Gar Alperovitz, Lionel R. Bauman Professor of Political-Economy, University of Maryland, College Park ⁽²⁾

Preston Quesenberry, Research Associate, Civil Society Initiative, University of Maryland, College Park ⁽³⁾
 

ABSTRACT
 

Economic enterprises which vest substantial control and ownership in workers and geographic communities have developed to a far greater extent than is commonly realized over the last several decades. Many such institutions offer a potential for strengthening civil society; some are supportive of participation, others have favorable distributive effects. Community-based economic institutions also anchor jobs in local communities and help provide a structural foundation for a more place-respecting political-economywhich, in turn may be more favorable to democratic practice in general.
 

INTRODUCTION
 

Although there is much to be learned from the ongoing debate over the trends in, meanings of, and interrelations between civil society, social capital, generalized trust, and good governance, there is also something rather odd about the contemporary conversation: to date there has been only a rather superficial discussion of deep-level, systemic forces working against attempts to revitalize or rebuild civic engagement. This paper begins with a brief review of three systemic ways the U.S. political-economy devalues and erodes trust, civil society, and social capital which are beginning to receive important but, we believe, insufficient treatment: a) rising inequality; b) pervasive local economic instability due to capital mobility; and c) the hierarchical, privatized structure of decision-making in economic enterprises. Our central interest is with an evolving class of community-based and related institutions which demonstrate a (still far from realized) potential to at least partly overcome all three challengesparticularly at the local level. These community-based economic institutions tend to increase levels of participation and anchor capital in place; many also have positive direct or indirect redistributive implications. Over time we believe such institutions could have significant implications in connection with issues related to the larger debate over civil society. Our paper provides a preliminary report on a three-year survey of innovation in this area together with a discussion of some possible directions for future development.⁽⁴⁾

The institutions in our survey comprise: community (or neighborhood) development corporations including CDCs and related agencies; cooperatives; worker-owned firms; community land trusts; and small scale municipal enterprises.⁽⁵⁾ A distinguishing feature in each area is some form of quasi-public or democratized ownership of productive capital (including stores, small factories, etc.) rooted in particular localities. Profits flow from such activities in a variety of ways back to small publicseither, for instance, to members, to workers, to neighborhoods, to citizens, or to those served by the organization.

The extent and growth of such institutions is well known among specialists. However, often those not familiar with the field are surprised at the range and extent of recent development. For instance, currently functioning in the U.S. alone there are:

Some 3,500 to 4,000 Community Development Corporations(National Congress for Community Economic Development 1998).

More than 48,000 cooperatives generating over $120 billion in annual economic activity. (The National Cooperative Bank estimates that one-third of all Americans are directly served by at least one type of cooperative.)

More than 15,000 significantly worker-owned firms whose employees own 8.3 percent of corporate equity in the U.S. (National Center of Employee Ownership 1997a, 1997b).
 

The remaining three categories are less well developed and less well known. However, it appears that there are also:

Some 120 community land trusts in 32 states and the District of Columbia-- the vast majority of which have been established in the past 15 years (Orvis 1998).

A wide range of municipally-owned enterprisesfrom the 2,000 municipally-owned utilities to municipal-owned recreational facilities and transportation systems to such less traditional ventures as cable TV, Internet provision, retail stores, hotels, and baseball teams. Indeed, local governments typically use municipal enterprises to bring in nearly half of their total self-generated revenue (the other half being property taxes, sales taxes, licensing and franchise fees, etc.) (Stumm 1997).

More than 350 community development finance institutions (including community development banks, community development loan funds, and community development credit unions).

Our survey was designed to uncover some of the most interesting and innovative developments in each area. Through extensive interviewing and literature reviews our researchers came up with a very large number of interesting examplesonly a tiny fragment of which can be presented in this paper. What follows is a description of the general state of the art and pattern of development, together with some illustrations of the most innovative new directions we were able to discover in four of the areas we researched: CDCs, employee ownership, community land trusts, and municipal enterprises. Particularly important were institutions which demonstrated some capacity to improve equity, and/or enhance local economic stability and participation (internally or in the community at large). Although the institutions obviously involve only a modest share of the overall economy, there has been a steady trend of development, expansion, and learning over the last several decades. A key question is whether continuing efforts of practitioners in these fieldsin combination with federal, state, and local enabling policiesmight lead to continued growth and substantially greater impact.
 

A SPLIT-LEVEL ECONOMY
 

It is now a commonplace that wealth and income inequality have increased dramatically over the past three decades. Since the mid 1970s, households in the top 5 percent have seen their share of national income increase by a third (from 15.9 percent to 21.5 percent) (U.S. Census Bureau 2000a); the top 1 percents share of household wealth nearly doubled (from 19.9 percent to 38.1 percent) (Wolff forthcoming); and the inflation-adjusted income gap between the average family in the top 5 percent and the average family in the bottom 20 percent has grown from $142,658 to $235,392 (in 1999 dollars) (U.S. Census Bureau 2000b).

Although not central to the current civil society debate, to suggest that this marked rise in inequality has contributed to the (also marked) decline in generalized trust, social capital, and civic engagement over the same time period is neither novel nor controversial. Robert Putnam, for instance has observed, there is every reason to think that the two master trends of our timeless equality, less engagementreinforce one anotherand notes that American states with high levels of social capital have significantly more equal distributions of income than low-social-capital states (Putnam 2000: 359-60). Brehm and Rahn (1997) and Alesina and LaFerrara (2000) have (respectively) also shown the effects of state and community level economic inequality on individuals interpersonal trust. Eric Uslaner has gone further and suggested that rising levels of economic inequality are the the key to why [generalized] trust has declined in the United States.⁽⁶⁾ Uslaner argues that the wider the rift between income groups, the less likely individuals are to share common norms, values, social connections, and optimism for the future necessary for generalized trust and bridging social capital. Uslaners regression analysis indicates that rising inequality accounts for almost two-thirds of the decline in generalized trust in the United States (Uslaner forthcoming: ch. 6). Internationally, too, Uslaner holds that the more equitable the distribution of wealth in a country, the more trusting its people will be (Uslaner forthcoming: ch. 8).

A major challenge is obviously posed by the fact that tax-and-transfer measures traditionally proposed to redistribute income are politically stymied. Moreover, for most of the 20^th century such strategies only served to slow downrather than reverse or even haltdeep- seated, century-long trends. As MIT economist Lester Thurow points out, only great social shocks such as wars and economic depression have actually been able to (temporarily) halt or reverse inequality trends. However, no one knows how to engineer [redistributive] changes in less extreme situations (Thurow 1980: 199-200). The unique (and again war-related) circumstances of the economic boom of the Korean, Vietnam, and Cold Wars during the 1950s and '60s also served only to temporarily alter the trajectory of growing inequality.

In the face of unyielding trends a number of authorities concerned with equalityincluding Robert Reich, Richard Freeman, Bruce Ackerman, Samuel Bowles, Herbert Gintis, Robert Kuttner, Jeff Gates, John Roemerhave begun to advocate remedies that are asset- or wealth-based rather than income-based (Reich 1999, Freeman 1999, Ackerman 1999, Bowles and Gintes 1998, Kuttner 1998, Gates 1998, Roemer 1996). The basic concept is that giving relatively poor and other Americans a capital stake up front may be more politically feasible and more efficient than trying to compensate after the fact for inequality through redistributive policies. As Freeman puts it: Equality of income obtained in the first instance via greater equality of assets, rather than as an after-the-fact (or earning or luck) state redistribution of income from rich to poor, would enable us to better square the circle of market efficiency and egalitarian aspiration (Freeman 1999: 14).

Most of the asset-based strategies and policies now being proposed involve giving lower- income Americans some form of individual savings or equity account. These approaches are similar to the community-based, asset-holding economic institutions surveyed in this paper in that they involve before the fact ownership-based egalitarian strategies. As we shall see, however, community-based institutions may be able to take additional steps in the direction of strengthening civil society due to their potential capacity (1) to help stabilize local economies and (2) to foster greater participation.

REDUCING INSTABILITY
 

An economy characterized by free-ranging, investor-owned corporations which open, close, and relocate according to narrow financial criteria makes economic dislocation virtually inevitable. The tremendous upheavals and devastation left in the wake of the rust belt plant closures during the 1980s, as well as the ongoing abandonment of inner city areas by business and investors, are only the most obvious examples of a common phenomenon which has not significantly declined even in the most recent economic boom. Indeed, corporate migration within the U.S. has accelerated sharply since 1996from fewer than 5,200 occurrences annually from 1980 through 1994 to more than 11,400 a year in the late 1990s (Uchitelle 2000).

What effects does such instability have on civil society and social capital? The most obvious answer is that mobile jobs translate into mobile residents who are much less likely to belong to civic organizations, to vote, and to have supportive social networks (Putnam 2000: 204; Verba et al. 1995: 455). Corporate mobility creates unsettling economic dislocations not only for those forced to move, but also for those left behind. Whether or not one moves, being abandoned by ones employer not only leads to a distrust for employers and employing companies, but also to generalized distrust arising from pessimism about the future and about ones capacity to control ones future. Generalized distrust, in turn, makes one much more likely to opt out of participation in civic life, particularly those activities that signify commitment to ones community (Uslaner forthcoming: chs 4, 5).

Some 50 million jobs have been eliminated since 1979, with 7.8 million lost between 1993 and 1997 alone (Shuman 1999). More recent data from the Bureau of Labor Statistics, covering 1997 through 1999, shows an additional 3.3 million jobs lost (Bureau of Labor Statistics 2000). Even when new jobs are developedelsewherethe experiences produced by such realities lead to a level of financial insecurity that persists through good economic times. Even in 1999, the peak of an economic boom, one survey found that only three of five Americans felt our family income is high enough to satisfy nearly all our important desires, a figure 13 percent less than the 74 percent who answered this question in the affirmative in 1975, the trough of one of the countrys most serious recessions. [F]inancial worries and economic troubles, Putnam has also shown, have a profoundly depressing effect on social involvement, both formal and informal:

[For example,] even comparing people with identical levels of income and education, men and women in the financially most worried third of the population attend only one-third as many club meeting as people in the least worried third of the population. . . In other words, it isnt low income per se, but the financial worry that it engenders, that inhibits social engagement. Even among the well-to-do, a sense of financial vulnerability dampens community involvement (Putnam 2000: 192-193).
 

Equally importantbut less often noted in this contextincreased capital mobility renders local governments less able to deal with economic and social problems, greatly diminishing the effectiveness and import of participation in local politics (whether individually or through local civic associations). An impressive political science literature has established that in situations where a citys economic prospects are heavily dependent on the decisions of private investors who may or may not pull out jobs at any time, urban policy inevitably bends towards meeting the needs of mobile capital and existing landed business interests (Peterson 1981; Imbroscio 1997; Stone and Sanders 1987; Logan and Swanstrom 1990). Other interests of citizenssuch as fostering greater equity or prioritizing neighborhood-based development or expanding social servicestake a back seat. When localities are left at the mercy of unstable external economic forces, local politics either becomes relatively meaningless or tilts toward the interests of a narrow range of business-oriented constituencies. (In contrast, the literature also suggests that more progressive political regimes are likely to be formed in places with stable economic bases such as state capitals and university townse.g., Madison, Wisconsinor extremely favorable geographic locations such as San Francisco.) The weakness of local governments is particularly unfortunate for those interested in revitalizing civic life: As numerous commentators, beginning with de Tocqueville and John Stuart Mill, have long noted, local governments provide a natural site for cultivating civic skills and virtues. Local participation also facilitates face-to-face organizing and political action across class, race, ethnic, and gender lines to build what is sometimes today called bridging social capital. When local government is inherently ineffective, local participation loses meaning.

Rendering capital less mobile and thus increasing the economic stability of localities, then, is one requirement of strengthening local level democracy, which in turn is a requirement of forging a sense of common purpose and fostering meaningful local civil society associations in many areas. Although numerous authors recognize that public facilities can be used to anchor local-level economic stability, only a very few have stressed the inherentand growingcapacity of new locally owned economic institutions to anchor jobs in specific communities.
 

FOSTERING PARTICIPATION
 

The workplace is a natural site for connecting with others, particularly as Americans spend more and more of their time at work. However, despite changes in some industries most private and investor-owned businesses today are hierarchical organizations which do little to cultivate norms of trust or reciprocity among members. Hierarchically organized workplaces also provide little opportunity for participation in decision-making, and thus also do little to nurture the habits, skills, interest, knowledge, confidence, and sense of stewardship necessary for wider civic or political participation, particularly among non-managerial employees. Indeed, spending the majority of ones day taking orders in a vertical chain of command is particularly conducive to fostering habits of passivity and apathy, or even subservience and powerlessness. Ever since the rise of the large, bureaucratic economic enterprise, numerous commentators-- including (among others) John Stuart Mill, guild socialist G.D.H. Cole, John Dewey, the peoples lawyer Louis Brandeis, and, more recently, Carol Pateman, Ronald Mason, and political scientists J. Maxwell Elden and Robert Dahl--have recognized the basic contradiction between the habits of subservience cultivated in authoritarian economic structures and the habits of citizenship necessary for a healthy democracy (Cole 1919; Mill 1958; Pateman 1970; Mason 1982; Elden 1981; Greenberg 1986; Dahl 1985).

There is some evidence that hierarchies in traditional forms of business organizations may be becoming flatter and more horizontaland hence may have an increasing capacity to cultivate civic skills, bridging social capital, and generalized norms of trust and reciprocity. It is recognized that increasing worker participation in managementor, alternatively, empowering workers by giving them more discretion in executing their taskscan enhance both product quality and efficiency in management (Drucker 1988: 45). However, giving workers substantial decision-making authority also commonly threatens the prerogatives of management, particularly at mid-levels. As a result, many managers balk at strategies which require them to give up entrenched positions by voluntarily implementing systematic worker participation schemes.

On the other hand, when workers achieve direct ownership of firmsthrough ESOPs, broad based pension plans, and other mechanismsthey potentially begin to build power to force more systematic participation in management. Several forms of community-based economic institutions offer even more potential for broadening participation in economic decision making by extending it beyond employees to the surrounding community. Though varied in actual practice, CDCs, community land trusts, and municipal enterprises usually include some form of community involvement or participation as an underlying principle. Further, most such entities engage in economic activity primarily to serve social, not exclusively material, ends. There are reasons to believe that this makes them more likely to generate norms of public-spiritedness (concern for the public good, justice, etc., and willingness to volunteer to further these ends) and generalized trust than either worker-owned or traditional private firms, which both are more likely to generate norms of individual self-interest and materialism.
 

COMMUNITY-BASED ECONOMIC INSTITUTIONS
 

1. The CDC
 

One of the most prominent alternative institutions to emerge in American urban areas over the past 30 years is the community development corporation (CDC). The CDC was developed in the late 1960s as an innovative tool in the War on Poverty, and was widely seen by many political leaders as a new engine for economic development. The original concept was one that integrated both for-profit and non-profit functions at the level of the urban neighborhood. The initial Federal legislation provided support for neighborhood corporations which undertook to build housing, operate directly owned economic enterprises, incubate and spin-off small scale entrepreneurial efforts, and also help build the neighborhood through advocacy, community organizing, and social services. CDCs were supposed to be controlled by the communities they were servingeither directly or through selected representatives. Further, it was hoped that the CDCs profit making ventures could help subsidize its non-profit activities, so that the double-barreled effort could achieve much more significant community-building impact.

Throughout the 1970s and '80spartly as a result of strategic funding decisions by the Ford Foundation, partly as a result of decisions by the Nixon and subsequent Administrations CDCs were essentially stripped down to a much narrower focus: mainly housing development and small business start-ups. The more robust ideas of community building in general and of advocacy in particular were largely shelved. Nonetheless, over this period CDCs built an impressive record of housing and commercial development and continued to proliferate at a dramatic rate. During the 1980s alone their numbers multiplied ten-foldfrom less than 200 to over 2,000. By 1998, they had increased by roughly another 1,400 to 3,400-3,600. These CDCs have produced an estimated 550,000 units of affordable housing, 71 million square feet of commercial/industrial space, and 247,000 private sector jobs (National Congress for Community Economic Development 1998).

Despite the achievements of this period, activists and analysts frequently complained that CDCs had lost meaningful connections to a grassroots base and were not accountable to their communities. They had become a new breed of developers with little significant community participation (Clavel et al. 1997). By the 1990s, however, CDCs and the foundations which support them seemed to be slowly returning to the original idea that building a mobilized and participating community base is a critical component of community development. After 20 years of funding predominately bricks-and-mortar projects, foundations began to recognize the shortsightedness of such a narrow approach and poured millions of dollars into comprehensive experiments, reports City and Regional Planning Professor Pierre Clavel and colleagues in a recent survey of the CDC field. Almost every major foundation involved in community development had a comprehensive initiative underway in 1996, as did several intermediaries (Clavel et al. 1997). While funds available for organizing and advocacy endeavors still remain small relative to resources available for physical development projects, the current trajectory is clearly towards more community involvement and social capital building approaches.

The jury is still out as to whether the renewed community building goals of CDCs and their funders will actually be met. A 1996 study by Xavier de Souza Briggs and Elizabeth J. Mueller found that while CDC residents rate their neighborhoods physical conditions and their access to social services more favorably than members of a comparison group, few differences existed between CDC residents and comparison groups in terms of resident activism (i.e., attending neighborhood meetings, signing petitions, etc.). CDCs rated higher in terms of representing residents interests (i.e., acting as a broker for the area) than in empowering residents (i.e., involving residents directly in decision-making). Finally, while CDC residents knew more people in their neighborhood than members of the comparison group, half the CDC residents still had no close friends in their neighborhood and most said that their closest ties lived outside of their communities. On the other hand, CDCs renewed emphasis on community building is still a relatively new developmentand was particularly so at the time of this survey.

As noted, most CDCs were not particularly eager to maintain ownership of their own business enterprises in recent decades. Helping residents with their own endeavors (i.e., linking them to capital) was generally judged to be a more effective economic development strategy. Our survey, however, has turned up numerous examples of CDCs in a variety of circumstances that are important vehicles for community ownership and stable job creation. To cite only one of many examples (unfortunately, all that space permits), New Communities Corporation (NCC) in Newark, New Jersey, employs more than 1,400 people, making it one of the largest private sector employees in the city (Codey 1998). Among other projects NCC owns and operates a Pathmark supermarket and neighborhood shopping center. The supermarket is one of the most successful in the entire Pathmark chain, with yearly profits of over $1 million. As its majority (two-thirds) owner, NCC has made important decisions in connection with hiring (100 percent local); prices (lower prices on essential items for a healthy diet); and hours (open 24 hours to meet resident needs). As sole owner of other franchises in the shopping center (e.g., Dunkin Donuts, Mail Box, Pizza Hut, Taco Bell, etc.), NCC has also been able to give its hourly workerseven part- timersfull health benefits. In addition, NCC uses its share of the profits from Pathmark (about $800,000 a year) to help support the CDCs job training, day care, educational, and health programs.⁽⁷⁾

Although empirical research on the redistributive and economic stabilizing impact of CDC activities is all but nonexistent at this stage, the experience of New Communities (and that of others in our survey) suggests how CDCs can help impact inequality and economic stability: First and most obviously, CDC jobs can provide an alternative that not only offers more money, but also, in the context of welfare reform time limits, arguably a more stable source of income. As noted, the nations CDCs were credited with creating 247,000 private sector jobs as of 1998, mostly in areas under-served by the private sector. Because CDC-owned businesses are largely free of narrowly defined profit maximization pressures, they often can choose to stabilize jobs, rather than maximize top-dollar returns to the bottom line. That is, they can keep job-providing businesses runningduring good economic times and badat only modest profit rates that either would not interest a private investor or would-be entrepreneur in the first place or would encourage them to move on to greener pastures. CDCs can also use some portion of retained surpluses to fund community services that both provide service jobs and meet community needs. Finally, CDCs can choose to sacrifice some portion of profits in the interest of higher wages or more benefits for employees or lower prices for residents. NCC, as we have seen, has chosen to do a little of all of these things.

CDCs have also addressed another inequality-related problem: the much larger proportion of income that poor people have to devote to essentials like food and shelter. By building hundreds of thousands of units of affordable housingsome 550,000 units as of 1998CDCs help lower the percentage of income residents must pay to keep a roof over their heads and, perhaps more importantly, also help them build equity. NCC alone houses some 7,000 people and is building handsome $100,000 homes which will be sold for under market prices, offering a rare investment opportunity for Central Ward residents. More and more CDCsoften through joint venturesare also bringing supermarket chains to areas that previously have had to rely on high-priced convenience stores (or a trek out to the suburbs)for instance, in such diverse communities as Newark, Brooklyn, South Central Los Angeles, the South Side of Chicago, Philadelphia, Harlem, and New Haven, Connecticut (Herbert 1998). In cases where the CDC has majority or sole-ownership, as with New Communities, some have chosen to charge even lower prices for staples. The supermarket trend has been greatly helped by the Local Initiative Support Corporations Retail Initiative, launched in 1991a $24 million equity fund to finance at least fourteen inner-city supermarket-anchored shopping centers, developed and sometimes owned by CDCs.
 

2. Worker Ownership
 

One of the most-discussed and best developed alternatives to traditional corporate structures is ownership by those who work in the firm. Employee ownership falls into two broad categories: cooperatives and employee stock ownership. Ideally the worker co-op is 100 percent controlled by worker-owners on a one person, one vote basis. In the U.S., the most prominent, successful, and long-standing examples historically have been the worker-cooperatives in the plywood industry of the Pacific Northwest, which for many years produced about a quarter of the nations plywood during the 1950s. In decline during the last decade (along with the plywood industry in the region in general), these co-ops were both efficient and successful when the industry was still strong. In most instances, moreover, they were fully egalitarian in structure. Each worker-member received equal pay and had an equal share, vote and stake (Bonin et al. 1993: 1300; Berman and Berman 1989; Greenberg 1986). The Northwest plywood cooperatives were also less likely than comparison conventional firms to adjust employment to changes in the market, choosing instead to adjust by changing wages while maintaining jobs (Craig and Pencavel 1992:1085).

Abroad, the large and sophisticated Mondragon network of cooperatives in the Basque region of Spain illustrates how the co-op form can achieve greater equality, economic stability, and increased participation in more advanced industries. Now a highly integrated network of more than 100 worker-owned enterprises employing more than 46,000 people, the co-ops (together known as the Mondragon Cooperative Corporation, or MCC) are the single largest employer in the Basque region. With $6 billion in sales in 1999, MCC is the leading producer of appliances and machine tools in Spain, the largest domestically-based supermarket chain in the country, and the third largest supplier of automotive components in Europe.

MCC firms have a no layoff policy which they implement by moving employees to another sector of the conglomerate when the market shifts (Freundlich 1998). As for equality: policies setting ceilings on pay differentials differ from co-op to co-op, but the great majority of upper-middle and senior managers in the individual firms make no more than 4.5 times than the lowest paid employees, while CEOs make no more than 7 or 8 times than such employees (by contrast, Business Weeks most recent estimate of pay differentials between executives in major American corporations and that of average manufacturing workers is 475 to 1; Reingold and Jespersen 2000). Each worker also receives a share of MCC profits, which accumulate in his or her capital account with the co-ops bank (earning 6 percent interest annually) until the worker retires or leaves work for other reasons. Ten percent of MCC profits go to community projects.

With the decline of the plywood industry in the Northwest most U.S. co-ops are now relatively small in scale; none compare with Mondragon. The last official U.S. count put the total at 154 with about 6,545 memberswith some unofficial estimates running as high as 1,000 (Somayaji 1998: 49). Worker-owned firms in the form of Employee Share Ownership Plans (ESOPs), in contrast, have developed a powerful growth trajectory: In 1974 there were only 200 ESOPs. By 1980, there were 4,000 ESOPS and equivalent programs involving 3.1 million employee-participants and $20 billion in assets. By 1998 there were 11,500 ESOPS (and similar stock bonus plans) with 8.5 million employee-participants and $400 billion in assets. Other forms of employee ownership plans have evolved alongside ESOPs. Some 3,000 broad-based stock option plans (plans that grant stock options to at least half the full-time employees) now involve some 7 million employee-participants. Another 4,000 stock purchase plans (which can give employees a 15 percent discount on company stockand which receive preferential tax treatment) involve 15.7 million employees. Finally, at last count, at least 2 million employees were covered by 401(k) plans invested primarily in company stock. The total number of employee-owners in the U.S. dwarfs the number of private sector union members, a mere 9.4 million workers in 1997. According to the most recent estimate (which does not include employee share purchase plans) employee-owners controlled 8.3 percent of corporate equity in the U.S. (NCEO 1999).

As impressive as these trends may be, even ESOPsthe most inclusive modelcurrently serve mainly as retirement plans with little significant worker control or participation. A substantial proportion of stock held by ESOPs is non-voting and even in instances involving voting stock, the power to vote is commonly held by the plans trustee, rather than the employees who are its beneficiaries (Hansmann 1996: 106). Exceptions to this rule, however, suggest the ESOPs potential: The 200 employees of the 100 percent employee-owned Fastener Industries in Berea, Ohio, for example, elect the board of directors on a one share, one vote basis; participate in the day-to-day management of the company; and must approve any expenditure exceeding $10,000 at monthly board meetings. No single employee at this automotive industry supplier owns more than 5 percent of the stock.

While 100 percent employee-owned firms like Fastener are relatively rare, 2,500 of the 11,000 ESOPs are currently majority-worker-owned. Forty percent of these give full voting rights to employees. A small percentage of all ESOPs4 to 5 percenthave worker representation on the board. At least two-thirds of companies with ESOPs involve workers in decision-making in some capacity. According to one estimate at least half of all companies adopt plans to increase employee participation after creating an ESOP (Rosen 1998). An interesting and potentially important question is what may happen over time as more and more ESOPs (and thus workers) gradually accumulate enough stock to become a majority. As a Business Week columnist observed in a recent editorial: In all likelihood, workers who own a significant share of their companies will want a voice in corporate governance (Dunkin 1991).

Additional participation is also likely to develop from an interest in the bottom line. Numerous studies have demonstrated that ESOPs and other forms of worker ownership or profit- sharing mechanisms can lead to substantial boosts in productivity if (and, in some studies, only if) linked to substantial participation in daily management (Doucouliagos 1995). (See Joel Rogers chapter in this volume for more details.) Experiments with greater participation and empowerment are widespread (one 1992 survey found 55 percent of all businesses had established "teams" and 41 percent had "quality circles") (Osterman 1994: 173).

The degree to which growing worker participation in management and ownership could contribute, first, to more political and civic participation and, second, to stronger generalized norms of public-spiritedness, trust, and reciprocity is as yet unclear. Studies by Gabriel Almond and Sidney Verba; Seymour Lipset, Martin Trow, and James Coleman; and Paul Burnstein suggest that individuals who have more managerial authority at workcommonly white collar and professional workersparticipate more in politics than lower-status assembly line workers. Greenberg studied the cooperative plywood firms and found that co-op worker-members were significantly more active in all phases of political life than workers in conventional firms, suggesting that the egalitarian, impressively democratic nature of the co-op governance gave workers the necessary skills and encouragement to participate more in the politics of the community. Co-ops failed, however, to foster the public spiritedness and generalized solidarity some proponents had predicted. Indeed, co-op workers were more likely (though very weakly so) than workers in conventional firms to select self-interested values. Explaining these findings, Greenberg theorizes that in the context of an unmediated capitalist political-economy, worker-owned and -managed enterprises in America will drift inexorably toward enterprise egoism and membership behavior as collective capitalists (Greenberg 1986: 25, 123, 130, 131, 156, 168).

Worker participation and control is an important element in anchoring ESOPs firmly in localitiesespecially when employees (a) hold a majority of shares and (b) are able to vote their shares for or against buy-outs or relocations. Accordingly, restructuring decision-making may also be important if the community stabilizing potential of worker ownership is to be actualized, especially in publicly traded firms. As noted, the trustees of the ESOP commonly vote ESOP shares. However, ESOP law for privately held companies (which account for 90 percent of all ESOPs) requires that employees must be able to direct the trustees as to the voting of shares allocated to their accounts on several key issues, including closing, sale, liquidation, and recapitalization.

As for job sharing, majority employee-owned United Airlines offers an instructive example of how employee-owned firmseven large public firms in which employee participation is highly attenuatedconsciously seek to avoid layoffs: United has been preparing for anticipated future downsizing pressures by substantially limiting its capacity growth (to about 3 percent versus 10 percent in competing airlines) (Swoboda 1998). In general, other research shows that employee-owners have a greater unwillingness than conventional firms to reduce staff (rather than redistribute existing work) in slack periods (Bonin et al. 1993).

A recent study of Washington state firms conducted by Peter Kardas, Adria Scharf and Jim Keogh takes up the issue of equality directly. This found that average retirement benefits in ESOP companies to be about $32,000 with the average in comparison firms only $12,500. Similarly, a 1990 study by the National Center for Employee Ownership showed an employee making $20,000 a year in a typical ESOP would accumulate $31,000 in stock over 10 yearsno small feat when one considers that median financial wealth in 1998 was just $17,800 (NCEO 1997c). Kardas et al. also found that the median hourly wage of $15.18 in the ESOP firms was 12 percent higher than the median hourly wage in the comparison companies (Kardas et al. 1998). Joseph Blasicommissioned by the Clinton Administration to develop a detailed plan for increased federal assistance to worker ownershiphas advocated a plan to reduce inequality within ESOP firms: Blasi proposes awarding progressively greater tax benefits to companies adopting employee ownership plans which include larger numbers of workers and allocate shares more equitably. He would also eliminate tax deductions for ESOP plans which give stock only to highly-paid executives.⁽⁸⁾

Worker-owned firms are clearly no panacea. Inequality in income and wealth between firms and industries, for instance, is clearly not dealt with by worker ownership. Further, since stock ownership improves the overall income-wealth position of those who participate, it elevates those who work in firms above those who do not work because of age, illness, unemployment, or other reasons.
 

3. Community Land Trusts
 

Another institutional form of interest is the Community Land Trust (CLT). Stemming in part from the ideas of Henry George and Mahatma Gandhi, the CLTs underlying principle is that increases in land value should be captured by the community which, broadly speaking, is responsible for the increasesrather than by a few private individuals. In their current incarnation, CLTs serve primarily to preserve the long-term affordability of housing by removing land from the market and placing it under community control. Typically, tracts of land are purchased and put in a trust which is controlled by a membership made up of users of the land and interested residents from the surrounding community. The trust in turn leases the land on a secure, long-term basis to individuals or to housing cooperatives. Although leaseholders never own the land they use, they can purchase and own homes or other improvements and pass such property onto heirs.

To insure that the prices of buildings do not escalate along with the surrounding market, land trusts retain an option to repurchase houses or improvements at a fair but limited price (calculated by a formula set out in the lease agreementusually the purchase price and cost of major improvements, adjusted for inflation and depreciation). Home ownership is thereby eliminated as a vehicle of speculation but not of equity-building.

Preventing community dislocation through rent explosion or gentrification and increasing community participation in land-use decision making are central to CLT strategyas illustrated by one of the countrys earliest, largest, and most influential CLTs in Burlington, Vermont: In the early 1980s, Burlington, a lakefront city of about 40,000, proposed a CLT and provided a $200,000 seed grant when the citys last affordable housing stock on the banks of Lake Champlain was in danger of being gentrified and becoming a waterfront enclave for the wealthy. The trust was incorporated in 1984; since that time it has built a membership of more than 1,000 and acquired or built more than 500 units of affordable housingincluding apartments, moderately priced single-family homes, multi-family co-ops (including an artists co-op), special needs housing, and transitional housing for women and families.

Burlington Community Land Trust (BCLT) member-residents devote no more than 30 percent of their income to rents or mortgages. By contrast, lower-income renters in the area commonly see half to three-quarters of their paycheck going to rent because of extremely high housing costs. Homeowners in the trust are also steadily building equity. In the 30 to 40 re-sales weve had, almost all of the owners have walked away with something, says BCLT Director Brenda Torpy. Whats more, on the re-sales, the trust has generally been able to afford to sell to lower-income brackets, Torpy says. Weve been selling houses to families making half the median income and below, which is rare, to the say the least. Income caps are set for buyers of land trust homes; home owners who sell are entitled to keep only 25% of the increase in the value of the home from the time of initial purchase. Costs of single-family homes on the land trust are currently about one-third less than the average market rate in the Chittenden County as a whole.

Although land trust experiments date from the late 1960s, the idea took off in the mid- 1980s as groups responded to an increasingly urgent need for affordable housing. By the end of the 1980s there were 40 operating CLTs and a decade later this number had tripled to about 120. Diverse groups have established CLTs: local governments, CDCs and other non-profit neighborhood associations, churches, and low-income people themselves. The communities in which successful land trusts currently operate are equally diverse: from rural Wisconsin and New Hampshire to low income neighborhoods in such major cities as New York City, Boston, and Washington, D.C.--to smaller towns and cities such as Fort Collins, Colorado; Norwich, Connecticut; and Akron, Ohio. Currently, most CLTs are relatively small affairs, providing fewer than 150 units of low-income housing. However, a solid basis in experience has been established upon which further development could well occurespecially if given additional support.

4. Municipal Ownership
 

In addition to helping vest ownership of land in community trusts, another option for local governments is to simply retain ownership of property. Indeed, the retention and leasing of municipally-owned land to private business interests is a very common and far more widespread revenue generating tool than most writers and authorities understand. Participating lease arrangements for the use of publicly-owned propertyin which the developer pays the public sector a portion of its profits on top of an annual base rentare also common. To cite only one of many examples: San Diego, Califonias, real estate assets department currently manages 410 leases which generate $28 million a year from uses ranging from agriculture to housing, recreation, tourism, parking, industry, and commerce.

Public land leasing has been practiced in modern form by U.S. cities since at least the 1970s. A major turning point occurred when the city of Boston embarked on a joint venture with The Rouse Company to develop the Faneuil Hall Marketplace (a downtown retail complex) and not only kept the property under public ownership but also negotiated an agreement under which the city secured a portion of the developments profits. By 1987 Boston was collecting some $2.5 million per year from the marketplace. According to one estimate, Boston had taken in 40 percent more than it would have collected through conventional property taxes by 1987. Following Bostons example, numerous other cities opted to retain ownership of development sites for new downtown retail centers, including Philadelphia (Gallery at Market East), Milwaukee (Grand Avenue), Cincinnati (Hyatt-Saks), and Baltimore (Harborplace) (Imbroscio 1995: 218).

Also dating from at least the 1970s (and picking up steam of late) is the joint development of publicly-owned land surrounding mass-transit stations. Retaining public ownership in such instances allows cities to capture the often immediate and dramatic rise in the value of surrounding property that frequently accompanies the opening of a new transit station. In addition, it enables cities to plan a mix of development strategies (retail, housing, office, etc.) around transit stations in order to maximize the potential benefits of the public investment. A well-developed example is the Metropolitan Area Mass Transit Authority in Washington, D.C., but other transit authorities in cities around the country-- including Miami, Atlanta, San Francisco, and even Cedar Rapids, Iowahave also adopted this approach. To ensure the benefits surrounding transit stations are shared by all income groups, some authoritiese.g., the Valley Transportation Authority in Santa Clara County, California, and the Bay Area Rapid Transit District (BART) in San Franciscohave set aside a portion of the development for low-income housing. BART has also encouraged community participation at its Fruitvale station, working with a community-based organization to implement a community-designed and initiated plan for a transit village surrounding the station.

Retaining public ownership of property is only one of many municipal ownership strategies. Cities can also directly own and operate business enterprisesan approach that has proven to be successful in utilities (including not only electricity but also telecommunications, Internet service provision, and cable television) and provision of services (such as recreation, use of government data, retail, etc.). Although many public agencies have historically been inefficient, there is also a century-long record of publicly owned municipal electric utilities in which efficiency, on average, has been better than comparable privately-owned utilities. Some 2,000 public power utilities provide service to 35 million people (one out of seven) in the U.S. today. Although the majority are in small communities of less than 10,000, large scale public electric utilities can be found in Los Angeles, San Antonio, Sacramento, Seattle, Nashville, Jacksonville, and Memphis. Studies by the U.S. Department of Energy show that public utilities typically charge residential customers rates 31 percent lower than their private counterparts; for commercial customers rates are 22 percent lower on average (American Public Power Association 1999).

Many municipal utilities emerged in rural and small communities earlier in the century because private, investor-owned electric utilities refused to serve low density areas with low profit potentials. Today the same phenomenon is occurring in connection with private telecommunications: companies often neglect to build advanced telecommunications infrastructure in small and rural communities and instead favor large, more urbanized areas. Such "electronic red-lining, as the Alliance for Public Technology (APT) calls it, exacerbates inequality between regionsespecially as up-to-date technological infrastructure has become vital to maintaining or building a healthy local economy and to giving individuals marketable job skills. As a result municipal governmentsmost often the municipal electric utilitieshave stepped in to fill the telecommunications void. More than 100 local governments have either already built or have begun a feasibility study to build a publicly-owned communications network that is capable of supporting cable, telecommunications, and the Internet. Among such cities nationwide are: Anaheim, California; Tacoma, Washington; Nashville, Tennessee; Gainesville, Florida; Rockville, Maryland; and Lincoln, Nebraska.

The case of Glasgow, Kentucky, is illuminating: In 1988 Glasgows municipally-owned utility began the construction of a telecommunications network spanning some 120 miles of cable. As a result, the towns 14,000 residents gained access to the Internet that is 100 times faster than a telephone modem while paying only $11.95 a month for unlimited use. They also gained access to an Intranet, which links local government, businesses, libraries, schools, and neighbors. The city offered residents a package of 53 cable channels for under $15.00 a month (by comparison, a private provider, before facing the citys competition, was offering 21 channels for $40 a month). Glasgow also now offers its residents an alternative to their local phone service provider, GTE. Because they are municipally-owned, all of these operations must follow an open-books policy, so that residents can see for themselves how money is managed. Further, since operations remain on the local level, residents can influence policy decisions, such as rates, by attending city council meetings. Lower cable rates alone have saved residents an estimated $10 million over ten years. The broadband network directly employs some 50 people and, in addition, has helped attract and retain other major employers to the area.⁽⁹⁾

Cable TV and the Internet are not the only non-traditional public enterprises now common at the local government level. Roughly 75 municipalities across the nation are currently involved in some type of revenue-generating methane recovery operationsprograms which collect potentially harmful methane gas from landfills and turn it into a money-making energy source. Other non-traditional forms include retail enterprises, the marketing of various consulting services to private firms, and even the selling of reprocessed waste as fertilizer. Several cities own minor league baseball teams. There are also some 2,451 municipal golf courses nationwide (16 percent of the national total), and some 400 public water parks.

Local public enterprises contribute to economic stability in a number of ways: Most important, such enterprises involve job-producing businesses which are firmly anchored in place; when a public entity owns a business enterprise, it is inherently tied to the community in which it operates. This both leaves the locality less vulnerable to disinvestment and also can prevent it from having to expend resources on locational incentives to attract businesses or prevent mobile business from fleeing. In addition, revenues generated by public enterprises can improve a localitys financial situation, further stabilizing it economically. In an era when the traditional means of generating revenuetaxationis increasingly inhibited by both structural and political forces, profit-making public enterprises can be a source of funds to supplement the cost of basic public services. Having a strong array of public services available to both businesses and citizens in turn adds even greater economic stability to the locality.

Giving local government at least some control over economic enterprises also opens up the possibility of a degree of community-wide participation in the management of these resources (a possibility much more remote with corporate ownership). It also gives local governments some independence from corporations on the one hand, and higher levels of government on the other. It thereby enhances the reality of local decisionsthus making participation more meaningful. As previously indicated, strong empirical research suggests that progressive, more broadly-based, and participatory policy regimes are more likely in places with stable economic bases.
 

Future Possibilities
 

The emergence of community-based institutional forms has been assisted in varying degrees by federal, state, and local policy over the last thirty years: CDCs, as noted, were originally a product of the federal War on Poverty, and although CDCs are now less dependent on federal dollars than in previous decades, the federal government still remains the CDCs biggest funding source. At the state level, there are model programs assisting CDCs in housing provision in New York, Ohio, and North Carolina; related programs which assist community development exist in Massachusetts, New Hampshire, Ohio, and Wisconsin. Local government support and cooperation has also played a key role in CDC success. A recent Urban Institute Report found that support for CDCs among city governments and other local institutions has grown substantially as cities around the nationincluding Indianapolis, Baltimore, Cleveland, Portland, New York, Seattle, Boston, Philadelphia, Washington, D.C., Newark, and Kansas Cityhave given CDCs a major role in neighborhood revitalization strategies (Walker and Weinheimer 1998).

As for worker ownership: ESOPs began to take off after Congress approved a provision in 1974 tax legislation which allowed companies to deduct contributions of stock or cash to a worker trust. Over the next twelve years new ESOP tax incentives were passed in every Congress; one of the most important being a 1984 law allowing owners of closely-held private companies to be excused from the capital gains tax if they sold at least 30 percent of their company to employees. About half of all ESOPs are now formed in this manner (NCEO 1999). Seventeen states also have some level of legislatively mandated support for worker ownership, and five statesWashington, Massachusetts, New York, Oregon, and, in particular, Ohiohave had active state worker ownership programs.

A related development is the growth of new financial institutions dedicated to the development of a particular local area, usually one that is under-served by traditional commercial lenders. Community Development Finance Institutions (CDFIs) include community development banks (such as South Shore Bank of Chicago) which operate at a profit by making investments in low-income communities. Also included are community development credit unions, community development loan funds, and micro-credit/microenterprise programs. CDFIs received a considerable show of support from the federal government in 1994 when Congress overwhelmingly approved a Community Development Financial Institution Fund in September of 1994. The CDFI Fund provides assistance to certified CDFIs in a variety of forms, including equity investments, deposits, loans, grants, and technical assistance. In its first two rounds, the CDFI awarded $75 million to 74 CDFIs and $30 million to 93 banks, thrifts, and CDFIs for lending and investing in low-income communities under the Bank Enterprise Award Program. The 1977 Community Reinvestment Act (CRA)which requires banks to document the financial services they provide, thus making it difficult to systematically deny credit/services to specific geographic areas (redlining)has prompted banks to boost their lending and investment activities in low-income communities (by 85 percent between 1990 and 1994 alone).

Even seemingly small policy steps can have a major impact: Publicly-owned transit-stop development, for instance, received a significant boost in 1997 when the Federal Transit Administration shifted its policy and actively began encouraging transit agencies to develop surplus property . . .to generate revenue through land leases (Pendered 1999). The 1996 Telecommunications Act gave municipal ownership a boost; it expressly allowed any entity providing cable television to enter the telephone business. The Iowa Supreme Court ruled in 1999 that the Act thus provided a legal basis for some city utilities to provide phone service (Clayton 1999).

Policies in support of community-based economic institutions appear to be increasingly politically viableparticularly when compared with income-based redistributive measures. There is considerable evidence that the idea of worker ownership, for one, is politically popular across partisan lines. Politicians and commentators who have spoken out in favor of worker-ownership include Jesse Jackson, Jesse Helms, Ronald Reagan, Bill Clinton, George Bush, Mario Cuomo, Dick Gephardt, Jack Kemp, Bill Bradley, William F. Buckley, George Will, and the liberal Berkeley Daily Gazette (Gates 1998: 166-67). Rep. Dana Rohrabacher of California, a former Reagan speech writer and one of the Houses more conservative Republicans, recently introduced the Employee Ownership Act of 1999, with the goal that by the year 2010, 30 percent of all United States corporations are owned and controlled by employees of the corporations. The bill would create a new kind of employee-owned and controlled corporation in which employees would own at least 50 percent of voting stock and would get to vote on all corporate issues on a one person, one vote basis. The bills 34 co-sponsors run the political gamut, from very conservative Republicans like Rohrabacher and Ron Paul of Texas to liberal Democrats like Dennis Kucinich of Ohio and Marcy Kaptur (Ohio Employee Ownership Center 1999: 4).

Even municipal ownership is increasingly less likely to be decried as creeping socialism than it is to be hailed as an entrepreneurial attempt to raise revenue for cash-strapped local governments. Indeed, raising local government revenue through municipal enterprises often appeals to conservative elected officials who find taxation distasteful or coercive and prefer market exchanges. At the same time liberals often favor the public guidance such strategies permit. In general, market-based approaches are also politically popular: three separate surveys by the Advisory Commission on Intergovernmental Relations have shown that taxpayers prefer to pay for services on an exchange basis rather than increase property, sales, or income taxes to provide services (Stumm 1996).⁽¹⁰⁾

The developmental and policy work done in connection with community-based economic institutions over the last 30 years has established a substantial base upon which to build in the future. Although the institutions we are examining are currently modest in scale, given adequate support the possibility of a major expansion in the next century is by no means excluded.

An especially important factor in this regard is the decline of manufacturing in the U.S. economy: manufacturing today employs less than 14 percent of the workforce and is projected to shrink to about 9 percent by the middle of the next century (Bureau of Economic Analysis 1995). The economy of the future will be dominated by services, a sector that is much more locally-oriented and enjoys fewer economies of scale than manufacturing.

The deindustrialization of urban areas, a steady expansion of local consumer services, and the considerable growth of the local public and health sectors all work toward a more local economy, observe urban experts Wim Wiewel and Joseph Persky (Wiewel and Persky 1994). Economist Thomas Michael Power has also documented the growing localness of U.S. economic activity. He found that approximately 60 percent of economic activity is local ... Thus almost all local economies are dominated by residents taking in each others wash... (Power 1996: 37, 49).

If such underlying forces continueand the advantages, politically, socially, and economically are more broadly realizedthe trends we have been examining may well accelerate. Add to this the potential broad political appeal of community-based institutions, and there appear to be possibilities for serious longer term, step by step developmental expansion. If so, the longer term implications for participation, equity, and economic stabilityand thus civil society and social capitalcould be much more significant than is commonly appreciated.
 
 

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1. The authors wish to thank Ted Howard, Kristin Rusch, Alex Campbell and Brendan Leary for their assistance in developing this paper.

2. Gar Alperovitz is also President of the National Center for Economic and Security Alternatives. He is the author of numerous articles and books on political-economy and history, most recently, The Decision to Use the Atomic Bomb (Knopf, 1995).

3. Preston Quesenberry is currently a J.D. student at Yale University Law School.

4. The survey, Innovations in Ownership, will be published in 2001 (Howard, forthcoming).

5. We will shortly be completing additional work on non-profit organizations which are significantly involved in economic activity an area of expanding activity.

6. See related arguments in Seligman 1997: 37-41; Putnam 1993: 174.  On the relationship between trust and inequality, see Uslaner: chs 2, 6, and 7; Knack 1999; Brehm and Rahn 1997.

7. For more details on NCC and other innovations, see The Emerging New Society(Rusch, forthcoming).

8. The study by Kardas et al. also casts doubt on the longer term egalitarian potential of ESOPs in the absence of such strategies. It found that although ESOPs improve income in general, the degree of inequality within ESOP firms may in the end be greater than in the comparison firms. Because ESOPs tend to allocate stock on the basis of payroll, those at the top of the wage scale in ESOP firms do significantly better than their non-ESOP counterparts in comparison to those at the bottom in both types of firms.--

9. See Rusch (forthcoming) for additional details.

10. If not properly structured, such market-based efforts policies can have regressive economic impact. However, utilities  and related pricing strategies demonstrate alternative options. See Williamson et al (forthcoming) for discussion.