December 30, 2009

Small Change/Big Impact

Dear Friends, 

"Lowly, unpurposeful, and random as they may appear, sidewalk contacts are the small change from which a city's wealth of public life may grow."  --Jane Jacobs from "The Death and Life of Great American Cities."

One of the features of BerkShares, the local currency circulating in the Southern Berkshire region of Massachusetts, is that it fosters this wealth of sidewalk contacts ( 

Use of BerkShares, a paper currency, requires face to face economic exchange.  The citizen/buyer must meet the merchant/owner and enter into conversation about the item purchased.  In the course of these multiple transactions an understanding begins to grow of the nature of the business, how it fits in the streetscape of the town, the working conditions of its employees, availability of locally made goods, the impact of new regulations, the necessity to respond to the changing tastes of consumers, the hurdles to prosperity, the many roles the merchant plays in the community as volunteer ambulance squad member, school board official, community theater player.

When purchasing directly from a producer with BerkShares the information shared may be even more deeply sourced in the local landscape.  You may learn how to detect the first signs of a blighted maple tree plaguing the maple syrup industry, or learn how heavy spring rains kept bees from pollinating the apples blossoms, resulting in fewer apples to market. 

BerkShares are a "slow money" to borrow a term coined by Woody Tasch.  It takes more time to process a transaction, time for graciousness, time for building connection with community of place. 

"Inconvenient," some will say.  Yes, when compared to the hastiness and anonymity of an internet purchase.   But rich with information needed for conducting public life.  A democracy only thrives when its citizens are informed and engaged by public issues. 

Slow money is not sleepy money but awake to the flow of economic life pulsing through a region, shaping its future, providing warning signs and creating options for public policy and private initiative.  Perhaps the greatest task of concerned citizens in the twenty-first century is to reclaim responsibility for the consequences of our economic transactions--personally, institutionally, and in public spending.  Slow money is the start of this process.

The function of money is to serve as an abstraction for real economic exchange.  This is both its flaw and its almost mystical power. 

If we did not have the tool of money, we would be we left with direct barter, limited to what we could trade at a particular place and time--carrots for cordwood.  Without the carrots I could not acquire the cordwood.  Money stands for a value created at a different time, stored, and used to exchange for goods needed in the present time.  Money allows values to be collected together and applied to an entirely new type of venture in the future.  This accumulation allows the entrepreneur to organize human initiative and raw materials and create some before-unrealized product for healing the sick, producing energy, transporting goods.  Quite wonderful.

However this tendency in money to abstract actual exchange can rapidly escalate unchecked, so that ultimately money begets money through sheer movement of capital.  The living consequences of the working of capital--the conditions of laborers, the processes used in manufacturing, the effect on eco-systems to obtain raw materials, the fossil fuels used in transportation of goods to consumers, the pockets of accumulation--all tend to be obscured.  Our private discussion and public debate accordingly narrows to cost of goods and return on investment--shaping personal habits of consumption and public policy that drive a global economic system unimpeded by environmental, social, or cultural concerns. 

Slow money again makes us conscious of the impact of our economic transactions--not just as purchasers, but as tax-payers, investors, and philanthropists.    

Last December BerkShares, Inc. took out a full page ad in a local paper listing the seventy-one non-profit organizations that would accept year-end donations in BerkShares.  These ranged from the volunteer fire department, to arts groups, to social service agencies, to the plethora of environmental organizations in the Berkshires. By accepting BerkShares, these groups were committing to re-circulate the BerkShares back in the community by purchasing needed goods and services locally.

A woman in the area, known for her generous support of many different initiatives, called to ask exactly how would someone make a donation in BerkShares.  We explained that you would walk or drive to the project's office, call staff together, look them directly in the eyes, tell them what important work they were doing for the community, explain that you wished to thank them for this good work, and hand them an envelope with a big stack of BerkShares. To calculate the tax value of your gift, you would use the BerkShares exchange rate with federal dollars--10 BerkShares equals $9.50.

Such direct acknowledgement of good work exponentially increases the value of the gift by inspiring staff.  Slower, yes.  It would take more time to deliver the BerkShares in person than to simply write a check.  Inconvenient, yes.  In the short run that is, or so it seems.

I recall the wonderful scene in "The Little Prince" by Antoine de Saint-Exupéry in which the prince encounters a salesman extolling the benefits of a pill to quench thirst.  The salesman explains that by not having to collect water for drinking, people will have more time to do other things.  The prince responds by saying that if he had more time there is nothing he would rather do then locate a well from which to draw water to quench his thirst.  

As residents of the Southern Berkshires shift to trade in slow money, they are at the same time re-imagining their local economy.  It is fair to say that everyone in the Southern Berkshires knows what BerkShares are—that they are in fact a currency that can be spent only in the region.  And it is fair to say that at least fifty percent of the people in the Southern Berkshires have already engaged in long conversations about BerkShares in coffee shops and other "sidewalk contacts."  BerkShares have ignited a community discussion about local businesses and their problems, about local trade and the reasons for it, about the economic role of non-profits, about local currencies in general and their importance, about the role of local banks, about establishing import-replacement business, about economic sovereignty, about changing deeply engrained financial habits, and about a sustainable future. 

These small/slow exchanges are balancing the abstract tendency of money by reconnecting financial transactions with the people, culture, and landscape of a particular place, while at the same time building the community wealth which is the foundation for a newly imagined economic system.

As the year comes to a close, consider the staff members of your favorite organizations and take time to acknowledge their good work.  

Like other non profits, the E. F. Schumacher Society welcomes financial support of its programs. Your tax-deductible donations in BerkShares or federal dollars may be delivered or mailed to:

E. F. Schumacher Society

140 Jug End Road

Great Barrington, MA 01230

Or made online by credit card at:

Best wishes for the New Year,

Susan Witt, Sarah Hearn, Stefan Apse, and Kate Poole

Staff of the E. F. Schumacher Society

Board of Directors: Gar Alperovitz, Jessica Brackman, Neva Goodwin, Hildegarde Hannum, Eric Harris-Braun, Dan Levinson, Constance Packard, Will Raap, Gus Speth, Joseph Stanislaw, and Stewart Wallis.

December 11, 2009

An Economics Informed by Salmon

Imagine leading economists spent time in the wilderness. Perhaps the chair of the Federal Reserve could spend an afternoon standing at the mouth of the Tsiu River on central Alaska's little explored lost coast, as the sleek bodies of silver salmon everywhere swelled upstream pushing against him.

Andrew Kimbrell, driven by his personal experience of the Coho salmon on the Pacific Coast, is on a quest for an economic ecology, a consideration of our economic system as subservient to and informed by nature. As a result of that afternoon in the river, he "began to imagine a world where the economist knows the salmon." For Kimbrell, the salmon embodies the qualities of nature abandoned and ignored by our competitive free market system, namely redistribution, reciprocation and gift-giving.

Appended to this email you will find a selection from Kimbrell's "Salmon Economics (and other lessons)" E. F. Schumacher Lecture pamphlet. The section, titled "Return to Sanity," provides an outline of the salmon's natural economy and its core principles.

The pamphlet goes on to address the crises the salmon are facing due to environmental degradation, bioengineering, and the forces of the competitive market, and then he shows how these crises are our own. Kimbrell offers persuasive arguments about the deleterious effects of the commodification of land and labor, nature and man. He shows how the salmon offer inspiration for living well: "The salmon teach a different lesson. For them there is no linear progress or search for perfection; instead, they seek and fight doggedly to complete their cycle of life."

Salmon returning from the sea to the precise river inlet in which they were spawned bring with them nutrients from the ocean. This vital gift-giving represents an essential part of the economy of all living systems. Kimbrell writes how: "Unlike the self-interest of the market, embodied in legal contracts, gift-giving affirms a sense of community, charity, reverence, and a spontaneous sense of the relationship between humans and the natural world."

As the year comes to close and many gift-giving opportunities arise, we urge you to consider giving the gift of visionary voices, like Andrew Kimbrell's. For twenty-nine years the E. F. Schumacher Annual Lectures have been a forum for new economic thinking. The lectures are edited and published in pamphlet form and sold for $5 each or 5 BerkShares, including postage. A full publication list and order form are available online or on request. We would be pleased to include a gift card with your name in your order.

The full text of Andrew Kimbrell's "Salmon Economics (and other lessons)" is available as a pamphlet or can be read in its entirety here.

Best Wishes for the Holiday Season,
Susan Witt, Sarah Hearn, Stefan Apse, Kate Poole, and Jasmine Stine
Staff of the E. F. Schumacher Society

* * * * * * * * * * *
The Return to Sanity
“To live on the land we must learn from the sea.”
George Sumner

What can the salmon offer that will move us toward a new paradigm in economics? Can their homeward journey help us rid ourselves of the obsolete, dangerous, and somewhat pathological market mentality? To answer these questions we will need to look more closely at the “economy” of the salmon’s life cycle.

When the Pacific salmon return to the rivers of their birth, they carry in their bodies a number of nutrients, including nitrogen and phosphorous garnered from their ocean sojourn. In fact, isotopic analyses indicate that riverside vegetation near spawning streams receives 22 to 24 percent of its nitrogen—the nutrient that most commonly encourages plant growth—from salmon. As a result, trees on the banks of salmon-stocked rivers grow more than three times faster than their counterparts along a salmon-free river. Alongside spawning streams Sitka spruce (Picea sitchensis) have been found to take eighty-six years instead of the usual three hundred to reach 50 cm. in thickness. Research also shows that at least one-fifth of the nitrogen in the needles of Sitka spruce trees and other plants near spawning sites comes from the ocean via Pacific salmon carcasses. These same trees that have been fertilized by the carcasses enhance the quality of breeding and rearing habitats for the fish by providing shade, sediment and nutrient filtration, and large woody debris.

It is not just the vegetation that profits from these nutrients. Muscle samples taken at these riversides from vertebrate herbivores (deer mice, voles, shrews, and squirrels) show increased levels of nitrogen compared with samples taken from animals farther away. The animals eating the salmon also help with the spread of these nutrients. It has been estimated that 70 percent of a black bear’s annual protein comes from salmon. During a 45-day spawn each black bear catches about seven hundred fish and leaves half of each carcass in the forest. At 2.2 kg. per fish, this amounts to 120 kg. of nitrogen fertilizer per hectare of land. British Columbia’s 80,000 to 120,000 bears could be transferring, through salmon carcasses and the bears’ dung, as much as 60 million kg. of salmon tissue into the rainforest, accounting for half of the nitrogen fixed by old-growth trees

Salmon are also the principle source of food for the brown bear. And analysis of hair from grizzly bears, who became extinct in Oregon’s Columbia River Valley in 1931, has shown that 90 percent of their diet came from salmon. Additionally, the salmon’s eggs and carcasses are the major source of food for sea otters and several trout species. The carcasses also provide critical nutrient resources for aquatic invertebrate scavengers, detritivores, and aquatic microbes—organisms that in turn help enrich the nutrient capital of the wetland itself. And perhaps most crucial of all, 50 percent of the nutrients that young salmon receive comes from their dead parents.

In contemplating this “salmon economics” we find no trace of the self-interest and laws of supply and demand endemic to the human market mentality. What alternative economic values are taught by the cohos’ life cycle and final journey? One value is redistribution. The riches of the ocean are redistributed to the wetlands and the rivers. It is an intricate, diverse, and egalitarian redistributive system, extending to the needles of the Sitka spruce, the muscles of the vole, the intertidal microbes, the bodies of the fry, and then even to the bear dung that becomes fertilizer for the trees farther inland.

We do, course, have redistribution in our current economy. Through taxation, for example, we redistribute wealth to aid those in need, whether the unemployed, elderly, disabled, or poverty stricken. But these programs are constantly under attack by free-market advocates and are often eliminated under the rubric of tax relief. Unfortunately, those defending these programs never amplify and undergird their argument by pointing to the natural and ecological archetype of redistribution as found in the salmon cycle and throughout nature. Redistribution is not only altruistic or an expression of largesse, it is the fundamental element in successful and sustainable natural economies. In sum, redistribution is the way nature survives and thrives. It is a kind of natural law. By contrast, the purported free-market laws of supply and demand are recent intellectual constructs with no foundation in nature.

Then too, the salmon teach us about the value of reciprocity. There is a complex reciprocal relationship between the salmon and future animal and plant generations. As noted, the salmon’s nutrients help the growth of riverside vegetation, which in turn provides shade, protection, and nutrients for the growing parr and smolts, preparing them for their ocean journey and the repeating of the cycle. Moreover, the nutrients given to the animals help fertilize the trees, whose roots in turn protect the rivers and streams from erosion. Overall, it would be virtually impossible to comprehensively describe the entire reciprocal interaction between the salmon and the life around them, from microbes through mammals.

As with redistribution, our current economy also contains many reciprocal elements. We pay our taxes so that we can have roads, schools, and other basics that will be there for us. We participate in civic associations, on zoning boards, or in local governments, with the assumption that our time spent will benefit us, our families, and future generations. But perhaps more importantly, the vast majority of Americans’ work is based on reciprocity. My research indicates that more than 70 percent of us get up every morning to take care of something or someone, not to make a profit by selling something for more than we paid to produce or buy it.

This is what I term “the care economy,” which I contrast with “the profit economy.” Teachers, doctors, nurses, firemen, policemen, social workers, and all those working in government and the public-interest community, including those protecting our fellow creatures and the natural world, will not make more or less profit depending on how much they produce. They are the care economy and are paid a flat-rate salary for their service. Firemen will not pick one house to save and turn down another based on making a profit for saving the more expensive house. Teachers will not pick one child to teach over another because they will be paid more for teaching the richer child. After a natural disaster, animal rescuers save mutts and purebreds with equal energy without wondering whose owner will pay more.

The tragedy of September 11, 2001, provided a graphic contrast between the profit and care economies. During and after the terrorist attacks Wall Street closed down, and there was a virtual halt in trading for days as brokers looked to foreign investment until they could assess whether it was safe and profitable to invest once again in America. Meanwhile, from the very first the care economy was fully invested. Emergency workers, police, and fire personnel worked tirelessly and under great personal risk for days and weeks as did health professional, government, and nonprofit organizations. Everyone seemed to grasp intuitively the reciprocal nature of this sacrifice, to understand that the greater community can function only when each of its members gives in this way, knowing that it would will be reciprocated should tragedy strike elsewhere. The fate of each is wedded to the care and skills provided by the other.

The care economy, though it represents a solid majority of us and we all depend on it, is not privileged in our society. Even progressives often call it the “service” economy, which is more suggestive of entry-level restaurant workers than of the vast majority of Americans who are part of this care economy. Instead, America is often portrayed as the land of “entrepreneurs,” where “the business of America is business.” Never do we hear in defense of reciprocation that it is a fundamental principle of natural economic life and has the imprimatur of eons of successful natural economies behind it, whereas the market system with its profit mandate is just over two hundred years old and is already unsustainable.

Along with redistribution and reciprocation, the salmon teach yet another a third economic value—gift-giving. Unlike the self-interest of the market, embodied in legal contracts, gift-giving affirms a sense of community, charity, reverence, and a spontaneous sense of the relationship between humans and the natural world. In a way it is the antidote to the market system. As ethicist Thomas Murray explains:

Gifts create moral relationships that are more open-ended, less specifiable, and less contained than contracts. Contracts are well suited to the marketplace, where a strictly limited relationship for a narrow purpose—trading goods or services—is desired. Gifts are better for initiating and sustaining more rounded human relationships, where future expectations are unknown, and where the exchange of goods is secondary in importance to the relationship itself.

Salmon provide the ultimate relational gift—a gift for the otters, the bears, the rainbow trout, their own offspring, and a gift for all of us who witness and learn from them. This gift is an eternal promise, always kept if not sabotaged by the intrusion of humans and their technology. It is an intrinsic aspect of the very being of the salmon, not given in calculation of receiving something in return. There are so many in our society who give without looking for a return: the teacher staying late to help a student, the neighbor helping the elderly couple next door, those millions giving their time, work, and money to help in a cause they believe in or to help others more needy than themselves. This generosity represents a major sector of our economy but is usually marginalized as exceptional altruism instead of being understood for what it is—an essential part of the economy of all living systems.

One additional and critical economic lesson of the salmon I will mention is the profound importance of the local. Salmon provide remarkable instruction about the fundamental value of place. Father Thomas Berry has spoken about the importance of the “smell of home,” the odor of place. No creature better embodies this teaching than the salmon. An Alaskan Fish and Wildlife study found that just one drop of water from the home stream of salmon added to 250 gallons of water will take these salmon in the direction of that water. It is impossible not to be astonished by the great odyssey of the salmon and their uncanny ability to ultimately find the exact stream or even rivulet of origin and to mate there, with all the redistribution, reciprocation, and gift-giving going to that local place and its environs.

Every Thanksgiving, when tens of millions crowd the airplanes and jam the roads, we catch a glimpse of the homing instinct, however alienated, that survives in each of us. Mobility is prized and privileged in our society (just think of the automobile, which embodies the glorified values of autonomy and mobility—ergo “auto-mobile”). And this is a necessary attribute of the supply-and-demand market economy, which may cause extreme dislocation many times in our lives as we—purported human commodities—move about, often involuntarily, to find work, economic survival, or increased opportunity. Although this dislocation corresponds to the logic of capital, it is not what most of us seek. Reminiscent of the salmon’s journey is the yearning we still carry for home, place, and community.

Moreover, in economic terms the idea of the local is becoming ever more important. For millennia human economics was local, but over recent decades we have seen a massive expansion in the global economy. Now transnational corporations—obeying the call of the market, whose only motive is profit and their own self-interest—roam the world in search of resources and markets for their products. They forcibly bring down trade barriers and any protections that localities might have against this economic onslaught. Corporate-led globalization brings a corresponding contraction, and destruction, of the local economies it replaces. The corporate enclosure of these local communities and eco-systems devastates the natural world, homogenizes cultures, disrupts communities, and deprives their members of any meaningful control over their lives.

How is this process to be halted and reversed? The salmon give us the answer: local production for local consumption. Note that the salmon travel freely as they grow and become mature but always ultimately return to provide their local community with what it needs. I like to think of this as a kind of internationalism based in the local as opposed to the homogenizing juggernaut of market-based globalization. Internationalism allows each of us to travel and learn from all peoples and cultures and geographies, but unlike globalization it understands that the purpose of this travel is to return and nourish the local with a diversity of knowledge and experience.

Fortunately we are beginning to see a rebirth of the local around the world in food and energy production, local currencies, and emphasis on local governance. To those who inevitably will state that this localization is contrary to the ersatz laws of free trade and the market we need only point to the salmon and note that localization corresponds with the laws of nature.
Over recent decades there has been a growing interest in the field of ecological economics, a field that infuses certain ecological realities into current economic thinking. Much good work has been done in this area, but perhaps it is time to reverse the adjective and noun in ecological economics and call it economic ecology, not privileging thereby human economy but recognizing that our economic needs fit into the larger ”economy” of our eco-systems. The tendency in ecological economics can be to “greenwash” capitalism or socialism, By contrast, an earth economics would base the allocation of resources primarily on ecological principles, including those so beautifully embodied in the salmon life cycle and other of the earth’s living systems. It is a call for the economist to truly meet and learn from the salmon, a call for an economics of earth that is based not on the abstractions of thinkers but on the study of, and wonder at, its creatures.

This new and important discipline is not without its precedents. Indigenous societies were never based on market economies but on a mix of reciprocal service and exchange, redistribution of resources, and gift-giving in local situations. These societies based their economic behavior—redistribution, reciprocation, gift-giving, and localization—on the archetypal patterns of the natural systems around them. To survive we must follow their lead, and without delay. We must learn and integrate the great economic lessons of the salmon.

December 3, 2009

Currency Recirculation Equals New Jobs

Dear Friends,

The Christian Science Monitor quotes Schumacher Society on currency recirculation as a jobs development tool.

Best wishes,
Staff of E. F. Schumacher Society‘buy-local’-movement-gives-new-life-to-corner-stores/

‘Buy local’ movement gives new life to corner stores
Communities urge residents to think and spend locally in a bid to boost area businesses.

By G. Jeffrey MacDonald | Correspondent/ December 1, 2009 edition


This working-class town of 18,000 on Boston’s North Shore has a plan for revitalizing its industrial sector, which long ago bade goodbye to textiles, carriage manufacturing, and a hat factory. It starts with an unlikely target: residents’ spending habits.

Local merchants’ “Amesbury First” campaign, due to launch early next spring, aims to get downtown bustling again by inspiring residents to do more shopping there – and less at chain stores in nearby New Hampshire. As more cash moves among local businesses, town boosters say, Amesbury will grow more prosperous and become a destination for shoppers and manufacturers alike.

“The initial goal is to get everybody – business owners, residents – spending money in their town,” says Stefanie McCowan, executive director of the Amesbury Chamber of Commerce. “Then the more people hear ‘Amesbury’ [as a place for business], it becomes natural for somebody to want to move their large industrial business here or bring operations that are going to help support our tax base.”

As recession gives way to the prospect of a slow recovery, communities are increasingly giving traditional development a turbo boost. In addition to courting outside businesses to get more wages and money flowing into their local economies, they’re also looking to increase the local money flow in hopes it will create jobs – and perhaps even lure outside businesses. This practical, two-pronged strategy is taking hold in Canada and the United States, involving entire provinces, like Saskatchewan, as well as small cities and towns in states as diverse as Vermont and North Carolina.

“If you asked what they’re doing to grow their economies, historically they would have said: ‘We’re recruiting business,’ ” says Billy Ray Hall, president of the North Carolina Rural Economic Development Center in Raleigh. “Now they’ll talk about: ‘We’re growing our existing businesses [in part by recirculating funds locally], and if we have an opportunity to recruit a business, we will aggressively pursue that, too.’ ”

To make the transition, communities have to measure their economies in new ways, notably their “leakage” – the amount of local money that moves to faraway hubs of commerce. Successful towns and cities minimize leakage by making sure most dollars spent locally recirculate to other area businesses. Less successful ones have plenty of leakage as dollars get spent once locally, then disappear.

Local merchants in New Orleans, for example, spend 32 percent of their revenues locally, twice as much as a typical chain retailer would, according to a study released in September by Civic Economics, a consulting firm with offices in Austin, Texas, and in Chicago. That’s largely because independent stores spend more of their profits locally and use local service providers, such as printers and marketing agencies, instead of corporate staffers based in other cities. The same study projected New Orleans residents could pump $235 million into their economy just by shifting 10 percent of their spending from national chains to locally owned businesses.

Other studies have projected similar results elsewhere. With a 10 percent shift, Kent County, Mich., could add 1,600 jobs that pay nearly $60 million in additional wages, according to a Civic Economics 2008 study.

“That’s really something,” says Civic Economics principal Dan Houston. “If somebody came to some town in western Massachusetts and said, ‘We would build a plant with 1,600 jobs and a $60 million payroll,’ what would that town do? They would roll over for that proposal and subsidize the daylights out of it.”

Recirculating currency entails more than a switch in consumer spending patterns, according to proponents of the strategy. To blunt leakage in the long term, communities need to focus on producing more of what they currently import from other geographic areas, according to Michael Shuman, author of “The Small-Mart Revolution: How Local Businesses Are Beating the Global Competition.” That means creating new businesses and, sometimes, new industries.

For a model, Mr. Shuman points to Hardwick, Vt. There, businesspeople have focused on supplying more of the region’s local food needs by creating new markets for area farmers. Entrepreneurs have built infrastructure to turn local soybeans into tofu, for instance, and to age cheese for area cheesemakers. Such enterprises, along with growing businesses in related trades, account for as many as 100 new jobs in this remote town of 3,000.

Other towns could take similar steps to depend less on imports from faraway places, Shuman notes, but financing is often a challenge. He argues that if regulations were changed to allow small investors to buy stakes in local private enterprise, then businesses could more easily grow operations to meet communities’ existing needs.

States and provinces are trying the same idea. The Saskatchewan Economic Development Authority this year launched a “virtual incubator” – an Internet clearinghouse to help firms source as much of their inputs as possible from other Saskatchewan-based businesses. Rhode Island state government has expanded RI Nexus, a Web-based forum where the state’s high-tech professionals find one another and do business.

Back in Amesbury, businesses are a long way from growing new industries to make the town or region more self-sufficient, but they are making a point of keeping money moving locally. Five local restaurants buy produce from Amesbury’s 145-acre Cider Hill Farm and tout their locally grown ingredients on menus. Cider Hill co-owner Glenn Cook, in turn, raises particular varieties of lettuce to suit the color preferences of Flatbread, a downtown pizzeria. He also makes a point to put money back into the economy by contracting, for instance, with Amesbury’s R.E. Kimball & Co. to turn his peaches into jellies. Sometimes local businesses charge more than others might, he says, but he finds the extra costs worthwhile.

Higher costs present a recurring challenge in the quest to stem leakage. Companies in many industries work with distributors that aren’t used to using local suppliers. Nonlocal suppliers sometimes beat local prices with high-volume shipments from other states or countries, where input costs are lower. To grow a vibrant local economy, businesspeople and consumers must accept that they’re going to carry higher expenses as a consequence, according to Susan Witt, executive director of the E.F. Schumacher Society, a Great Barrington, Mass.-based advocacy group for strong local economies.

“It’s changing our thinking from home economics to community economics,” Ms. Witt says. “When we do that, the home economics will be stronger because our neighbors, [schools, arts, and social services] will be stronger. That will come back to make our lives richer.”

Changing shoppers’ habits is a challenge, says Ms. McCowan of the Amesbury Chamber, even when local merchants charge competitive prices.

“Trying to convince people to not stop at Lowe’s on their way home – and instead to make sure that they run down to Amesbury Industrial [Supply Co.] on Saturday morning to get what they need – it’s a really long road in educating people,” McCowan says.

Some don’t concede that higher costs necessarily come with the territory of fighting leakage. Mr. Hall in North Carolina says consumers and businesses can grow their local spending sometimes just by finding deals that suit their needs. Even then, he says, towns need to recognize that local spending alone isn’t an economic panacea.

“Turning dollars around locally [through recirculation] will help to limit the amount of dollars flowing out of the region and be a stabilizing influence,” Hall says. “But it’s when you sprinkle entrepreneurship into the mix and have a commitment to grow businesses locally that you have a sustainable base.”

Mondragon: Reclaiming Regional Production Capacity

Dear Friends,

Judith Schwartz's article on the Mondragon Cooperatives was posted today at Miller-McCune.

The loss of productive capacity and skills leaves regional economies vulnerable. Mondragon provides an example of how to reverse that trend and create new jobs.

Best wishes,
Staff of E. F. Schumacher Society

This Import Might Preserve American Jobs
Might a cooperative model that arose from ashes of a civil war serve the Rust Belt economies of America's Midwest?

By: Judith D. Schwartz | December 03, 2009 | 05:00 AM (PST) |

The Mondragón Corporation, a cooperative that arose from ashes of a civil war, may be a model that could serve the Rust Belt economies of America's Midwest.Konstantinos Kokkinis

As the U.S. unemployment breaches the 10 percent mark — with manufacturing sector rates even higher — policymakers and industry representatives in the Midwest are seeking strategies to keep the Rust Belt from getting even rustier. In this war for economic survival, groups in cities like Cleveland, Detroit and Chicago, as well as the million-plus-members-strong United Steelworkers Union, have turned to a model borne of another war-torn region: the Mondragón Corporation in the Basque area of Spain.

The Mondragón Corporation (MCC) is a multilayered organization with worker-owned cooperatives and participatory governance at its core. The corporation is a group of cooperatives and cooperative members, a seat of governance as well as planning, researching and generating funding for new businesses — a kind of meta-cooperative.

The network is comprised of more than 250 distinct, independently run businesses across several industries; more than 100 are worker-owned cooperatives. Some 90,000 people work under the Mondragón umbrella. Taken together, MCC's companies are the seventh largest corporation in Spain and rank among Europe's leading providers of appliances and industrial equipment.

Mondragón has long been a mecca for Americans interested in worker cooperatives. This is in part for the democratic values — shared financial stake in business' success without the threat of outside ownership; one-worker, one-vote governance; and an ethos that values people over profit — but also because of its success. Last year, while Spain's economy languished, Mondragon Corp.'s income rose 6 percent, to 16.8 billion euros. During the 1980s, when Spain's unemployment hit 27 percent, Mondragón's hovered below 1 percent.

Brownfield Development
In 1941, Catholic priest Jose Maria Arizmendiarrieta found a Basque community — Arrasate, as Mondragón is known in Basque — where the striking mountain vistas and picturesque medieval architecture couldn't hide the ravages of the recently concluded Spanish Civil War, rampant unemployment and a once-thriving manufacturing infrastructure in disrepair. Two years later he opened a polytechnic school. And in 1956, the first cooperative, a stove factory, was launched. A bank and credit union soon followed and new cooperatives sprung up in electronics, tools, bicycles and on.

At MCC, the resources of all the cooperatives are pooled in the corporation, which gives small and upstart companies financial ballast and economies of scale. A portion of each worker's earnings is retained as "the patronage dividend," which gathers interest; another portion goes to a collective account of the cooperative, as an investment in the business' future. Workers pay membership fees but receive a percentage of revenues, plus higher interest on their accounts when businesses show a profit. Worker-owners are guaranteed employment; should one enterprise fail — and the failure rate is extremely low — jobs will be found in another cooperative.

The bulk of profit is reinvested into the cooperative network: to an education fund, to research and development, to cover potential losses, etc.; a percentage is directed to regional cultural institutions, maintaining vibrant community life. In order to promote economic equality, there are only five pay scales; in a given firm, the highest-paid employee earns no more than eight times the salary of a beginning worker. (The average Fortune 500 CEO's compensation is more than 400 times what his employees make.)

While the very word Mondragón has evoked an "if only" longing for many co-op watchers, the model hasn't taken root in the United States, even if the broader idea of the cooperative has. Michael Peck, the North American delegate for the Mondragón Corp., noted, "There are over 29,000 cooperatives in the U.S., and 80 to 100 million Americans belong to them." These range from small food purchasing co-ops to large credit unions, and account for $3 billion a year in assets.

But new developments in the industrial Midwest may broaden this. In inner-city Cleveland, the Evergreen Cooperative Laundry opened late last month, the first in a projected consortium of three cooperatives run according to the Mondragón template. On Oct. 27, the United Steelworkers and MCC announced an agreement to team up in forming Mondragón-style manufacturing cooperatives in the U.S. and Canada. Civic leaders in Detroit have consulted with Mondragón representatives and in southwest Wisconsin, plans are underway for the Mondragón-inspired Driftless Foods Co-op, beginning with an agricultural processing plant.

Meanwhile, on Chicago's West Side, Austin Polytechnic Academy is into its third year of offering high school students a combined college-prep and technical training curriculum. In September, a group of Austin Polytech students traveled to Spain and spent four days in Mondragón.
"The school is training the next generation of manufacturing leaders," explained Dan Swinney, executive director of the Center for Labor and Community Research, which helped develop the school. He said that the polytech, part of an effort to revive manufacturing in the now downtrodden Austin neighborhood, is "modeled in part on the Mondragón Polytechnic."

While Mondragón has a business presence in the U.S. — upwards of $200 million a year in mostly industrial products — the Steelworkers agreement marks the first time the Spanish cooperative has joined forces with a North American group.

"The general idea is that, in light of today's economic problems, there's much interest in trying to figure out a way to create jobs that are sustainable and accountable to the workers," said Rob Witherell of the Steelworkers. "This is certainly a step in the right direction." He did not specify a timeline.

Mondragón's Peck said that the disconnect between Wall Street profits and Main Street layoffs has created a hunger for new business structures. "People are beginning to understand that workplace ownership is just as valuable as home ownership," he said.

The newly-opened Evergreen Cooperative Laundry, a state-of-the-art commercial laundry designed for LEED Silver certification, is the culmination of extensive preparation and research on the Mondragón model among several organizations: The Cleveland Foundation; the Democracy Collaborative; ShoreBank Enterprise and the Ohio Employee Ownership Center at Kent State University. Many business ideas were floated, among them a laundry that would serve the local health care community, which includes the Cleveland Clinic, University Hospitals, and the Veterans Administration Medical Center.

"The University Circle area has wealthy anchor institutions that are part of the history of the city's industrial past," said Jim Anderson, who will function as Evergreen Laundry's CEO and is program coordinator at the Ohio Employee Ownership Center. "The neighborhood that surrounds The Circle is poor and underserved, with an average household income of $18,500. We asked: Is there a way to enhance community wealth by employing folks from the neighborhood in worker cooperatives and, at the same time, for them to provide a service to these institutions? Of the nearly $3 billion spent on services and procurements, only about 10 to 15 percent is spent right here in northeast Ohio. We saw in this the opportunity for a for-profit enterprise. The anchor institutions are going to stay here, so why don't' we get jobs that are anchored with them?"

Rather than thriving despite their surroundings, business leaders have an investment in helping the surrounding neighborhood thrive. "We needed to create businesses that would sustain themselves," Anderson says. "These had to be real jobs that would keep people working for the long term."

In fall 2008, a group of a dozen community leaders, professionals and leaders from several universities traveled to Mondragón, which generated yet more enthusiasm about the project, Anderson noted. Alas, this was when the financial system began to unravel. "When we got off the plane, we learned that the bank we were dealing with was sold to a bank in another state," he recalls. "But, still, we got up and kept this process moving — and got here. It's a model we're convinced is replicable, city to city."

Oliver Henkel, chief external affairs officer at the Cleveland Clinic, just returned from a follow-up trip to Mondragón. "These neighborhoods are a base of employment for us, and we prefer to draw on services close by for environmental as well as economic reasons," he says. "While here in Cleveland we can't replicate this model down to the last detail, elements are particularly attractive. In Mondragón, I saw a workforce secure in their jobs working as teams with extraordinary results, plus the security that enhanced wealth creates."

Mondragón is not without its critics. The corporation has subsidiaries in more than 20 countries and so far, these do not have the same cooperative framework. Their retail company, Eroski, has grown rapidly — it operates the largest Spanish-owned food chain — and has more employees than worker-owners. But the company is planning to offer membership to the 40,000 people who work for it.

And no business model can insulate workers from a global economic slide. But worker-members can choose how to confront it and, as has happened, vote to take a temporary pay cut of, say, 8 to 10 percent, to ride out a downturn rather than trim any staff. And, boosters say, the results speak for themselves.

Like many from the U.S. who travel to Mondragón, Susan Witt, executive director of the E.F. Schumacher Society, was struck by the lack of economic disparity when she visited in 2007. "You could tell that no one was wealthy — but everyone was well off," said Witt. Beyond the sense of worker equity she observed, what makes her hopeful about bringing the Mondragón model stateside is the chance to build a resilient production sector. "A huge concern of mine is the loss of production in this country," she said. "The outsourcing of production skills makes us so vulnerable; the memory of production is disappearing. Mondragón shows that there's a dignity and potential in production. That's the lesson to bring here."

The Evergreen Cooperative Laundry is now humming, processing 1,000 to 2,000 pounds of laundry a day from three health care customers. Edward Cole is one of the six workers who run the machines. Cole, 59, learned of Evergreen while living and working at a homeless shelter and was assisted in the application process through Cleveland's Towards Employment program. "It's really great here. It's a good team," said Cole, a Vietnam combat vet who spent 10 years in prison for a crime he says he did not commit. He likes that he has been trained in the use, mechanics and maintenance of every machine.

"If I'm going to become an owner, I want to know what I'm owning." For Cole, the worker-owner model sends a powerful message that he is valued, plus that he can build personal wealth.

Said Evergreen CEO Anderson, "If we're right — and we've been conservative because we've felt obligated not to let this fail — the worker-owners will have in their patronage account $60,000 in eight or nine years. That can help someone buy a home, send a child to college."
"My dream is to own part of this company," Cole said. "Now I have the dreams but don't have the nightmares," he says, referring to longstanding problems with PTSD. "This place is putting that dream in me. I can walk down the street and say, 'That's my company.'"