Gar Alperovitz
Opening address to the Forum on Intersectoral Relations
sponsored by The Aspen Institute Nonprofit Sector Research Fund,
Washington, D.C., January 12, 2003
Over the last three to four decades a wide range of particularly
interesting locally based economic and other institutions, together
with related policies, have evolved in diverse parts of the nation.
Some are traditional non-profit efforts which use business activities
both in support of their basic missions and to generate additional
resources. Others involve specifically structured firms which help
anchor jobs in localities and thus strengthen the local tax base
in ways which permit greater local public resource allocations for
service provision. Still others involve new public ownership and\or
investment strategies which either help non-profit efforts (particularly
in connection with housing) or contribute to local community finances
and job and tax-base stabilizing efforts. All have implications,
direct or indirect, for the provision of public service. Beyond
this some have larger implications for democratic practice and accountability.
Commonly–and importantly–such efforts in different ways
also often:
- Change the nature of asset and wealth ownership
- Offer new ways to finance services–directly or indirectly
through tax base implications.
In part the various developments have been driven by necessity:
Traditional "tax-and-spend" policies are increasingly
hampered by political constraints. Almost certainly this will remain
the case and there is, accordingly, every reason to believe such
institutional development will continue. Key issues involve how
to build upon the foundations which have been established, how to
refine what has been learned, and how to insure that public mission
goals are not compromised.
To date, what is sometimes called the "silo effect" of
narrowly focused concerns has greatly limited cross-sectoral learning.
However, it is clear that there is much to learn across and between
sectors. What follows is a brief listing of specific areas of development,
together with examples and some suggestions concerning emerging
issues.
A well-documented area of increasingly important innovation involves
non-profit service organizations which utilize business development,
asset-building and wealth-holding approaches to support general
service missions. A recent Chronicle of Philanthropy study of 14,000
non-profit organizations estimated that $61 billion was earned (in
1998) in support of service activities. Lester Salamon calculates
that in general income from fees, charges, and related business
activities grew from 13 percent in 1977 to 43 percent in 1996 of
non-profit social service providers’ revenues.
In the future, as Burton Weisbrod predicts, all but certainly "increased
fiscal pressure on non-profits will lead them to generate new, more
creative forms of commercial activities, and that these new forms
will further blur the distinctions between nonprofit organizations
and private firms."
Pioneer Human Services (PHS), in Seattle, Washington, is illustrative:
Initially established with donations and grants, PHS is now largely
self-supporting. PHS provides drug-and-alcohol-free housing, employment,
job training, counseling, and education to recovering alcoholics
and drug addicts. Its overall operating budget is over $50 million.
Various businesses both generate revenues and offer jobs and job
training to theoretically "unemployable" people: Pioneer
Industries includes a light metal fabricator which has contracts
from Boeing, Xantrex, Leviton, and others; a Food Buying Service
which distributes over seven million pounds of food to nonprofit
organizations in 20 states; the 132-room St. Regis Hotel which offers
drug-and alcohol-free housing for low-income individuals and tourists;
and a 150-seat Mezza Café, along with its satellite, Pronto,
and two smaller Mezza Cafés.
Several analysts who have studied the emerging trend have raised
questions about whether important service mission goals of non-profits
will be compromised by the new business and wealth-building strategies.
Some efforts, like Pioneer, seem clearly to be maintaining mission
clarity–indeed, its service mission has been enhanced by the
strategy. Clearly, too, a number of non-profits have gained greater
independence by virtue of their access to sources of revenue which
are not dependent on foundations or government. In other cases–some
universities which are doing research for corporations, or selling
advertising space on athletic uniforms, for instance–this
is far from clear, and the integrity of a number of other non-profits
has already been called into question. Such questions are likely
to take on increasing urgency as time goes on: For better or worse,
given the underlying pressures driving change, it appears that the
trend is unlikely to be reversed.
Community development corporations (CDCs) utilize wealth-related
strategies to serve "small publics" in geographically
defined areas. The assets they commonly develop (housing, retail,
and, in several leading cases, larger businesses) are lodged in
a non-profit institution anchored in–and designed to benefit
–citizens of specific low-income neighborhoods. CDCs are now
found in virtually every significant size American community. They
have grown from a few hundred in the 1960s to roughly 3500-4000
today.
A 1998 survey found 40 percent of urban CDCs reported owning and/or
operating a business (34 percent of rural CDCs did so). Over half
also reported some form of business lending activity with a total
of nearly $2 billion in outstanding loans. CDC production of housing
was important in many ownership situations; roughly 73 percent of
new or rehabbed units were owned directly by the CDC involved. In
addition, CDCs had developed 71 million square feet of commercial
and industrial space by 1998.
A leading example, "New Communities Corporation" in Newark,
New Jersey, estimates that it owns $500 million in real estate and
other assets--including a shopping center, a Pathmark supermarket,
and 3,000 units of housing. Its enterprises employ 2,300 neighborhood
residents and create $200 million in economic activity each year.
Profits help operate five day-care centers, a nursing home, job
training programs, and a medical day-care center for seniors.
Critics have charged that many CDCs have lost touch with their local
communities and have become too narrowly focused on housing production.
On the other hand, a 1997 assessment found a new and "widespread
trend of CDCs hiring organizers or placing an emphasis on citizen
participation when they moved to broaden their functions away from
specialized service delivery."A recent survey found that 56
percent of CDCs were engaged in advocacy and community organizing
in 1998.
Key questions for the future involve accountability, advocacy, and
whether greater social service funding might be supported directly
or indirectly by CDC economic efforts.
A Community Land Trust (CLT) is a non-profit corporation established
to develop and own housing (or own land leased for housing) especially
in neighborhoods undergoing development which drives the prices
of existing property beyond the reach of low-income residents. CLTs
are currently at roughly the stage of development CDCs were in the
1960s–with perhaps 120 significant efforts laying groundwork
for subsequent expansion. A recent report by PolicyLink in Oakland,
California, observes that they are also reaching out to other groups
and constituencies:
The community land trust in Concord, New Hampshire, is working
with the Neighborhood Reinvestment Corporation on an IDA program
to help families save for home ownership. North Camden CLT in
New Jersey has spear-headed a comprehensive community planning
initiative. Durham Community Land Trust in North Carolina provides
construction job training for community residents. The Burlington
Community Land Trust has been a mainstay of the city’s Enterprise
Community, cleaning brown-field sites, developing community facilities
for various social service organizations, and redeveloping abandoned
commercial buildings.
Various groups are also beginning to expand the CLT concept in
new directions. In 2001 the Nehemiah Corporation, for instance,
announced a new multi-million urban land trust to purchase land
and provide below-market leases to community service organizations.
(Nehemiah, based in Sacramento, California, is making its initial
land purchases in Atlanta, Baltimore, Charlotte, N.C., and Indianapolis.)
A similar approach has been adopted by the New Columbia CLT in Washington,
D.C. New Columbia purchases land to help support low income residents
who are developing co-operatives.
It is rarely realized that asset-based strategies have also been
developing rapidly at the level of the municipality in recent decades
under the leadership of both Republicans and Democrats in all parts
of the country. Again, one of the main forces producing new forms
of enterprise, asset development, and institutional wealth-holding
is the need for additional resources to support public programs.
A decade ago David Osborne and Ted Gaebler devoted a chapter of
their classic book, Reinventing Government, to the emergence of
new forms of municipal businesses: "Enterprising Government:
Earning Rather Than Spending."As they observed: "Pressed
hard by the tax revolts of the 1970s and 1980s and the fiscal crisis
of the early 1990s, entrepreneurial governments are increasingly
... searching for non-tax revenues." Since that time numerous
additional efforts have appeared. In addition to revenue-sharing
agreements in real estate developments, municipalities are earning
revenues from methane recapture programs, leasing public land and
offices, selling data processing services, and running innovative
self-sustaining health care programs and telecommunications enterprises.
In Glasgow, Kentucky, the municipally owned utility offers residents
electricity, cable, telephone services, and high speed Internet
access at reduced costs compared to their private competitors. The
city also has access to an ‘Intranet’ which links local
government, businesses, libraries, schools and neighbors. Residents
can also choose their cable TV provider: the municipality offers
a package of 53 cable channels for under $15.00 a month. Tacoma,
Washington’s broadband network "Click!" also offers
individuals and private companies internet and cable service. Over
one hundred and fifty communities had built or were actively planning
networks like those operating in Glasgow and Tacoma, including 30
in Iowa alone, as of 2000.
Most of the above efforts also contribute to keeping jobs in local
communities, thereby also helping support the local tax base, and
thus the provision of public services. The impact of the following
efforts is even greater in this respect–especially in comparison
with outside-owned corporations which commonly are less "anchored"
in local communities.
Over the last three decades firms owned in significant part by their
employees–often, especially local employees–have become
widespread. Most involve ESOPs (Employee Stock Ownership Plans)
which establish a "Trust" which receives and holds stock
in a given corporation on behalf of its employees. ESOPs date from
the 1950s, but the rapid development of modern ESOPs was greatly
stimulated by legislative changes in 1974 (and thereafter) which
provided tax benefits to corporations contributing stock to an employee
trust–and, importantly, also to retiring owners of closely-held
businesses who sell their corporation to their employees and reinvest
the profits within a defined time frame.
The number of ESOP-style worker-owned firms rose from 1,600 in 1975
to 4,000 in 1980, to 8,080 in 1990 and to roughly 11,000 according
to the most recent estimates. The number of worker owners involved
rose, correspondingly, from a mere 248,000 in 1975 to 8,800,000
in 2002. Asset holdings total more than $400 million. The National
Center for Employee Ownership (NCEO) estimates that total worker
holdings (of all forms of stock ownership or stock options) reached
approximately $800 billion in 2001–i.e. roughly 8 percent
of all U.S. corporate stock.
ESOPs benefit workers and employees in a number of ways. A recent
survey of Washington state firms, for instance, found that median
hourly pay in ESOP firms was 12 percent higher than pay for comparable
work in non-ESOP firms. Worker-owners of ESOPs ended their careers
on average with almost three times the retirement benefits of others
with similar jobs.*
Critics of ESOPs commonly decry the lack of democratic control offered
to workers in most trust arrangements. They point out that many–indeed,
most–ESOPs currently do not involve any real participation.
Several considerations suggest that greater democratic control of
ESOPs is likely to develop as time goes on: First, a significant
share of ESOP companies (some 3,000 or roughly 30% of ESOPs in privately
held companies) are already majority owned by workers. Of these,
some 40 percent to 50 percent already have voting rights. Second,
as workers within specific firms steadily accumulate stock they
become majority owners as time goes by. NCEO surveys suggest an
increase of approximately 50% in the number of privately held ESOPs
which are majority owned in the past decade. The third–and
perhaps most important--reason to expect change is that several
studies demonstrate that greater participation leads to greater
productivity, hence greater competitiveness in the marketplace.
Critically, ESOPs and other employee-owned firms are inherently
powerfully anchored in local economies--and the local tax base needed
to support public services.
Traditional co-operatives, of course, have for many decades mixed
public-serving principles with economic activity. More than 100
million Americans are members of some 48,000 co-ops in the United
States. Each year these generate $120 billion in economic activity:
Roughly 10,000 credit unions (total assets over $500 billion) supply
financial services to 82 million members; approximately 30 percent
of farm products are marketed through cooperatives; 26 million Americans
purchase their electricity from rural electric cooperatives; and
cooperatively-owned (or affiliated) insurance companies serve 50
million policy holders. At least twenty cooperatives have annual
sales of more than $1 billion.
Particularly interesting are new directions in state public policy
using pension funds and other investment strategies to help achieve
broader public goals. Briefly: There are currently more than 2200
public employee retirement systems boards operating at the municipal,
state and federal level in the United States. Taken together, they
manage roughly $3 trillion in assets. Some of the newer possibilities
are suggested by California, Alaska and Alabama:
The California Public Employees’ Retirement System (CalPERS),
now in operation for more than 65 years, currently oversees more
than $156 billion in pension funds for 1.2 million state employees.
CalPERS has targeted investment to low income housing and other
projects and has become an increasingly powerful force for improved
corporate governance: Its "focus list" singles out poor
performing companies and those with poor governance practices.
Companies which have been singled out in one year on average outperform
the S&P 500 by some 14% in the years after CalPERS draws attention
to their poor practices. CalPERS also places a great deal of emphasis
on information disclosure and the independence of boards of directors.
Retirement Systems of Alabama (RSA), which manages the pension
investments of state employees and teachers in the state, has also
been in operation for more than sixty years. Under the direction
of CEO David Bronner it has aggressively invested in a wide range
of local Alabama industries, and has even used its assets to help
create worker-owned firms. Investments range from aerospace to tourism
development and, among others, include: $100 million in the Alabama
Pine Pulp Company, $60 million in a statewide golf course network,
the Robert Trent Jones Golf Trail (maintaining a 33 percent ownership
stake), and $250 million in Alabama-backed Ginnie Mae mortgages.
RSA also has invested in major office buildings in cities like Montgomery,
and has helped form two media conglomerates involving over 350 local
newspapers and more than thirty-six television and radio stations.
Stock in these is jointly owned by RSA and the employees of the
companies. It also recently purchased at controlling interest in
USAirways. RSA has a total of $25 billion under management.
A somewhat different but related effort is that of the Alaska Permanent
Fund which invests directly on behalf of all citizens of the state.
In 1977 the state began to develop a long range strategy to capture
and invest proceeds from oil and other mineral exploration and development.
One major outcome is recorded in the Alaska state Constitution,
which now directs that a significant portion of revenues derived
from oil development be allocated to the Alaska Permanent Fund for
further investment. Earnings are used to increase the size of the
principal, offset the possible impact of inflation on long run returns–and,
most important, provide annual dividends to residents of the state.
Over the last decade, as a matter of right, every individual state
resident received dividends from publically-owned and managed investments.
In 2000 these averaged just under $2,000 a year ($10,000 for a couple
with three children).
In most of the above areas a boundary is crossed between one sector
(usually service related) and another (economic). In some, local
job stability as a necessary condition of service provision is an
important goal. In most cases the governmental sector is also directly
involved in a variety of ways.
Traditionally such cross-sectoral efforts have raised concerns among
critics worried about whether service, economic, or public policy
goals might be compromised in one way or another. Since powerful
forces appear to be at work generating the trends, a more relevant
question in each area almost certainly is: How can we best draw
upon the experience of the last several decades to develop effective
policies and strategies to build upon the trends in future?
Among the important issues:
- Are non-profits which establish businesses likely to be forced
to commercialize their education or other activities in ways which
undermine the integrity of their social service contribution?
- Do business activities require different strategies–hence,
personnel–which inevitably change the internal culture of
non-profit organizations?
- Can non-profit efforts stay within I.R.S. guidelines which require
non-taxed business activities to be "substantially related"
to their tax-exempt purposes?
Although some political scientists have studied the cross-sectoral
implications of job creation strategies for local service provision,
other disciplines have not focused much attention on such issues.
Additional questions here include:
- In connection with ESOPs and related firms, how can we measure
and assess the total "public balance sheet" costs of
job targeting strategies on the local tax base–and, in turn,
on larger public service and other outcome measures?
- How can efficiency and accountability be achieved when complex
goals–including service provision, job retention or creation,
local tax-base integrity, and local democratic accountability
are all involved in policy choices (particularly, for instance,
in connection with large order public investment strategies)?
- Is the new exploration of public municipal enterprise likely
to be lasting and significant? Over time can such efforts add
significant resources to local service provision–directly
through profit flows or indirectly via job creation, tax-base
implications?
A general but increasingly important issue emerging in democratic
theory studies is also involved. Simply put, the question may be
stated: Can there be Democracy with a big ‘D’ in the
political system as a whole if there is little democracy with a
small ‘d’ in citizen experience–i.e., in their
own community? If the answer–as Toqueville and Mill held–is
No, then it follows (as many now argue) that the conditions which
nurture democracy, locally, must be specified and ultimately met.
This emerging large order framing of democratic theory problems
has moved well beyond questions of civil society and associational
activity urged by Robert Putnam and other scholars. A particular
concern involves the constraints which local economic conditions
have increasingly put on all forms of public decision-making at
the local level. The question posed in such studies is whether some
of the new strategies can help rebuild the economic and social basis
of public decision-making, hence ultimately of local and national
democratic experience.
Gar Alperovitz is Lionel R.Bauman Professor of Political-Economy
and a Principal of The Democracy Collaborative at the University
of Maryland. His most recent book (with Thad Williamson and David
Imbroscio) is Making a Place for Community, Routledge 2002, explores
many of these themes in connection especially with community economic
stability issues.
* The recent bankruptcy of United Airlines
is sometimes wrongly attributed to the fact that it is significantly
owned by employees. Aside from the fact that most airlines are now
experiencing difficulties--and that most ESOPs have been organized
in (and work best in) small and medium-sized non-publically traded
firms--a number of experts judge that United’s failure to
deal with participation issues (not its structure) was a limiting
factor. One of the few successful airlines, Southwest, is significantly
employee-owned.
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