Community Economics and Civic Capitalism

Community Economics and Civic Capitalism


In this video we’re going to think about community economics, and explore the ideas of civic capitalism. When we think about community economics, in a broad sense, we could see how there’s quite a bit of variability from one place to the next. The amount of economic activity that’s localized in a community is going to be related to how autonomous, resilient, and viable that community is. Some communities, they’re dominated by regional, national, or global entities–multinational corporations– which have little responsibility or affiliation with the local community, and could up and leave without any notice at any time. So communities dominated by such actors are really in a state of peril, a very kind of vulnerable state. On the other side of the coin, are communities with a robust civic capitalism, which is an embedded local economy. This has implications for how we buy things, produce things, and for how we work. In order to understand community economics it’s helpful to think about financial capital and the way that works in the current context. Because economic growth and development requires investment, if you don’t have capital it’s hard to develop an economy. As noted by Tolbert et al, from 2014, there’s been an ongoing consolidation of banks and financial institutions that has made access to investment funds scarce, particularly for small business owners, who also tend to be local business owners. So the decline of local financial institutions has coincided with the decline in local businesses. This is one of the real barriers to promoting a civic capitalism. Absentee owned financial institutions, or national, or international financial institutions, are simply less likely to take a chance on small-scale businesses that have low potential for success, by their models. We have this cycle going on of declining financial institutions, declining investment funds, and as a result, declining small businesses and firms that are local, because we need capital for those local producers. The access is simply not there, and that’s going to of course limit how much local enterprise can develop, and it also creates conditions that privilege larger firms that have less attachment to the local place. That means we’re promoting a system of instability and vulnerability instead of resiliency. Thinking about this idea of civic capitalism, we can look at the work of Mooney who argues that we need to democratize the rural economy. Mooney points to four tensions, and one of those is the tension between capitalism and democracy. Whereas democracy is built on everybody having a voice and participating, the way that capitalist organizations are operating typically is the owners, which are a small minority of the organization, typically make all the decisions. There are some exceptions of that, as we’ll see, such as the co-operative, non not-for-profit organization. There’s a tension between the local and global in terms of how embedded the economy is locally, and in terms of resiliency, those types of issues. Then there’s the tension between traditional versus new social movements, and the tension between production and consumption interests of the public. Whereas, at one time, rural communities were defined by their productive capacity they’re increasingly defined by their consumption.When we think about the global capitalist economy, we can note that most organizations and firms are what we would call investment-oriented, and that means they have a shareholder model where they’re publicly traded and there’s a board of directors who makes decisions. Most of those decisions are oriented to promoting profit growth in order to please the investors. Shareholders are the voters of how things work, they approve or disapprove of the decisions made by the Board of Directors and this is not that democratic, because it’s a very small number of people making decisions that will impact a much wider range of people. It gives huge benefit of power to large shareholders. Decision-making is calculated by profit, and that means not necessarily by social or environmental concerns, and another way of saying that is that it’s based on exchange values rather than use values. Most IOfs are globally organized, and that means they’re not rooted in place. Therefore, more likely to relocate if the market demands it than a local firm which would find it much more difficult to pick up and move. We say, local firms owned and operated by local people, are much more rooted in the community. Economic ties that people have to one another in local communities tend to also spill over into social, cultural, and human ties, so you might work with somebody but you might also have your kids in school together, and participate in the PTA, or some youth group, or athletic club. There’s a lot of different ways that people can interact outside of economic ties, although that may be one of the central ways people know each other. One promising alternative to the IOF, is what’s called the co-operative. There’s different types of cooperatives and we’ll look at some of those. But what a cooperative offers is a viable model on which to build small-town businesses. Local economic growth around cooperative models has actually some pretty good evidence of working in some places. It’s not always successful, but it can be a good alternative. It involves a group of owners / employees running a business and, if you are an employee who is also an owner of the business, the success of that business is going to hinge on your performance as a worker. So you’ll be incentivized to work very hard to make sure that the business is successful. Compare that to, say minimum wage workers in an IOF, who really could care less about the success of the business as long as they’re getting their small paycheck. In cooperatives, decision making is much more democratic–there’s usually a one vote, one worker rule in place. Not always, but that’s usually the case. That’s certainly not the case with an IOF. There’s no division of worker and owner, so that conflict that plagues most organizations in a capitalist economy, is just not there. You have greater fairness and greater efficiency happening at the same time. Cooperatives tend to be locally rooted and embedded, connected to the locality. Moving operations is a difficult task. Some cooperatives allow members to join as users rather than as workers–you can buy a share as a person who consumes the product–maybe it’s a grocery store, something like that, and you, by becoming a member, you get access to a certain amount of groceries, as sort of like a dividend. Membership grants user-rights rather than return on investment, as is the case with IOFs. This opens the door to valuing things beyond profit, so use values come to have a greater priority in this scenario than exchange values, perhaps. A good case study analysis was conducted by Gray and Stofferahn, in 2014, that examined the transformation of a firm that was once cooperatively owned but was transformed into an IOF, and what that meant. It’s the Dakota Growers Pasta Company, and it started as a cooperative devoted to local farmers, and they were producing durham which is used to make pasta. The workers / owners all voted to sell to Glencore International, which is a global IOF. In return, Glencore promised to protect local actors and farmers–eventually as profit demanded it–reneged on that promise. So, the rug was sort of pulled out from underneath the local people who voted to allow themselves to be bought by Glencore. Eventually Glencore was bought by somebody else–got swallowed up by another firm. That is what tends to happen in a global economy with larger and larger organizations swallowing up smaller ones. So, the lessons of this case study is that even well-intentioned investment oriented firms such as Glencore International, because arguably they didn’t really intend to renege on their promise in the beginning. I mean, I think their intentions were good, but shareholders made demands. Shareholders voted on going for profit over keeping a promise to local farmers, and that’s sort of the lesson that comes out of this. Global firms don’t think twice about relocating operations–all the ties are purely economic, there’s no social responsibility to the economy, or no environmental responsibility. Democratic decisions are not really part of the equation. So let’s go back to this notion of civic capitalism as sort of an alternative to the global model we have of capitalism currently. The global model is dominated by large-scale, multinational corporations, whereas the civic capitalism model is dominated by locally embedded and rooted small-scale operations. Tolbert et all, say it may seem that the institutional basis for civic community in small-town America is dissolving, and they would say that’s because of corporate capitalism. These two models of capitalism are in conflict with one another, and what’s winning currently is this global model. We could see that when Walmart pops up and a local Main Street closes down, so to speak. That’s one of the key things that they are critical of, and in their research, by Tolbert. If we look at the anatomy of corporate capitalism, which is global, we have global corporations that are multi- establishment firms with branch plants and they are scattered around the world in the most strategic locations. Locations are chosen based on different advantages such as cheap working conditions where labor is cheap and the regulations are low. If there’s a bunch of environmental regulations for instance, corporations will avoid those spots. They want to operate on a principle of maximizing profit not in terms of being regulated, so corporate capitalism is very mobile. As soon as the regulations go up, or the the work gets too expensive, they are likely to pick up and move. There’s a great deal of social distance under corporate capitalism, between the managers and the workers, and between the consumers and the workers, on the other hand. Corporate orientation: managers and owners tend to be loyal to the corporation and there’s really no thought about where its operating. So, there’s no loyalty to a particular place. That’s why residential movement is so easy and people often don’t even think twice about relocating when their job demands it, because it’s just kind of the way things work under these rules of global corporate capitalism. The upshot is global corporate capitalism does not promote local capacity, it does not strengthen communities, it’s both everywhere and nowhere at the same time. Because it can move around, it’s like a shiftless form, and national governments do not provide any kind of shelter from these corporations because, if they do interfere too greatly, they risk losing the economic benefits that come from those corporations. The beneficiaries are the the owners, the shareholders, high-level managers, in particular, and some of the workers–people have jobs and so forth. There’s certainly something to be said for employment and any place that happens to play host to these corporations can enjoy some kind of benefits, even if only a temporary basis. There’s a call among scholars to look at alternatives. Some are critical of capitalism itself, although I think that view is finding less and less support. It certainly remains one key strand of scholarship and thought. Others have turned their attention not so much to the entire system of capitalism but more to the way it’s organized in terms of global corporations, rather than locally embedded organizations. Actually this is not something that’s new to social scientists. Research going back to the 40’s by Mills and Ulmer, for example, found that small business towns tended to fare much better than towns that relied on a big business of some kind. Those that had large businesses tended to have a week independent middle-class, corporate instead of community loyalty, and people judged one another based on their ties to the corporation. Status was rooted in your position in the corporations, and when big businesses dominated community their tends to be a weak sense of civic spirit. People are less likely to be involved in their local communities. Small business people tend to establish and maintain a network of contacts and supporters because that’s essential to the success of business. That almost requires that you move beyond economic basess for relationships, into other more social bases. Research by Goldschmidt found similar findings looking primarily at agriculture, instead of businesses. There have been several follow-up studies, particularly of Goldschmidt’s analysis, by rural sociologists. The support– overwhelmingly, at least the preponderance of evidence, tends to support it. That is based on a meta-analysis that was conducted by Lobao and Stofferahn, and also several studies support the findings of Mills and Ulmer. Here’s the actual results of the meta-analysis by Lobao and Stofferahn. What they see is, they’re looking at a summary of studies examining the effects of industrialized farming on community well-being. We can just generalize that to large-scale industry on community well-being–whether it’s farming or not is almost irrelevant. What we see is the majority, fifty-seven percent of the studies, find that industrialized farming is negative for community well-being, and only eighteen percent found that it wasn’t negative. That doesn’t necessarily mean it’s good for it, but sort of some counterfindings. Then, twenty-five percent found some kind of a mixed bag. Certainly, looking at all this evidence, the overwhelming response is that big business is not necessarily the answer to community well-being and quality of life. So, local matters because in local businesses, owners and managers are not just economic actors, they’re also socially and financially invested in the community. Arguably, they care about local environmental conditions more because they have to live there. So if the water is polluted they’re the ones who are going to be drinking it. Small firms also tend to have less bureaucratic structures and less degree of specialization, so workers tend to find the work less alienating, as do the managers and the owners. Managers themselves wind up being participating citizens of the community. Viewed as the business segment/business class of the community, they tend to hold a high level of status, and they develop strong ties. We will see in the community quality of life research that status is highly related to satisfaction and attachment to communities. With the level of satisfaction and attachment getting higher it’s even less likely that they want to move and relocate, even during an economic downturn. They were probably more likely to kind of fight it out and struggle for extended periods of time. They’re more likely to support and lead local nonprofit institutions, as part of their side job, their community involvement. Self-employment is also a mechanisms for maintaining and strengthening ties to place, which forms a stronger local orientation. Maybe the key reason for thinking that Civic capitalism may be a preferable model is social networks. Any successful small business is successful because of the the network of customers that you develop. If you were to pick up and move you’d have to recreate a new network, and essentially start from scratch, and that is very difficult. So, there’s a lot of disincentives for local businesses to pick up and move because the networks themselves are not portable. They’re rooted in the local community and, as such, they strengthen local values and identity. The question then becomes what about research? What do we find in terms of support for civic capitalism? and it really hasn’t amassed the kind of attention that it deserves. As we noted before, since the seventies, many social scientists just quit doing research on local communities, and civic capitalism research falls within that purview. There are some studies, particularly the work of Tolbert and colleagues, and also Lyson, who has passed away. There are some other students that they’ve worked with. Blanchard and Matthews have done research in this area. There’s a few spots where civic capitalism is being researched and not all research actually supports all of the central ideas. Young and Lyson find a challenge to the civic capitalism idea. They say that civic welfare is a function of economic and social characteristics, that the civic capitalism model is a little too economic in structure, ignores kind of the social end of things. We need to focus also on the social dimensions of communities such as pluralism, and solidarity, and linkages, and fluidity– what we would attach to the Cornell School of thought. The key variables of local firms are the size and social distance, which are much less than with corporate capitalism. The scope: there’s really not much desire to grow beyond the locality. Sometimes you’ll see local chains where essentially, a business that’s successful can reproduce itself within the same geographic space and still do well if it’s a large enough community. It’s very difficult to take a local business and completely replicate it successfully in another location, but i suppose that happens sometimes. There’s really no evidence that this is a successful strategy. Local firms tend to be less mobile, more rooted, and that means they’re going to be around a lot longer typically. The ownership of these firms become local elites that are socially and economically invested in the community, and so they can use their resources to enhance the community. In fact, a lot of small small towns rely on the philanthropy of local elites to promote such things as theatres, the Arts, other local initiatives that require some kind of investment. Here’s a basic model, offered by Tolbert, trying to understand and predict civic welfare which we can also tie to community quality of life– something we discuss in other places. Higher income levels, having less poverty, retaining residents, which has to do with community attachment, having lower unemployment; are the function of local capitalism– proliferation of self-employment, small stable local businesses, family farms. Also having a robust civic life, in terms of institutions, proliferation of churches, third places, organizations and associations. In summary, civic capitalism offers a model of capitalism that’s an alternative to the global corporate model. It’s a more localized version, and it offers a lot more potential for increasing the well-being of communities. Individuals because of their overlapping economic and social ties have a greater sense of responsibility to one another, creating more interconnections and interdependencies and diminishing the purely economic decisions that tend to undermine communities, we see all the time with global corporations. As we think about successful civic capitalist communities, we can note that probably it’s easier to pull off in smaller, more rural communities, where the scale of life is more conducive to this model. The local scope of business in rural communities tends to promote civic capitalism, and allows this kind of intertwining of social and economic ties. In cities, people tend to live much more compartmentalized lives and it’s hard to say if civic capitalism would work as well in an urban setting. Promoting civic capitalism is going to require empowering local entrepreneurs, which means finding sources of local capital, perhaps shoring up local financial institutions, and keeping global investment oriented firms at bay, and promoting non-economic civic organizations to enhance the community life and civic life. If you have a robust local business elite around, that’s more likely to happen. Finally, erasing the tensions that plagued capitalism such as that between the worker and owner, and that between the worker and consumer, and more broadly between the worker and community member. With embedded local businesses many of these are erased. These are some of the references of the research that were discussed in this video, if you wish to look into them further. I realize the text is kind of small, and I apologize for that, but thanks for watching and take care!

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