Franklin & Marshall College Franklin & Marshall College

Julie Graham: Professor of Geography, University of Massachusetts

Session: Product Networks and Community Economies

Globalization and Local Economies

Thank you very much, Eliza, and thanks to the Local Economy Center for inviting me. And "Welcome to the Women’s Panel." (Audience laughter).

Before I start, I want to acknowledge my co-author and power-point organizer, Stephen Healy, my graduate student back at U. Mass. (Slide 1)

Just listening to things here this morning, I think we can get a sense from the economic development community that there is, at any one time, only one major way to go about economic development. You could get the idea that there is a consensus, not only locally, but also nationally, and even globally, on how to go about it. We even have some of the buzzwords of that process now. And, basically, there is a sense that, for localities, there is one right way to go. So, for instance, given globalization, we need to participate in the global market place. That’s the way! (Slide 2) The goal is to insert ourselves into the global economy so that we can get a piece of the pie.

And there is really only one way to do this, and that is by developing our export base. (Slide 3) The vision is that exports bring in dollars from outside and those dollars fuel local economic growth. Every job we create in an export industry—like high tech manufacturing, or tourism, or higher education—means more local employment in other sectors. The workers spend their wages with local retailers and they consume local services, like getting their hair cut and their teeth cleaned—that creates private sector jobs; (Slide 4) they pay taxes and create jobs in the public sector. This is the famous multiplier effect.

It makes sense, then, that communities are competing with each other to recruit enterprises, or even grow enterprises, to create new jobs. These might be multinationals like Toyota, or hotel chains, or they might be local industry clusters, or federal prisons, (Slide 5) a growing industry—yes! This has become a major economic development strategy for rural communities. To attract these businesses, as you know, local and state officials offer large subsidies and tax breaks, often paying effectively more than $100,000 per job.

But of course there are problems with this approach. One problem with this approach, of course, is that the subsidy may never be repaid—it will be a long time before that jobholder pays enough additional taxes to add up to $100,000. But there are lots of other problems too (Slide 6): 

· Profits are not necessarily reinvested locally (So, that’s called a "leakage").

· The company doesn’t necessarily buy its inputs locally (and that is a "leakage").

· they promise you a lot of jobs, but actually create many fewer (so, that’s "leaky promises").

· the company can always leave—and they do (so, that’s "pulling the plug").

But the main problem is the vision: it’s treated as an automatic process. If you create job growth in export industries, local wealth will increase and float all boats. We can see it doesn’t always work that way. Moreover, the vision is narrow and coercive. There’s only one route to survival—and that’s creating jobs in export industries--if you step off the path you’re dead.  (Slide 7).  You’re a node in the global economy or you’re nothing. Basically that’s a victim position. (Slide 8) And there is no alternative—the famous TINA that we got from Margaret Thatcher: T(here) I(s) N(o) A(lternative).

Marshalling Surplus

But can there really no alternative? Let’s think about this. A basic problem is that wealth that is being produced locally is not staying in the community. What if we could capture that wealth and use it to construct a community economy? (Slide 9) and that is really what, I think, Gar Alperovitz was talking about with his references to "anchoring".

Now, let’s define what a "community economy" is: A community economy is an ethical and political space where people’s decisions shape the economy…rather than following the demands and dictates of the global market

Here’s where we need to look around…to find examples of communities that are already capturing their wealth, or "marshalling their surplus," (Slide 10) and using it to build their community economies. I am going to look first at a community in Spain, Mondragon, and then come back to Western Massachusetts, where I’m from.

Mondragon (Slide 11) 

The Mondragon Cooperative corporation is a complex of worker cooperatives in the Basque region of Spain with more than 40,000 worker owners, its own bank, its own university, a hospital, well over 100 factories—all of them organized as worker cooperatives. In 2003 Mondragon’s total sales were over 9.7 billion Euros which is almost $12 billion U.S. It is the third largest supplier of automotive components in Europe (Slide 12). It is one of the largest distributors of food in Spain. On the occasion of its 50th anniversary, the UN chose Mondragon as one of the fifty best social economic experiments in the world.  (Slide 13) 

Mondragon was instigated by Father Jose Maria Arizmendiarrieta, (Slide 14) who worked after WWII to bring economic self-determination to the Basque people suffering under Franco’s dictatorship. In the mid 1950s, five former students from his technical school started the first cooperative, and soon other coops had spun off from it. (Slide 15) This is a picture from 1958.

The defining characteristic of worker cooperatives is that the workers appropriate the wealth they produce—it belongs to them. Here’s how they do it in Mondragon. The cooperators make decisions democratically, deciding how much to pay themselves, recognizing that the amount they take in wages will have an impact on how much surplus is available for building their economy.  (Slide 16).  They also decide what to do with the surplus, or the amount that’s left over after wages and other costs. 10% is donated to charity (and that’s by Spanish law, interestingly enough), 20% is retained by the individual coop, and 70% is distributed to individual cooperators as a bonus or dividend.

In the late 50s Don Jose Maria persuaded them to form a bank, where the 70 percent that went to individuals could be deposited until cooperators retired. In essence they were creating a community economy fund by pooling their dividends, their individual shares of the surplus, generating the capital to invest in more cooperatives. The bank began to oversee the development and implementation of business plans for new coops. Between 1960 and the present the number of coops increased rapidly.  (Slide 17) 

In addition to the industrial coops, they started a social insurance coop that provides health care and social security to coop members and their families; education and training coops providing education from day care to university level; research and development coops that do scientific and technical research for cooperative businesses.

They also have created housing coops, a cooperative supermarket chain, and a growing number of international production sites. Here are some recent pictures of Mondragon scapes. (Slide 18) (Slide 19).  By pooling the surplus among the Mondragon coops, cooperators have marshalled a huge potentiating force—the ability to create more coops, more employment and a sustainable community economy in the region.

Now, let me give you a sense of their principles. They had to follow a certain set of principles in order to be able to do what they did (Slide 20). These include "the subordinate character of capital" (subordinate and instrumental to sustaining the community) and what they call "equilibrio" which means balancing the competing requirements of businesses, workers, environment, community members; all those interests; in practice, a commitment to an endless process of "negotiation" or "working it out." There is no magic bullet here. There is no simple answer. They have to struggle over all these things, actually.


Now, I am going to move back to western Massachusetts. The Mondragon coops could be seen as non-capitalist—they are worker coops, where the workers actually appropriate the surplus they produce (rather than it going to the capitalist, or to the board of directors of the capitalist firm, to distribute as they see fit). So how could we marshall surplus in a region where most of the firms are not coops, but just regular capitalist firms?

Right now in the Pioneer Valley of Western Massachusetts some people are working on the answer to that question, creating a business model called E2M: Community Conscious Capitalism for Millennium 2000. (Slide 21) 

E2M was founded by Michael Garjian, (Slide 22) a business person and social entrepreneur who was tired of the growth treadmill and tired of working for shareholders, at the expense of workers and communities.

The idea is that companies donate 5 to 20 percent of their equity to their workers and another 5 to 20 percent to the local community. This creates a revenue stream to the community and a pool of funds which will be administered by a Regional Economic Council, made up of people from the different demographic groups in the region. (Slide 23). These organizations are being created as we speak!

But, why would companies want to become E2M certified? Let’s just look at financing. (Slide 24)  An E2M certified enterprise is eligible for low interest loans and low-key venture capital from the E2M Regional Council. Traditional venture capitalists look for returns of 10 to 20 times their investment, if not more. The E2M venture fund would be happy to see an enterprise create jobs and achieve sustainable growth. Plus they would have an advantage in being locally recognized as E2M certified companies, qualifying for local purchase agreements and attracting loyal consumers.

Now, what would this do for communities?

The equity donated to the community creates a revenue stream and a pool of funds which can be used to create more E2M companies, and even begin to buy out existing companies and convert them to E2M certified businesses.  (Slide 25)  Plus the Regional Council could invest in building affordable housing, or providing adequate health care and social services the way Mondragon has done. Once you have pooled the surplus this way, you can use it in a number of ways to meet community needs.

E2M (Slide 26) represents a way to marshall surplus and build the community economy within a predominantly capitalist environment—creating firms that recognize community building as an important goal. You don’t have to be Mondragon to do it (though it helps to be cooperatively organized).

Diverse Economy/community economy

I am going to move now to frameworky stuff and talk about our "community economies" project, through which we have been trying to think about the economy differently, in order to enact a different economy. (Slide 27) The Community Economies Collective has been trying to think about the economy differently so we can enact a different economy. If we want to envision local options in a global economy, it’s important to have a more inclusive sense of what a local economy involves.

What we usually think of as the economy is actually just the tip of the economic iceberg.  (Slide 28) This is the economy that most people recognize. But below the water line are lots of social spaces, persons, relationships and activities that we’re all familiar with. This is the more inclusive view of the economy. Social scientists have estimated that more than half of economic activity in both rich and poor countries takes place below the water line.

So, even though we’re used to thinking about it in monolithic terms, the landscape of economy is really quite diverse. Here is a diagrammatic way to think about this diversity.  (Slide 29) The top line is the economy as we usually understand it: involving market transactions, wage labor, and capitalist enterprises. But the economy incorporates a variety of hidden and alternative activities that add up to much more than the top line.

In the first column, we can see lots of alternative market options, including the underground economy, the barter economy, local trading system; non-market options: a very big one is "gifting."

With Labor, we have many kinds of labor that would be considered alternative; things like in-kind labor, volunteer labor, and of course, unpaid labor—that’s a huge percentage of the labor that is done, from 30% to 50% of GDP, in both rich and poor countries, is accounted for by unpaid labor according to some studies.

And, of course, the enterprise. Here we have alternative capitalist enterprises, like the E2M firms.

As much as 60 percent of economic activity in both rich and poor countries takes place in the hidden and alternative economies. With the exception of a few things, like indentured labor and slavery, all these things in the shaded part of the diagram could be enrolled as part of a community economy.

But if we want to build a community economy, we’re necessarily getting involved in the problematic process of economic development (Slide 30) which is what we are here to discuss today. Development is supposed to be about increasing social well-being. In practice, however, it’s been about increasing employment and economic growth—well perhaps "employment" has now dropped out of it.

The traditional vision is that people go to work and earn money that they presumably spend in the region, and the company has healthy profits that are presumably reinvested in the region, and increased social wellbeing is the result. (Slide 31) 

But of course there are no guarantees—as we saw before.

So what we need are more enterprises and organizations that create well-being directly (Slide 32).  In other words, we need to focus on the ends rather than just the means, avoiding the mindset where the only way to create social well-being is through the indirect route of industrial growth. Here are some examples from Holyoke, Massachusetts, near where I live.  (Slide 33).  But you could get these anywhere; you could get them right here in Lancaster. We will look at some organizations that generate jobs not from an export-base, but by tying non-market activities together with income generating projects.

They are creating well-being directly, rather than by the circuitous route of economic growth, by meeting needs for shelter, food, and care. (Slide 34).

Creating Well-being Directly


The Anti-Displacement Project

I am going to start with housing. The Anti-Displacement Project (or ADP) organizes tenant buyouts of apartment complexes to maintain low-income housing in the region. Based in Springfield, the ADP owns 5 apartment complexes from Springfield to Greenfield. They currently have over 15 million dollars in assets. (Slide 35) 

The ADP’s commitment to innovative organizing and community building doesn’t stop at housing. They’re concerned with everything that affects tenant-members. Currently for example (Slide 36) 

· they are starting a worker center and hiring hall where the tenant-owners can find jobs, avoiding the temporary agencies that have been underpaying them for years. You can see them here demonstrating against "Labor Ready," which they call "Slaver Ready."

· They started a tenant-owned worker coop called United Landscaping to do landscaping and snow removal at their complexes, which has been a big expense contracted out in the past. But now, they’ll be doing it themselves—and later perhaps get a business out of that.

· They offer youth and education programs, with computer rooms in every complex.

· They are the largest single distributor of free food from the local food bank.

· Community kitchens have been established in each complex.

· Leadership skills are taught through all of these activities.

Basically the ADP is "taking back the economy" by constructing a community economy in which needs are met directly, while at the same time being involved in enterprise development for the local market. (Slide 37) 

Now, here’s a story of the ADP up against the export-base theory of economic development. Early in 2002, the ADP began a campaign at Whiting Farms in Holyoke to build more low income housing units on adjacent vacant lots. This brought them into conflict with the city of Holyoke, which is hoping to locate an industrial park in the same spot. (This is the traditional path to social well-being—through the circuitous route of industrial development.)

The ADP argued that it was an open question whether an industrial park would do more than a housing project for the city’s economy. An expansion of the housing project at Whiting Farms would be sure to expand the residential tax base, whereas an industrial park would cost the city tax revenue in the form of tax abatements or infrastructure subsidies. Moreover, industries in the park might create employment but not necessarily for Holyoke residents, and most likely not for the residents of the housing complex. In contrast, building A-DP housing would create jobs for local construction workers, and would address an immediate social need for more affordable housing.

The ADP’s suggestion that Holyoke collaborate with them to satisfy the local demand for low-income housing pointed towards a different development strategy, one that aimed at improving social well-being directly rather than simply focusing on growing the export base.

From the floor (Tom Baldrige)

May I ask a quick question of clarification?

Julie Graham


Tom Baldrige

Is ADP a non-profit organization?

Julie Graham


Tom Baldrige

And, in Massachusetts, is there a local income tax levied?

Julie Graham


Tom Baldrige

Ok! Here is the difference! That in Pennsylvania a non-profit organization would be off the tax rolls, and there is no local income tax levied. So, the description of the value added that you gave doesn’t apply to Pennsylvania.

Julie Graham

Ok, but other things would apply here! All of these arguments are made in particular settings, and in a way you are making my point for me—that there is no one-size fits all model of economic development; that in every case you have to take a look at the local conditions.

Nuestras Raices

I will move now to Food. (Slide 38) Nuestras Raices (which in English means our roots) is also located in Holyoke, where one-third of the population is Puerto Rican. Its major project has been converting vacant lots into community gardens that involve over 100 families, producing up to $1,000 worth of produce per plot annually—this adds a substantial amount to the budget of a below poverty line family food budget.

Nuestras also supports an active youth program (Slide 39).  Here kids are selling garden produce at the local farmers’ market. They also coordinate workshops in nutrition, commercial food preparation, organic farming, and leadership skills.

Recently, using mostly volunteer labor and gifts from local businesses, Nuestras renovated an abandoned property sold to them by the city of Holyoke. (Slide 40)  The Centro Agricola has a greenhouse, business incubator, commercial kitchen and a restaurant that uses foods produced from the greenhouse and from a bakery located in the incubator. (Slide 41) 

Something to think about here: much of the capital for the Centro didn’t take a monetary form but came in the form of generous gifts of goods and labor. Remember the diverse economy diagram that I showed you earlier—the economy of generosity is a big part of our reclaiming a community economy.

Nuestras is trying to offer an alternative model of economic development (Slide 42) —one that is not based on recruiting firms from outside the region, or even growing local traditional firms, and is not restricted to the market sector but instead

· actively involves the community

· builds on what people already know (agriculture, for instance)—this is called starting where you are

· and attempts to deliver what they specifically need, like food security and a place for kids to learn skills

Highland Valley Elder Services Caring Community and CitizenChips

The last example I have is about "caring"—elder care. It’s an organization called "Highland Valley Elder Services." (Slide 43) 75 to 85% of care for elders and the chronically ill is provided by family members, friends and neighbors. The market value of this non-market care is approx. $200 billion per year, almost twice the amount spent on paid home care assistants and nursing home care combined. Robert Gallant, the executive director of Highland Valley Elder Services, has been thinking about how his elder care agency could operate to strengthen and support this existing community-based system of care delivery.

Always interested in alternative currencies, Robert traveled around the world doing research on their use. In his travels, he stumbled upon commercial barter networks in California. What separated these from other models is that they became successful and popular in the mainstream—all sorts of businesses were drawn into barter. This was when he realized that elders and other community members could provide elder care in a barter system he calls the Caring Community. (Slide 44) 

He designed an alternative currency to facilitate this process called Citizen-Chips. And here is how they work: (Slide 45) Fred hires Dave for part-time flower delivery and pays him in chips. Dave uses the chips to hire Jean to take care of his mother when she gets out of the hospital. Jean buys a bouquet of flowers for a friend at Fred’s flower shop.

How do these people find out about each other? They sign up on a list of needs and offers. (Slide 46) These are needs, there’s a corresponding one with offers.

This is then mapped using GIS software to show both community needs and offerings (Slide 47). Robert’s map covers the entire Pioneer Valley—you can go on line and find someone near you to wash your windows, or drive you to the store.

People can interact with this themselves or they can advertise services and post needs through community mappers. If you are like my mother, you are not going to be doing this yourself. But people can use the help of these community mappers. What this is doing is strengthening an already existing practice and network of care-giving, creating well-being directly.

Constructing the community economy

I am now going to conclude by summarizing the community economy framework. (Slide 48).  Although we’ve been told there’s only one route to prosperity or even survival, we have seen examples of communities involved in constructing their own economies through participation, in the face of globalization.

They have been constructing the community economy through:

· Marshalling the surplus produced by export-oriented industries (Slide 49), or

· Meeting local needs directly (keeping your eye on the prize) (Slide 50) 

· And something we didn’t have time to talk about—restoring and enlarging the commons (the resource base) (Slide 51) 

Doing any of these things can have a multiplier effect, contributing to the growth of the local economy—that’s the heresy here.

There are also other lessons that we can learn from these communities (Slide 52) 

• 1) No one path or one-size-fits-all development; and no magic bullets.

• 2) Start where you are and build on what you have. Most economic development practice starts with local needs and deficiencies, and then tries to fill those needs from outside. It’s outward looking and deficit-based. Why not look at local strengths and build on those? Locally rooted and asset-based. People are already doing something right.

• 3) Economic diversity as a strength—recognizing that all these things contribute and could be strengthened (Slide 53).  Here you can see again the diverse economies diagram, but this time with the "nasties" taken out—oops! I see I left "theft" in there by mistake.

• 4) Role of the social entrepreneur—dedicating themselves to creating innovative solutions to social problems.

Now, in conclusion, e’ve seen some social entrepreneurs in this presentation: (Slide 54) Don Jose Maria, Robert Gallant, Michael Garjian. But what the community economy calls us all to do is to become a new kind of economic being, where the economy is not something that does things to us but something we do. Our economy is what we make it. Engaging with the community economy can offer us a different sense of ourselves, of our relations with others and of the possibilities for satisfaction in our lives. And I will end by giving you the web site of the "community economies" project. (Slide 55) 

Thank you very much!