

By far the most common co-ops are credit unions—essentially democratized, one-person, one-vote banks. More than 95 million Americans are involved; total assets exceed $1 trillion. Activists have also begun to get interested in this particular cooperative form: “Move your money” efforts shifted hundreds of millions, if not billions, of dollars away from Wall Street and large banks and into credit unions and smaller banks in 2011 and 2012. Efforts to change the often traditionalist boards of such institutions are also under way in many areas.

There are also thousands of “social enterprises” that use democratized ownership to make money and use both the money and the enterprise itself to achieve a broader social purpose. Southwest Key Programs in Austin, Texas, presently the fourth largest Hispanic nonprofit in the country, has an annual budget of over $74 million and employs 1,400 people who oversee six schools, 30 juvenile justice programs, and 10 community and workforce programs. It has expanded into business development both to support its projects and to offer work to trainees. Its start-ups include Café del Sol and Southwest Key Maintenance & Janitorial.

By far the most common type of social enterprise is the traditional community development corporation, or CDC. For the most part, CDCs have served as affordable housing developers and incubators for small businesses. Early on, however, a different, larger vision was in play—one still present among many CDCs that suggests possibilities for the future.

New Community Corporation (NCC) in Newark, N.J., founded after riots hit Newark in 1967, employs 1,300 residents, manages 2,000 housing units, has $500 million in assets, and about a $200 million operating budget. Modest proceeds from NCC businesses—including a shopping center anchored by a major supermarket—help support day care and after-school programs, a nursing home, and four medical day-care centers for seniors.

Still another form of democratized ownership involves growing numbers of community land trusts that own housing and other property in ways that prevent gentrification and capture development profits for community benefit. One of the best known is the Champlain Housing Trust in Burlington, Vt., which traces its beginnings to the early 1980s and now provides affordable housing for more than 2,000 families.

Like other democratized forms of ownership, today’s land trusts benefitted from early experiments that planted innovative seeds. Some of the first serious efforts were begun in the 1960s and 1970s in western Massachusetts (by Robert Swann) and in southwest Georgia (by Charles and Shirley Sherrod). All three were deeply involved in the Civil Rights Movement and saw cooperative land ownership both as an answer to systemic problems and, in the case of the Sherrods, as a way to help poor black farmers forced off the land by mechanization and political retaliation for their civil rights activities.

By 2012, 255 community land trusts were operating in 45 states and the District of Columbia. The reason? By emphasizing social as well as financial outcomes, democratizing ownership solves problems that can’t easily be solved in other ways—especially those resulting from the pressure of gentrification.

There are also many worker-owned companies—both co-ops and firms structured in ways different from traditional co-ops—indeed, there are nearly 11,000 of the latter type of company, employing 10.3 million people. Known as ESOP (Employee Stock Ownership Plan) companies, this sector has grown to involve 3 million more workers than remain members of unions in the private sector.

ESOPs can work in very large companies, such as Iowa’s Hy Vee supermarket chain (60,000 employees and an estimated $7.7 billion in annual sales), but most ESOPs work best in small- and medium-sized companies. Although ESOPs have not been without problems, a growing number of unions have also begun to see opportunities here. For example, Maryland Brush Company was established in 1851 and is now a leading manufacturer and supplier of industrial brushes worldwide. A subsidiary of Pittsburgh Plate & Glass from 1901 to 1989, it was spun off and incorporated as an ESOP in 1990 and is currently 100 percent owned by its employees. Because of United Steelworkers participation, the union and management each get three seats on the board, with a seventh person selected by mutual agreement of the parties. (The United Steelworkers have begun to promote unionized worker co-ops as well.)

My hunch is that a growing number of unions may begin to turn ESOPs to workers’ advantage, restructuring the voting and other powers, and using the tax advantages to good purpose. For community developers, there also is this: Most ESOPs are created when owners retire and do not have an heir who wants to run the business. It is to their (tax) advantage to sell to the employees. And we are now entering the era of (massive) baby boom retirements, a time when such companies will either be acquired by large corporations, with corresponding job losses, or preserved through worker ownership.

Scaling Up: Building a New Alliance

Clearly, the community economic development movement, even as it has grown in sophistication, faces enormous challenges. Building institutions of community and worker ownership is critical. But to be effective, this economic work must be linked to a political strategy, so that growing economic power translates into effective political power in communities struggling against concentrated poverty. A strategy that increases local economic activity within our communities can also help provide a robust platform for a range of work that teaches principles important for larger and longer-term transformations of the system.

Unless new ways to generate public revenues are ultimately found, community development funding both nationally and locally will continue to be squeezed. A serious strategy must put forward a positive, coherent, integrated community-building plan to develop local economies, create jobs, and build a tax base that can finance existing services and generate new revenues without unduly burdening working-class taxpayers. As documented above, practical precedents for the elements needed are now available. Politically, a positive plan can help unite key constituencies, such as community activists and unions, around a common agenda.

The specifics, of course, will differ by community. But what is needed is a longer range strategic understanding: One cornerstone would be to build upon existing precedents in the ownership of land and worker-owned enterprises to promote locally anchored jobs and investment. Many tools can be employed to support this strategy, such as leveraging city and school district procurement (and encouraging university and hospital participation) to buy more goods and services locally, especially by supporting the development of worker- or community-owned and “anchored” businesses. Similarly, city and school district contracts can promote businesses that hire locally. Using direct local public ownership can also be a critical economic tool—and cities across the United States have used a range of mechanisms, including ownership of public utilities, land leases, and investment authority to both increase the tax base and provide needed public services while generating public revenues.

Critically, it is important to offer a strategy of this kind as a direct alternative to the current common practice of using tax incentives to subsidize large corporations at the cost of public service provision. Ultimately, I believe that creating a serious new approach can help defuse attacks from the right by also helping solve underlying economic and revenue problems faced by taxpayers.

We often divide the nation into “blue” states and “red” states. A more useful way to think about longer term change is a checkerboard analogy. Some squares on the board are clearly blocked, but others are not. Even as pain and failure deepen in the blocked squares we can build in the open squares—ultimately demonstrating what is possible when pain levels open new possibilities for change in all the squares. For those working day-to-day to better community economic development in neighborhoods across our country, there is no time to lose.

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