Building a Democratic Economy: Local Tools in the Struggle Against Neoliberalism

Economic populism has become a defining narrative of the 2016 presidential primaries, with Bernie Sanders pulling the Democratic field to the left on a broad range of issues – including the minimum wage, financial regulation and public investment in jobs, health care and education – and various Republican candidates, most notably Donald Trump, expressing skepticism about trade policy and preferential tax treatment for income from carried interest. This populist rhetoric is appealing to growing numbers of Americans who feel they’ve lost control over their lives, though whether that loss has come at the hands of a predatory corporate economic elite or an over-intrusive federal government remains a point of disagreement between voters who identify as Democrats or Republicans.

But that disagreement misses the real issue: our country’s ascendant neoliberal governing ideology, adhered to by both parties since the dawn of Reagan, is predicated on removing the economy from the realm of popular democracy. Popular control of the economy can be achieved by harnessing the economic populist energy shared across the political spectrum to create deep institutional change. By combining the liberal value of public control of the economy with the conservative impulse for decentralization, we can begin, right now, to build a diverse ecosystem of grassroots political and economic organizations capable of anchoring a new political economy.

The neoliberal ideology, rooted in the twin principles of privatization and deregulation, sees society exclusively through the prism of the market. By removing the government from the economy, neoliberalism cedes management of our national economic resources to corporate hands, placing the economy beyond democratic control. And when market failures do arise – like chronic unemployment and the ever-increasing cost of health care and education – neoliberal governance does not address them directly; it tackles them with administrative tinkering meant merely to adjust the incentives for corporate investment. No matter the result, the solution never involves directly addressing the corporate capitalist institutions at the core of the system.

The Entrenchment of Neoliberalism Under Obama

While President Obama tapped into this populist discontent in 2008 with promises to change politics as usual, the Obama administration has only entrenched the neoliberal status quo.

Obama’s signature legislation, the Affordable Care Act, does not seek to expand health care access and limit our astronomical health care costs through direct public investment, as does much of the rest of the industrialized world. Instead, it sets up a complex and indirect web of tax, subsidy and marginal regulatory incentives for health insurance corporations. The neoliberal governance model leaves health insurance corporations at the heart of the industry, despite their core institutional incentives that oppose the high quality, low cost health care our society needs: on the balance sheet that drives their decisions, services provided are a liability and high prices an asset.

Additionally, the Obama administration’s pursuit of the Trans-Pacific Partnership – along with the Transatlantic Trade and Investment Partnership and the Trade in Services Agreement – strengthens the corporate capitalist beneficiaries of neoliberalism at home by promoting abroad the rules that serve them. The main goal of such agreements is to remove national barriers for investment and access to markets. This goal inherently privileges the multinational corporations that control investment capital over labor, which, for obvious reasons, is tied more closely to location than investment capital; small businesses, which lack the economies of scale to capitalize on cheaper labor and environmental standards abroad; and the national governments, ostensibly empowered by democratic elections, that forego the possibility of creating investment policies that are in their own national interest.

However, President Obama’s failure to express institutionally the calls for change that brought him to power has not made them go away.

Can Bernie Sanders Deliver on His Pledge to Resist Neoliberal Imperatives?

Sanders has surged to relevance with a policy platform that reads like a jeremiad against neoliberalism. Yet, while Sanders is channeling a grassroots desire to achieve populist economic outcomes, the means to achieve them – the all-important fine print – is not yet decided. A turn toward traditional liberal or democratic socialist policies in the New Deal sense are problematic for at least two reasons: centralized, state control of industries has served in the past to demobilize the grassroots coalitions that put them in place; and for reasons not unrelated to the first problem, these policies lack an institutional coalition ready to sustain them in the long run.

Sanders frequently acknowledges these problems, at least indirectly, on the stump, noting the impossibility of his program being implemented without support from a grassroots movement. He calls for ‘political revolution,’ describing it as a dramatic increase in popular political involvement that brings millions of disaffected Americans back into the political process. To do so, the grassroots cannot simply be mobilized to protest against failed policies and for preferred legislation, nor can we remain spectators hardly involved in the design and implementation of top-down, centralized – and ultimately paternalistic – social programs meant to benefit us. The grassroots must be invited to participate in the social programs meant to tip the scale of our political economy back in our favor.

A unique historical opportunity exists to combine growing grassroots political involvement with the development of a network of local, decentralized institutions that can sustain that involvement. The prevailing grassroots energy can be harnessed for the creation of democratically controlled economic institutions capable of anchoring a new political economy – one that incentivizes full employment, ecological sustainability and democratic decision-making in place of the fealty to growth and unfettered market competition that masks the corporate economic control of the neoliberal status quo.

And we can start right where we are, by amplifying and building on efforts already underway. The New Deal was first built in pieces at the local level. So too, will be the new progressive coalition that will deepen our political and economic democracy.

Building a Democratic Economy

We are a large, diverse country. A new political economic system will inevitably need different types of institutions performing different functions, especially if democratic-decision making is a defining value.

Groups like the Next System Project and the New Economy Coalition have been working on building institutions capable of democratizing wealth, which in turn, can stabilize local economies and our environment and make meaningful political participation possible. Cooperatives are essential to economic democracy, as is strategic use of public ownership and quasi-public institutions – think Community Development Corporations, and ‘anchor institutions,’ like universities and hospitals – along with socially conscious corporations and nonprofits.

Cooperatives are key to both wealth democratization and democratic economic decision-making because they can allow workers and communities to share in the profitability of companies and to participate in the decisions that impact a company’s operations and investment strategies. Participation in these decisions is the very essence of democracy, since they determine how income will be distributed and wealth accumulated in our society and the amount and types of jobs that will exist.

Though it might come as a surprise to some, we are well on our way to building an economy populated by cooperatives. Over 130 million Americans already participate in cooperative ownership in one form or another, including the most widely known model: the credit union. And nearly 30,000 US cooperatives, most of them consumer owned, employ nearly a million people and own over $3 trillion in assets.

These cooperatives come in many shapes and sizes, offering flexibility depending on function and ownership structure.

Many small cooperatives exist, from your local grocery co-op to solar worker co-ops and community solar gardens.

Larger coops have also achieved scale. Organic Valley, a Wisconsin dairy cooperative with nearly 1,700 farmer-owners, earns more than $700 million in annual revenue, while Recreation Equipment, Inc. (REI), a consumer outdoor equipment cooperative, has over 5 million members and $2 billion of 2014 revenue.

Community land trusts – cooperatively owned by communities or by nonprofits set up with the help of municipal and state governments – have been perhaps the most effective tool for resisting gentrification and making affordable housing available. Most community land trusts own the land on which affordable housing is built. They lease the land to residents who own the homes, and by sharing equity in the homes, the trust is able to stabilize rents and to make housing available to new members at below-market prices.

Boston’s Dudley Street Neighborhood Initiative operates a land trust that has turned 30 acres of vacant land into 225 affordable homes and extensive public community space, including a 10,000 square foot community greenhouse and an urban farm.

Credit unions, which currently involve close to 100 million Americans as participant-owners, are perhaps the most widely known and used cooperatives. They are nonprofit financial cooperatives that are member-owned and controlled on a one-person, one-vote basis. Taken together, the country’s credit unions hold roughly $1 trillion of assets – the size of one of our country’s five largest banks. And they tend to facilitate loans for everyday purchases like homes and cars, while emphasizing the minority and low and moderate-income families often ignored by the big banks. They are a primary building block for a democratic financial system.

The Bronx’s Bethex Federal Credit Union is a good example: It serves more than 9,000 members, has $16 million in deposits and works primarily to empower local residents with a wide range of services, including loans for students and businesses. Hope Credit Union of Jackson, Mississippi, is another example. It has generated more than $1.7 billion of financing for more than 130,000 people in the Delta region, and half of its loans go to people of color and women, while more than a third of its members were unbanked before joining.

Promising Local Economies

Community Development Corporations (CDCs) and Community Development Financial Institutions (CDFIs), community-based nonprofits that are typically financed with both public and private funds, also work similarly to empower local economies. Over 4,500 CDCs operate in all 50 states and the District of Columbia to provide affordable housing, lease commercial and industrial space, and sometimes make business loans. Nearly 1,000 CDFIs across the country provide credit and financial services to people and communities underserved by mainstream banks.

Though many CDCs and CDFIs are smaller in scale, some larger ones play significant roles in impoverished communities. One CDC, Newark’s New Community Corporation, employs 600 local residents, manages 2,000 housing units, has roughly $500 million of assets and owns businesses whose proceeds underwrite social needs, like day care programs and medical support for seniors. And Boston Community Capital, a CDFI founded in 1985, has invested more than $900 million in underserved communities, and is credited with building or preserving over 14,800 units of affordable housing, supporting childcare facilities serving over 9,800 children, and creating more than 4,000 jobs in low-income communities.

A new form of cooperative, the Cleveland Model, offers the potential to link the functions of many of these institutions together under unified governance. A similar model, the Cincinnati Union Cooperative Initiative (CUCI), is underway in Cincinnati, Ohio, with the support of Mondragon USA.

In Cleveland, the Evergreen Cooperatives, established in the economically devastated Greater University Circle neighborhoods, form a network of worker-owned cooperatives, which kick back a share of profits into a central community-owned co-op. The central co-op can then seed more worker-coops, thereby increasing the community’s purchasing power with living wage jobs and worker equity in the business, creating a virtuous local economic cycle that can spur additional private investment. A unique aspect of the effort, which can be replicated elsewhere, is that it is tapping into the purchasing power of quasi-public institutions – universities and hospitals – that buy $3 billion of goods and services each year, virtually none of which, until recently, had come from local business.

Both Evergreen and the CUCI are based on the Mondragon Corporation, a cooperative network based in Spain’s Basque region. It started as a group of small co-ops in one of Spain’s poorest regions following its 20th century civil war, and has grown into one of Spain’s largest industrial entities, with over 110 cooperatives, annual revenue of 14 billion euros and a benefit society with total assets of 35.8 billion euros ($04.3 billion). Mondragon has partnered with the United Steelworkers, a US labor union, to bring its model to the US through the 1worker1vote cooperative network, which includes the CUCI.

Public Ownership

Public ownership at the municipal level is also providing equitable economic development for communities. Municipal ownership possesses at least two institutional advantages: First, it can return profits to communities to be used for social purposes that have been privatized for no economic reason. Second, as noted by the influential 20th century conservative economist Joseph Schumpeter, the profits produced by public ownership can reduce the public treasury’s reliance on taxation for revenue.

Public ownership, however, presents its own set of problems given the currently weak democratic control of even our public institutions. To truly take advantage of public ownership at any level, democratic reforms are required, including changes to the way campaigns are financed and the rules governing lobbyist access. New ways to achieve meaningful popular involvement in the decision-making of public institutions will need to be imagined and implemented. Public ownership, though, is an important part of an eventual system design, since economic decisions will need to be made collectively and for the common good. And in the meantime, it can be used by popular campaigns to direct public resources to communities and toward popular uses. Even though mainstream political and economic ideology is violently opposed to public ownership, numerous successful examples currently exist.

The most common form of municipal ownership is ownership of energy utilities. Over 2,000 publicly owned energy utilities supply, along with energy cooperatives, over 25 percent of the country’s electricity at costs competitive with their private counterparts. Additionally, with public ownership comes democratic control. The city of Boulder, Colorado, has used that democratic agency to take over the local energy utility, Xcel, in order to transition its energy production more quickly to renewables.

Over 450 communities have built partial or full public internet systems. Unsatisfied with oligopolistic internet service provider prices and reluctance to invest in the newest technologies, the city of Chattanooga, Tennessee, recently built a taxpayer-owned high-speed fiber-optic network. For less than $70 per month, residents have internet access at 1,000 megabytes per second, which is 50 times faster than the average internet speed for homes in the rest of the country.

Many cities around the country have also used public ownership of land development to raise revenue. The city of Denver, Colorado, owns its 37 floor, 1,100-room convention center hotel, which is managed by the Hyatt Regency hotel chain. Others use transit oriented development, like Washington, DC, to retain ownership of land around public transit projects, raising revenue from valuable retail space, created by the public investment in transit infrastructure that would otherwise be given to private developers. And some cities, notably the working-class city of Richmond, California, have used eminent domain to recover blighted, vacant land, many due to housing foreclosures, in order to put it to social use.

State Investment in Local Economies

Government at the state level and municipal level has also invested directly in businesses and economic development.

Around 30 states engage in public venture capital, investing public funds in promising start-up companies.

Public investment funds managing publicly owned land and natural resources, which could include renewables like solar and wind, can be used to raise the revenue needed to make public investments in education, health care and infrastructure. Theoretically, they could also be invested directly to create jobs. One example of such a fund, the Texas Permanent School Fund, took control of over half the land and associated mineral rights remaining in the public domain over 150 years ago. In 2014 alone, the fund gave $838.7 million to state schools.

Public pension funds, which are managed by states on behalf of public employees, can target investment on local community development needs and state economic development, and have done so in both liberal California and conservative Alabama.

State banks can similarly target economic development, with an emphasis on small business loans and loans to low and moderate wealth holders that can increase their spending power. In North Dakota, the state bank has returned to the state treasury over $340 million in profits since its founding nearly a century ago, making it popular amongst both activists and the business community.

Government contracts at all levels can also be used to catalyze local economic development by supporting cooperatives and local private businesses. In Jackson, Mississippi, the activist program supported by the late Mayor Chokwe Lumumba has done just that, using municipal procurement to begin to create a network of community and cooperative enterprises.

Public ownership on a larger scale is also necessary, as Henry Calvert Simons, the 20th century conservative economist acknowledged. Simons, one of Milton Friedman’s teachers at the University of Chicago, understood that it was impossible to ensure competitive conditions in certain industries, and in such situations, he argued, public ownership was the only way to overcome the inevitable regulatory capture. The insight seems to apply today to some of our most predatory markets – health care, education, telecommunication, banking – along with many of the big tech companies that now serve to stifle innovation from would be up-start competitors.

Policy Changes That Could Make a Difference

Though cooperatives and public and quasi-public institutions will form the core of a democratic economy, policies across all levels of government, of course, can help facilitate this transition.

Laws that enable collective bargaining, like the recently introduced Workplace Democracy Act, increase worker participation and begin to move private companies in cooperative directions.

Attaching conditions for corporate investment, like community benefit agreements and responsible banking ordinances, can begin to shift local government away from corporate control toward popular control. Community benefit agreements require that communities be given the opportunity to negotiate the terms of private real estate development over a certain dollar amount. And responsible banking ordinances require transparency from financial institutions regarding their work in modest income and communities of color as part of the criteria for determining which banks are eligible for receiving municipal deposits and other city business.

Though neoliberal institutions are currently ascendant, their influence is waning. Cooperatives and public and quasi-public institutions are rising around us out of the pragmatic need for us, the common people of the grassroots, to meet the problems the neoliberal technocrats and corporate managers cannot address. These new institutional forms are rising within the old neoliberal capitalist system, gesturing toward the possibility of a new democratic political economy.

Public spending programs, of the sort Bernie Sanders is championing, can catalyze the growth of this new democratic political economy. But they are not necessary for its development. The effort of grassroots activists around the country to build these new institutions has shown that the neoliberal end of history had never really arrived. A new history has begun to emerge. If we are ever going to solve the deep social crises we face – ubiquitous poverty and chronic unemployment, ecological unsustainability and historic racial and gender inequalities – we must continue to move it forward.