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Building Back Better: rebuilding local economies

October 7, 2020

‘Build Back Better’.  A phrase starting to be used regularly to describe a post  COVID-19 world. Build better communities. Build better businesses. Build a better economy. 

 

How do we build back better?

Maybe the place to start is to reflect on what we have truly valued over the course of the COVID-19 pandemic.

Above everything, we have all valued connections. We have missed the freedom to see family and friends. To play sport and exercise. To socialize and enjoy music together.  These simple entitlements, rarely even considered an entitlement in the past, have become our most valuable and treasured thing.

But we have all valued kindness and support and those that provide them. Nurses and teachers are at the top of this list, but so too are those that have been at the frontline to ensure we are all able to live a safe and comfortable life. We have never valued cleaners, supermarket workers, and delivery drivers more.

We have valued governments and their role in intervening to help businesses, individuals, and the economy. Putting aside any partisan politics regarding what a ‘good’ or ‘bad’ government intervention has been there has been a universal chorus asking for help.

Huge corporations, seemingly indestructible, have cried for help. Their huge balance sheets, growth strategies, strong price to earnings ratios, and high dividend yields to shareholders all came to naught when employees desperately asked to retain their jobs.

Small businesses with much less financial strength but employing the majority of Australians looked to the government for support packages.

Welfare agencies needed reassurance that funding would remain in place, and flexibility given, when asked about the outcomes of that funding.

What we value vs what the economy values

While what we truly value has become more apparent, what too has become clear, is how our current economic system does not represent what we truly value.

Since Milton Friedman, the 1976 winner of the Noble Prize for economics, convinced Ronald Regan and Margaret Thatcher that small governments, deregulation, privatization and monetary policy were the keys to economic success, governments and oppositions have towed the neo-liberal economic line of low regulation and limited government intervention.

Friedman argued that there was one and only one social responsibility of business and that was to use all its resources to increase profits to the benefit of shareholders.

This view,  espoused by so many very successful, wealthy business people seemed to disappear overnight when corporation’s balances sheets didn’t have the underlying strength we thought they had and monetary policy, due to the already low cost of money, was useless.

And yet, despite this long-held neo-liberal view of how to build the economy and continue economic growth, and that building shareholder value and wealth was the most important undertaking of any company, when COVID-19 came we valued something different.

We valued some of the lowest-paid jobs in the economy much more than many of the highest. We valued stability of employment and support and assistance from our employers. We valued government assistance and intervention in our lives. And we valued community connection.

 

Co-operatives encourage co-operative behaviour

Renowned economist and Noble Laureate, Joseph Stiglitz argues that neo-liberal policies based on the market’s primacy at all costs has led to growing inequality. In his recent book, ‘People, Power and Profit’ he suggests a transition to a new order of ‘Progressive Capitalism’ that has a new social contract between government, the community, economic institutions and civil society.

Stiglitz suggests we need to build a richer ecosystem of economic institutions not just shareholder-based companies. In a recent speech Stiglitz says, “The nature of our economic institutions shape who we are, for instance co-operatives encourage co-operative behaviour.”

There are several examples of highly successful co-operative models that operate worker owned entities within our current economic system. As Stiglitz puts it, a co-operative must operate within our current market economy, but it is important that there is adequate regulation to limit misuse of market power by dominant players and ensure a level playing field.

Worker cooperatives are where workers within the business also have shared ownership over the business. A worker-member owns a share of the business and has a say in key business decisions. Each member has one vote in the governance of the organisation and each also shares profits and agrees on how they are distributed. The economic and social benefits of a co-operative’s activity stay in the communities where they are established, and profits generated are either reinvested in the enterprise or returned to the members.

Working in and for communities

The Mondragon Co-operative in the Basque region of Spain is arguably the largest and most successful co-operative in the world. Established in 1956 by a group of technical college graduates to make paraffin heaters, it is now a global federation of co-operative businesses employing 75,000 people and generating revenue of $19.5billion AUS per annum.

Mondragon has a democratic, pluralist ownership and operating structure. As an example, no manager in any single business can earn more than six times that of the lowest-paid worker. While between the federation’s entities, the highest paid executives cannot exceed a 38% salary differential. This means no senior executive can be paid more than 38% higher than any other.

As with most co-operative models, Mondragon works in, and for, the communities in which they operate. They spend more on training and development for their employees and actively undertake community programs. As former President of Mondragon International, Josu Ugarte, put it in an interview, “We want to transform our society. We want to have a more equal society.”

Increasingly, co-operatives have been used as a method of community and economic development in areas of disadvantage. These models could now also be used to ‘Build back Better’.

Based on Mondragon, the Evergreen Co-operative Initiative was launched in 2008, in Cleveland, Ohio, to increase the economic participation of some of the economically worst hit Cleveland suburbs. Cleveland’s economy had slowly but very steadily declined as the result of the restructuring of the manufacturing industry particularly the rail and steel industries.

Evergreen, now also known as the Cleveland model, was established by the Cleveland Foundation, the Cleveland Clinic, University Hospitals, Case Western Reserve University, and the Cleveland Local government. The model used the purchasing power of the city’s ‘anchor’ institutions to develop a series of worker owned co-operatives.

Using a ‘Community Wealth Building’ approach these co-operatives provide living wage jobs for local residents who are recruited and trained. The workers become members of the co-operative and as such have a democratic say in its operation and individually hold a capital account within the equity accounts of the co-operative’s balance sheet. The initiative is therefore providing training and skill development, an appropriate living wage, decision-making authority, and asset growth to its workers.

Community Wealth Building was at the forefront of the Preston City Council’s mind when they used the Cleveland Model to develop local procurement and economic development initiative. Preston, located in Lancashire England, suffered from progressive austerity measures and government funding cuts.

Using the Cleveland model as its foundation, the Preston City Council combined with other anchor institutions such as local universities, colleges, and housing associations to develop local procurement policies. Due to differences in procurement regulations, the development of co-operatives was more difficult in the UK, however, maintaining procurement within the local area and with local firms was the first step.

 

Geelong: working towards a community wealth building initiative

Through, GROW: G21 Region Opportunities for Work initiative, and the associated compact signed by over 150 businesses, Geelong has taken the first step towards a community wealth building initiative. Signatories to GROW have agreed to preference local procurement and further preference those suppliers that offer employment to those with significant barriers to work.

Changing procurement policies and processes of businesses is difficult and often complex work making progress on GROW steady. We have not yet seen significant wealth-building or change in lower socio-economic areas; however, GROW has built a platform for change and opened the conversation and possibility that it can happen.

The opportunity now exists for us to see the rebuild of our economy as an opportunity, rather than a threat or weakness. It is clear in this time of crisis, unprecedented for most people on the planet, we valued those jobs and services that provide support and assistance. As we isolated in the safety of our houses, we valued people on the frontline.

We valued human connection, support, flexibility, and kindness.

Co-operative models:

  • Offer an old, but in a way maybe a new, form of economic structure that will build community assets and community members’ wealth.
  • Provide added support to workers because the workers own the business.
  • Provide training and development opportunities, democratic ownership, community support, and equality of compensation that is not seen in shareholder driven companies.

Co-operative models value what we have valued during this economic crisis. They value the work and contributions of workers and look at workers and management compensation through a lens of equality. They support workers with training and focus on maintaining employment, particularly during tough times.

They value the community that surrounds them, and they add value to the whole community rather than extract value for a few.

Geelong is well placed to start this conversation because of the work already undertaken. We are well placed to build a model that truly transforms some areas that have experienced persistent and entrenched conditions of disadvantage and thus transform the whole region.

 

We are well placed to Build Back Better.

 

Bill Mithen, Chief Executive Officer
Give Where You Live Foundation