Author Archives: emilykawano
Springfield is a mid-sized city in western Massachusetts that has been hard hit by many decades of factory closures. It has the dubious distinction of being the poorest city in the state, with unemployment almost double that of the rest of Massachusetts, and a child poverty ranking at the sixth highest in the entire country.
Traditional economic development strategies from prettying up downtown, streamlining traffic, building a riverfront Basketball Hall of Fame, and an urban mall have failed to revitalize the city. The current ‘big hope’ is to lure a casino to the city, despite evidence that casino economies are pretty dicey (pun intended). The poorest communities, which are largely African American and Latino, have continued to suffer from bad schools, high rates of crime and violence, and few job opportunities.
The Wellspring Cooperative Collaborative is working on a different strategy of community revitalization. We seek to build community wealth by developing worker-owned businesses (co-operatives) that will be located in, and hire from, low income communities in Springfield. These businesses will leverage the huge purchasing power of the anchor institutions – institutions that are locally rooted, like hospitals and colleges. Furthermore, the businesses will be interconnected by an overarching cooperative corporation that will enable them to provide mutual support such as training, financing, human resources coordination and exchange of best practices.
Why worker-owned businesses? We believe that workplace democracy is a good model. Workers own the business; they get to practice democracy every day and have a voice in key decisions. Research indicates that this experience has a positive spillover effect to overall civic participation (Majee 2009). As members of the community as well as in accordance with cooperative principles, worker owned businesses strengthen the social weave of the community. As owners, workers get a share of the profits and are able to build wealth that they can take with them when they leave or retire. As worker owners, they are unlikely to close up shop and move offshore in search of higher profits.
Cooperatives have been shown to be very resilient. A Canadian study showed that the five year survival rate for cooperatives in British Columbia was 67% compared to 38% for conventional start-ups (Murray 2011). The Mondragon Cooperative Corporation in the Basque region of Spain has had only two or three of their now 150 cooperative businesses fail over the course of 60 years – a remarkable track record. They weathered the economic crisis by redeploying workers within the Mondragon network and accepting reductions in wages and hours in order to protect jobs. Studies of financial cooperatives such as credit unions show that they have thrived in the face of the financial crisis because they didn’t engage in the kind of high risk shenanigans that the big banks did, and because people trust them (Ketilson 2009).
Wellspring builds on Cleveland’s Evergreen Cooperative model which launched a $5.7 million state of the art green laundry, a successful solar installation business, and is building a hydroponic greenhouse the size of a football field. Evergreen aspires to continue to launch dozens of other cooperatives all of which would use anchor institution demand as a stabilizing foundation for the success of their businesses. Evergreen in turn borrowed much from Mondragon, including the creation of an overarching cooperative corporation, which is a critical piece of providing greater collective resilience.
In Springfield, our Wellspring Collaborative includes all of the major anchor institutions in the city, along with community and labor groups. We have found that there is a great deal of openness to a different approach to economic development. There is strong interest in job creation and there has been virtually no push-back on the idea of worker owned businesses. We are making every effort to make all of the businesses that we’re developing as sustainable as possible. We are close to launching a furniture upholstery cooperative that will refurbish worn auditorium seating rather than see them thrown out. We’re also exploring a food service business that will source local, fresh food, and a hydroponic greenhouse that will draw waste heat from landfills.
We do have to be wary of well-intentioned pressure to support the status quo. For example we repeatedly are urged to support existing businesses by connecting them with anchor institution markets. While we have nothing against this, it is not the strategy that we’re pursuing. Supporting local businesses is not enough, even if it might result in additional jobs. It is important to be clear about the long term and larger vision. We are working to revitalize poor communities by building economic democracy, community wealth, jobs for local residents, and a business network to make these cooperatives resilient. We are working to contribute to an alternative strategy of economic development – one that puts people, democracy, equity and solidarity front and center.
Ketilson, Johnston Birchall and Lou Hammond. “Resilience of the Cooperative Business Model in Times of Crisis.” International Labour Organization, 2009.
Majee, Wilson and Ann Hoyt. “Building Community Trust Through Cooperatives: A Case Study of a Worker-Owned Homecare Cooperative.” Journal of Community Practice, 2009: 444-463.
Murray, Carol. “Co-op Survival Rates in British Columbia.” BALTA, June 2011.
By Prof. Gerald Epstein, UMass. Economics Dept. & Co-director, PERI
(Excerpted from CPE’s Fall Newsletter)
Last year, President Obama boxed himself into a corner…almost. During negotiations with the Republicans in control of the House of Representatives, he agreed to back himself —and the US Economy—up against a “fiscal cliff” that required an agreement on a new budget after the election but before January 1, 2013, or face automatic tax increases, and spending cuts that not only could send the US economy into a recession, but that could also imperil social programs. Still, the typical Republican constituencies might have even more on the table: on the chopping block are Pentagon budgets and the wallets of the very rich, with automatic increases on the wealthy destined to go into effect.
In this scenario, the big danger is that President Obama might try to strike a “grand bargain”, like he tried to do in the summer of 2011, in which he trades away key benefits by weakening Social Security or Medicare in order to reach a budget deal. This time, a number of economists and political leaders have called on President Obama to walk off the cliff, rather than be pushed into a bad bargain.
The Congressional Budget Office has predicted that this approach might create a new recession, raising the unemployment rate back up above 9% (CBO: An Update to the Budget and Economic Outlook: Fiscal Years 2012 to 2022 http://www.cbo.gov/publication/43539 ).
Such a massive fiscal contraction could have very serious negative effects on workers and communities if nothing else were done. At the same time, this approach would have some benefits: it would cut military spending dramatically, and significantly raise taxes on the wealthy. And, the strategizing goes, after January 20, 2013, President Obama could then propose tax cuts just for the poor and middle class which the Republican House might find politically difficult to oppose. This could help catch the economy as it was falling off the cliff.
In addition, these “cliff jumping” nightmare scenarios forget that there is another institution making macroeconomic policy: The Federal Reserve. The Fed has been keeping short term interest rates near zero for several years and plans to continue doing so for the next few years. This zero interest policy would continue to provide some cushion beneath a massive free fall from the cliff, but the Fed should do much more. The problem is that, so far, their near zero interest rate policy (sometimes called Quantitative Easing (QE) ) has not been terribly effective in restoring economic growth.
The reasons the QEs are not having a larger effect are many and can be divided into demand-side factors and supply-side ones. On the demand side problem is the classic “pushing on a string” problem. Too few firms have profitable expansion opportunities given the short-fall in aggregate demand. So they either do not want to borrow, or appear too risky to banks to justify lending to them.
But there is another side to the problem: the financial intermediation system is broken.
This has a number of dimensions. One is that many large banks still have toxic assets left over from the financial bubble and crash; this toxic over-hang leads banks to hold on to excess cash to cover law-suits, write downs, and fines to angry borrowers and government investigators, timid as they may seem. All told, US banks are holding almost $1.6 trillion in excess reserves. Robert Pollin estimates that as much as 600 billion might be precautionary holdings for these types of possibilities.
Another key factor is that the large Wall Street banks have so much market power, that they are using the Fed’s low interest rate policy to pocket vast quantities of profits by borrowing at low interest rates, and then refusing to pass on the savings to borrowers.
Progressive economists have developed important proposals to transform monetary policy to make it more effective. Robert Pollin in a series of papers proposes a carrot and stick: tax excess bank reserves to induce banks to lend out more, while providing government loan guarantees for loans to small business to induce banks to lend more.
But, there also needs to be more direct action. With the banking system so broken, there also has to be direct action to help debtors – home owners and students – to by-pass the broken banking system all together. Senator Jeff Merkely of Oregon has proposed, for example, a fund to buy-up mortgages that middle class and poor homeowners can’t afford to service, and reduce the debt to manageable levels. This is modeled on the Depression era Home Owners Loan Corporation that was highly successful in keeping families in their homes. The Fed could support a program like this by buying the bonds issued by the fund, reducing the costs of running the program.
It is this kind of direct intervention by the Fed, bypassing the broken and overly concentrated banking system, and offering targeted lending to directly help households and students who are facing massive debt over-hangs, that could help transform weak monetary policy into a “bottom-up economic recovery”. This type of monetary policy and debt restructuring could place a “trampoline” for the economy under the fiscal cliff.
Anja Rudiger, National Economic and Social Rights Initiative
In an economic recession, progressives are often kept busy stemming the tide of budget cuts. How can we move from this defensive stance to a proactive solution that puts an end to the austerity paradigm and results in equitable spending and revenue policies? This workshop will explore how the human rights framework can be used to fundamentally change the way budget and revenue policy is made. It can be applied to federal, state and local budgets, enabling us to envision public budgets whose purpose is to meet everyone’s fundamental needs. As an example, we will look at the state of Vermont, which recently took a very first step toward a human rights-based People’s Budget. We will review the tools develop by community activists in Vermont and examine how these can be adapted for use in other states.
Summer 2009. Unemployment is soaring. Across America, millions of terrified people are facing foreclosure and getting kicked to the curb. Meanwhile in sunny California, the hotel-heiress Paris Hilton is investing $350,000 of her $100 million fortune in a two-story house for her dogs. A Pepto Bismol-colored replica of Paris’ own Beverly Hills home, the backyard doghouse provides her precious pooches with two floors of luxury living, complete with abundant closet space and central air.
By the standards of America’s rich these days, Paris’ dogs are roughing it. In a 2006 article, Vanity Fair’s Nina Munk described the luxe residences of America’s new financial elite. Compared with the 2,405 square feet of the average new American home, the abodes of Greenwich Connecticut hedge-fund managers clock in at 15,000 square feet, about the size of a typical industrial warehouse. Many come with pool houses of over 3,000 square feet.
Steven Cohen of SAC Capital is a typical product of the New Gilded Age. He paid $14.8 million for his Greenwich home, which he stuffed with a personal art collection that boasts Van Gogh’s Peasant Woman Against a Background of Wheat (priced at $100 million); Gauguin’s Bathers ($50 million); a Jackson Pollock drip painting (also $50 million); and Andy Warhol’s Superman ($75 million). Not satisfied, Cohen spent millions renovating and expanding, adding a massage room, exercise and media rooms, a full-size indoor basketball court, an enclosed swimming pool, a hairdressing salon, and a 6,734-square-foot ice-skating rink. The rink, of course, needs a Zamboni ice-resurfacer which Cohen houses in a 720-square-foot shingle cottage. Munk quotes a visitor to the estate who assured her, “You’d be happy to live in the Zamboni house.”
So would some of the over 650,000 Americans sleeping in shelters or under highway overpasses.
By the time it was finished, Cohen’s house had swelled to 32,000 square feet, the size of the Taj Mahal. Even at Taj prices, cost mattered little to a man whose net worth is estimated by the Wall Street Journal at $8 billion — with an income in 2010 of over $1 billion. Cohen’s payday is impressive, but by no means unique. In 2005, the 25 hedge-fund managers averaged $363 million. In cash. Paul Krugman observes that these 25 were paid three times as much as New York City’s 80,000 public school teachers combined. And because their pay is taxed as capital gains rather than salary, the teachers paid a higher tax rate!
Back in the 18th century, Alexis de Tocqueville called America the “best poor man’s country.” He believed that “equality of conditions” was the basic fact of life for Americans. How far we’ve come! Since then, the main benefits of economic growth have gone to the wealthy, including the Robber Barons of the Gilded Age whom Theodore Roosevelt condemned as “malefactors of great wealth” living at the expense of working people. By the 1920s, a fifth of American income and wealth went to the richest 1 percenters whose Newport mansions were that period’s Greenwich homes. President Franklin Roosevelt blamed these “economic royalists” for the crash of ’29. Their recklessness had undermined the stability of banks and other financial institutions, and the gross misdistribution of income reduced effective demand for products and employment by limiting the purchasing power for the great bulk of the population.
Roosevelt’s New Deal sought to address these concerns with measures to restrain financial speculation and to redistribute wealth down the economic ladder. The Glass-Steagall Act and the Securities Act restricted the activities of banks and securities traders. The National Labor Relations Act (the “Wagner Act”) helped prevent business depression by strengthening unions to raise wages and increase purchasing power. Other measures sought to spread the wealth in order to promote purchasing power, including the Social Security Act, with retirement pensions, aid to families with dependent children, and unemployment insurance; the Fair Labor Standards Act, setting a national minimum wage and maximum hours; and tax reforms that lowered taxes on workers while raising them on estates, corporations and the wealthy. And the kicker: Through pronouncement and Employment Act (1946), the New Deal committed the U.S. to maintain full employment.
The New Deal reversed the flow of income and wealth to the rich. For 25 years after World War II, strong labor unions and government policy committed to raising the income of the great majority ensured that all Americans benefited from our country’s rising productivity and increasing income.
Advocates of laissez faire economics warned that we would pay for egalitarian policies with slower economic growth because we need inequality to encourage the rich to invest and the creative to invent. But the high costs of inequality in reduced social cooperation and wasted human capital point to the giant flaws in this view. A more egalitarian income distribution provides better incentives for investment, and our economy functions much better when people can afford to buy goods and services.
The New Deal ushered in a period of unusually rapid and steady economic growth with the greatest gains going to the poor and the middle-class. Strong unions ensured that wages rose with productivity, government tax and spending policies helped to share the benefits of growth with the poor, the retired and the disabled. From 1947-’73, the bottom 90 percent received over two-thirds of economic growth.
Then, the political coalition behind the New Deal fragmented in the 1960s. Opponents seized the moment and reversed its policies. They began to funnel income toward the rich. With a policy agenda loosely characterized as “neoliberalism,” conservatives (including much of the economics profession) have swept away the New Deal’s focus on employment and economic equity to concentrate economic policy on fighting inflation by strengthening capital against labor. That has worked out very badly for most of America.
The GOP has led the attack on Roosevelt’s legacy, but there has been surprising bipartisan support. President Carter got the ball rolling with his endorsement of supply-side taxation and his commitment to fight inflation by promoting labor market competition and raising unemployment. Carter’s policies worked to reverse the New Deal’s tilt toward labor and higher wages. Under his watch, transportation and telecommunications were deregulated, which undermined unions and the practice of industry-wide solidarity bargaining. Carter also campaigned to lower trade barriers and to open our markets to foreign trade. These policies were presented as curbs on monopolistic behavior, but the effect was to weaken labor unions and drive down wages by allowing business to relocate production to employ lower-wage foreign workers while still selling in the American market.
Carter also began a fatal reversal of economic policy by refusing to support the Humphey-Hawkins Full Employment Act. Instead of pushing for full employment, Carter appointed Paul Volcker to chair the Federal Reserve with the charge to use monetary policy to restrain inflation without regard for the effect on unemployment. Since then, inflation rates have been brought down dramatically, but unemployment has been higher and the growth rate in national income and in wages has slowed dramatically compared with the New Deal era.
Already in the 1970s, a rising tide of anti-union activities by employers led Douglas Fraser, the head of the United Auto Workers to accuse employers of waging a “one-sided class war against working people, the unemployed, the poor, the minorities, the very young and the very old, and even many in the middle class of our society.” Organized labor’s attempt to fight with labor reform legislation amending the Wagner Act found little support in the Carter White House and went down to defeat in the Democratic-controlled Senate.
Any residual commitment toward collective bargaining under the Wagner Act was abandoned during the Reagan administration, ironically the only union president ever elected to the White House. Reagan, of course, is known as the president who fired striking air traffic controllers in 1981. He is also known for the devastating regulatory changes during his presidency and those of his Republican successors (the two Presidents Bush). Their appointments to the National Labor Relations Board helped to turn this agency from one charged with promoting union organization and collective bargaining to one charged with ensuring that employers were free to avoid unions. Under this new regime, private sector unionism, the unions covered by the Wagner Act, has almost disappeared.
The 1970s also saw a shift in tax policy away from the principles of ability-to-pay and income redistribution toward those associated with supply-side economists who argued for lower taxes on the rich to provide incentives to accumulate wealth. After campaigning for tax reform, Carter signed the Revenue Act of 1978, which gave small tax benefits for working people and dramatic cuts in capital gains and corporate taxes and on the top marginal rates. Since then, major reductions on taxes paid by the rich enacted under Presidents Reagan and George W. Bush have dramatically reduced the tax burden on the richest Americans.
Government spending policies have also turned away from ordinary Americans. In 1996, under President Bill Clinton, a vital piece of the New Deal safety net was repealed with the “Personal Responsibility and Work Opportunity Reconciliation Act.” Abolishing the provisions of the Social Security Act that established the program of Aid to Families with Dependent Children, the 1996 law ended the national right to relief. Along with restrictions on unemployment insurance, the abolition of programs of public jobs for the unemployed and gradual reductions in the real value of Social Security benefits, this act was another blow for working people.
The New Deal showed us how to combine economic growth and lower levels of unemployment. But the widening gap between rich and poor since the 1970s has been associated with higher levels of unemployment and a slowing of economic growth. Had economic growth rates continued after 1978 at the same rate as during the decades before, average income would have been more than $14,000 higher than it actually was in 2008.
The slowdown in growth since the abandonment of egalitarian New Deal policies has cost Americans about 30 percent of their income. And the massive redistribution of income away from average Americans and toward the rich has destroyed the sense that America is a land of opportunity for all. Quality of life has plunged because the shredding of social protections has exposed average Americans to much higher levels of risk. The substitution of defined contribution pensions, such as Individual Retirement Accounts or 401K plans, for defined benefit pensions has reduced retirement security for individuals while reducing the risk borne by employers or other social institutions. Just as important as declining income for many Americans, the stress and anxiety associated with the risk shift has contributed to rising levels of depression and morbidity and a decline in life expectancy for Americans compared with residents of other countries.
Workers’ security has been abandoned. But the government has let financial markets run wild. In 1982, Congress deregulated the thrift industry, freeing thrifts to engage in reckless and fraudulent behavior. In 1994, it removed restrictions on interstate banking. In 1998 it allowed Citigroup to merge with Travelers’ Insurance to create the world’s largest financial services company. And in the Gramm-Leach-Bliley Act of 1999, it repealed the remaining Glass-Steagall barriers between commercial and investment banking. Acting with the virtual consent of Congress and the president, in 2004, the Securities and Exchange Commission established a system of voluntary regulation that in essence allowed investment banks to set their own capital and leverage standards.
By then our financial regulatory system had largely returned to the pre-New Deal situation in which we trusted financial institutions to self-police. Advocates of deregulation, like Federal Reserve chair Alan Greenspan, were unconcerned because they expected banks and other financial firms to limit their risk for fear of failure. Either they misunderstood the incentives facing company managers, or they did not care. In practice, financiers are playing with other people’s money (ours). When they do well, their compensation is tied to profits and they can earn huge sums. But when their investments fail, they are protected because monetary authorities and the United States Treasury cannot allow “too big to fail” financial companies to go bust. So long as risky investments would have periods of high returns, the managers of deregulated financial firms have an incentive to increase their risk, profiting from success while passing the costs of failure to the public. We have all been suffering from the consequences of their failures since the financial crisis of 2007-’08.
The share of income going to the top 1 percent has doubled since the 1970s, returning to the levels of the 1920s. The greatest gains have gone to the very wealthiest and to executives and managers, especially of financial firms. From 1973 to 2008, the average income of the bottom 90 percent of American households fell even while the rich gained. The wealthiest 1 percent gained 144 percent or over $600,000 per household; and the richest 1 percent of the 1 percent, barely 30,000 people, gained over 455 percent or over $19,000,000.
That’s enough to buy a nice doghouse. Or a mansion in Greenwich.
Vermont Adopts New Vision for State Spending and Revenue Policies
Almost exactly one year after enacting the United States’ first universal health care law, the state of Vermont is once again showing the country that another world really is possible. In the wake of an impressively large and diverse May Day rally for human rights, the state legislature passed an unprecedented amendment to the budget bill that takes steps toward grounding Vermont’s budget and revenue policy in human rights. Adopting a key demand of the People’s Budget Campaign, run by the Vermont Workers’ Center, Vermont’s budget is now mandated “to address the needs of the people of Vermont in a way that advances human dignity and equity.”
This is the first time that the purpose of a state budget has been defined in terms of human rights principles. The new provision specifies that public money must be raised and distributed with an explicit focus on people’s fundamental needs, requiring that “[s]pending and revenue policies … recognize every person’s need for health, housing, dignified work, education, food, social security, and a healthy environment.” These human needs lie at the root of social and economic rights protected under international human rights law, which to date have been largely ignored in the United States.
Vermont’s first steps toward a People’s Budget mark an astonishing breakthrough for a grassroots campaign launched only a year ago, on the heels of the successful Healthcare Is a Human Right campaign. In May last year, Vermont’s governor signed a law that committed the state to establish a publicly financed, single-payer-style health care system by 2017. The planning process for implementing “Green Mountain Care” is ongoing; an important debate about the system’s financing mechanism will take place later this year. With spending and revenue proposals likely to dominate political discussions, the Vermont Workers’ Center aimed to sustain and build on the health care success by launching the People’s Budget Campaign under the broad umbrella of Put People First!, a multi-issue grassroots organizing effort designed to link a wide range of people’s struggles and unite them through a shared human rights vision.
Unsurprisingly, the language passed by the legislature this week does not yet accomplish this shift, nor does it embrace the comprehensive accountability framework put forward by the People’s Budget Campaign. But it provides a solid starting point: the new legal provisions connect spending and revenue decisions to people’s needs, require that indicators measure the budget’s success in addressing needs, and task the administration with developing a process for public participation in budgeting. In a country where public budgets are increasingly determined by inputs (available revenue) rather than outcomes (achieving a purpose), these measures offer a powerful springboard for launching a People’s Budget that raises and allocates funds to meet everyone’s needs in an equitable way.
To overcome the formidable obstacles to budgeting based on human rights — and to a health care system financed through progressive taxation — the People’s Budget Campaign will have to continue building the power of the people. It is encouraging how far the campaign has come over the past 12 months in shifting the discourse on budget cuts to a dialogue about government obligations to meet human needs and realize human rights. The inspiring May Day rally was the culmination of a grassroots process during which hundreds of Vermonters took part in a community needs assessment, thousands signed a petition for the People’s Budget, and more than 100 testified to legislators at the annual state budget hearings. As a result, Vermont now requires its budget and revenue policies to advance dignity and equity for all. This carries a tremendous promise not just for the state of Vermont but for the country as a whole. With a growing people’s movement for human rights, a fundamental shift in budget and revenue policies may become possible.
September 27, 2012
Professor Noam Chomsky will accept our inaugural People Before Profits Award and give a talk.
Tickets: Sliding scale of $75-$150. Seating is limited, so please click here for information on reserving your seat.
Vermont is the first state to pass legislation to adopt a genuine progress indicator, which will measure things such as clean air and water and volunteer work that are not otherwise accounted for in the standard gross state product. These things have a real value, but if they are not measured, then their degradation, for example air or water pollution is not counted as a cost. http://vtdigger.org/2012/05/30/an-alternative-to-the-traditional-bottom-line/
May 18, 2012 10:00 am to 2:00 pm
Community Room, C. Burr Artz Public Library
110 E. Patrick Street, Frederick, Maryland
CPE will participate on a panel at the “Occupy G8 Summit for the People.” This Summit is an alternative to the G8 that will have speakers (see agenda below) discuss the effect of concentrated wealth on global public policy, the effects of wealth inequality on peoples’ well-being and alternative economic structures that would close the wealth divide and create a more democratic, sustainable economy. The Summit will include time for hearing the voices of the 99% who will be in attendance. The public and the press are invited.
For full schedule and further details, please visit: Occupy G8 People’s Summit
CPE is happy to announce several special events coming to Western Massachusetts in the next few weeks! Click the highlighted event titles below for more details.
April 25th, 2012
5:30 – 7:30 PM
SEIU 1199’s Main Office
20 Maple St, Springfield, MA
Special Guest: Daniel Tygel – Brazilian Solidarity Economy Organizer
April 25th, 2012
12:00 – 1:30 PM
Pioneer Valley Central Labor Council
640 Page Boulevard, Springfield, MA
April 26th, 2012
2:00 – 4:00 PM
3rd Floor Conference Room, Gordon Hall
University of Massachusetts, Amherst, MA