AMERICA BEYOND CAPITALISMThe community wealth building approach to community and economic development is based on a set of design criteria that emphasize the following principles:
1. Anchor local ownership by:
• Identifying and leveraging existing community assets; and
• Focusing on building local equity and ownership.
The idea behind the concept of anchoring local ownership is simple: community ownership of business pays big dividends by anchoring jobs and building business assets locally. For instance, as of the end of 2006, the average ownership stake for an employee at a company with an employee stock ownership plan (ESOP) was over $67,000—more than the average worker’s 401(k) holdings. Local ownership also helps “anchor” businesses in communities—an important feature in these days of globalization, when non-anchored companies can and do often change location, leaving considerable economic dislocation in their wake.
2. Increase local economic multipliers to spur locally oriented economic growth by:
• Concentrating on increasing the local circulation of goods and services;
• Working with existing anchor institutions (universities, hospitals, churches, museums, public utilities) to support community economic development strategy;
• Leveraging funding from local foundations, anchor institutions and existing city and chamber of commerce business development programs to support wealth building;
• Complementing systematic local-preference procurement policies at major institutions (such as: hospitals, universities, local government, utilities and major corporations); and
• Building “buy local” campaigns directed at households and small businesses.
A numbers of studies have demonstrated that local firms, when they sell a product in their local market, tend to spend a larger proportion of their income on local wages and procurement, while chain stores are more likely to divert revenues abroad and import from abroad. For instance, a 2007 study of San Francisco found that every $1 million spent at local bookstores created $321,000 in additional economic activity in the area, including $119,000 in wages paid to local employees, while the same $1 million spent at chain bookstores generated only $188,000 in local economic activity, including $71,000 in local wages. The study further found that if residents shifted 10 percent of their spending from chains to local businesses that would generate $192 million in additional economic activity in San Francisco and almost 1,300 new jobs.
3. Build local community economic development capacity by:
• Helping retiring owners sell their businesses to their workers through promoting greater use of employee stock-ownership plans (ESOPs).
• Working across sectoral lines to build comprehensive strategies that can unite different community groups to support common community wealth building goals. Build community awareness of the need for a comprehensive wealth-building approach.
• Expanding Community Development Corporation (CDC) capacity to generate income through property management and business ownership.
• Developing nonprofit trusts that own land to ensure permanent low- and moderate-income housing, stabilize neighborhoods, and avoid gentrification.
• Attacking efforts that strip assets away from communities or otherwise have wealth-reducing effects (e.g., predatory lending).
Building a support system for community development corporations (CDCs) and related community groups is one important step. The 15-year, $1 billion effort by LISC, Enterprise, and Living Cities between 1991 and 2005 helped leverage a total of over $14 billion in community investment.40 However, outreach capacity for community development organizations is equally important, as has been made painfully obvious by the wave of foreclosures, many of which might have been prevented had community groups been able to reach those in need in time. Outreach is needed in other areas as well, such as employee ownership. A 2008 article in the Milwaukee Business Times points out that, “As the baby boom generation ages over the next 20 years, the owners of most of Wisconsin’s 150,000 businesses will retire or will start seriously planning for retirement. More than 75 percent of American middle-market business owners,” the article adds, “anticipate selling within a few years. . ” Nationally, economist Robert Avery wrote in a 2006 paper that, “The majority of boomer wealth is held in 12 million privately owned businesses, of which more than 70% are expected to change hands in the next 10-15 years.” Avery further estimated that the wealth transfer over the next 20 years would total $4.8 trillion.41 As John Logue, the late Founding Director of the Ohio Employee Ownership Center, noted, “The failure to plan for business succession is the number one cause of preventable job loss in this country.” For the majority of family businesses that lack an obvious successor, an ESOP or a worker cooperative can be a valuable, tax-advantaged way to exit, but it will only happen if business owners are aware of the availability of this alternative.
4. Expand investment opportunities for Americans of modest means by:
• Augmenting funding for individual development accounts (IDAs) and other related mechanisms that help low- and moderate-income individuals save and acquire wealth;
• Developing investment opportunities for low-income people by promoting shared-equity housing and affordable equity shares in community-owned enterprises; and
• Working across the asset-development continuum to devise mechanisms that integrate individual or family asset-accumulation with community wealth-building strategies.
Coupled with the place-based strategies identified above, successful community wealth building also requires direct efforts to boost the savings and wealth-building abilities of individuals. The range of available strategies is broad. For instance, worker co-ops are rarely considered as a wealth building strategy. However, the 1,500 worker-owners at Cooperative Home Care Associates in the Bronx, in addition to earning higher wages and enjoying better working conditions, have accumulated ownership stakes in the company that are collectively now worth more than $400,000, as well as having 401(k) holdings that collectively exceed $2.5 million. Venture investments are certainly a wealth building strategy, but not usually for employees. However, SJF Ventures, a community development venture firm, promotes employee ownership in the companies in which it invests. When SJF Ventures exited from one firm in its portfolio, the firm employees earned between $700 and $5,500.
Cleveland’s Evergreen Initiative, discussed above, currently provides worker-owners with the opportunity to build equity in their firms by allocating dividends into each employee’s patronage account. In addition, Evergreen is now developing a set of individual asset accumulation products (such as matched savings programs) that will be made available to workers within the cooperatives. In San Diego, the Market Creek Plaza commercial Development project has offered local residents an ownership stake in the project through an innovative Community-Development Initial Public Offering (CD-IPO). Today, more than 400 residents of nearby neighborhoods, most of whom are low- and moderate-income, own 20 percent of the development. The goal is to transfer complete ownership to local residents and the community over the next decade or so.
These principles are excerpted from the Democracy Collaborative’s comprehensive recommendations for a new economy, Rebuilding America’s Communities: A Federal Community Wealth Building Proposal.
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