This Rust-Belt Town’s Survival Strategy Is All About Giving Workers Control

January 14, 2015

NOTE: Images in this archived article have been removed.

This article originally appeared at Dissent.

Image Removed

Construction worker image via shutterstock. Reproduced on with permission.

The first thing you notice about Reading, Pennsylvania, the small city that lies an hour and a half north of Philadelphia, is its many parks and muscular civic buildings. Mount Penn anchors the east of the city with a steeply landscaped park and a historic district of graceful homes. The Blue Mountains rise in the distance.

“This is all WPA [the federal building program during the Great Depression] and the socialists,” says Bill Vitale, an architect who serves as chair of the Mayor’s Sustainability Committee, waving his hand at the park’s greenery. Reading was one of those rare cities, like Milwaukee, whose working-class voters regularly elected socialists to represent them both in the statehouse and in the mayor’s offices from 1910 to the mid-1940s. In Reading, the socialists were the good-government party, and their administrations extended and modernized the sewer system, built playgrounds, and turned private-sector jobs into better-paying municipal ones.

Before I arrived, civic leaders warned me that because of its good bones, I wouldn’t be able to tell at first glance that Reading was under Act 47, the Pennsylvania law governing municipal bankruptcy, or that it is one of the poorest cities of its size in the nation. Just over 39 percent of its 88,000 residents lived in poverty in 2013. Many of them are the working poor: Reading’s unemployment rate in the summer of 2014 was about 6 percent.

Bill’s Khaki makes its clothing in Reading and electronics and appliance factories still operate there; manufacturing employs a quarter of the city’s workforce. But the city is rapidly deindustrializing, and that decline can be blamed, along with the attraction of more suburban parts of Berks County, for hollowing out the comfortable working class. A once thriving middle class now hovers at 20 percent of the population.

“All the takers left the city,” says Dean Showers, president of Steelworkers Local 6996. “They took all they could take and are gone. Now if you’re not working to give, you’re not going to be successful.”

Showers and Vitale are among the civic leaders working with Mayor Vaughn Spencer to improve people’s lives, create living-wage jobs, and green the economy using a more democratic and localized style of economic development. They serve on the Mayor’s Sustainability Committee to mobilize those civic initiatives to rebuild Reading that supplement the official actions taken by the city administration. Their work started even before the mayor was elected in November 2011, when civic leaders met to plan how the city could avoid the draconian actions—such as selling off public assets like the city’s water authority and appointing private consultants to run the city—often taken by cities under Act 47. After Mayor Spencer took office in January 2012, their interest expanded to nurturing worker co-ops along with other “solidarity economy” approaches that are designed to create more democratic control of businesses, finance, and utilities. If these civic leaders succeed, one might be able to call Reading one of the new “solidarity cities” on the horizon.

Despite the impoverished state of their city, these activists believe they have enough local resources to realize their vision. At any rate, they feel they have no other choice since little help is coming from the state and federal government.

“Part of it is understanding that in a globalized economy we have to re-localize as much as possible to keep money circulating here,” says Eron Lloyd, the 34-year-old special assistant for policy and sustainability who returned to Reading, his hometown, to join the effort. “The first step is understanding that the status quo does not work. We’ve done everything you can do from a conventional [economic development] standpoint. We had all these fancy financial instruments right before everything collapsed in the stock market and we lost our shirts.

Like most cities, Reading lures employers with tax incentives. It is tempting to give subsidies to bring even a hundred jobs into town, but that overlooks small businesses that have been the nation’s top job generators over the past fifteen years. As Lloyd says, “Once those incentives are over, they [the big employers] can leave,” adding, “We’ve been trying to learn from failures in urban policy.” Lloyd served on the Act 47 committee before the mayor was elected. So did Lenin Agudo, who now leads the city’s community development office for Mayor Spencer. A board member of the Berks County Latino Chamber of Commerce, he had been director of Kutztown State’s Latino Business Resource Center (LBRC) based in Reading, a majority Latino community. Now he promotes small-business development—a key part of the city’s “localist” agenda—from inside city hall, with a new federally funded program offering grants of up to $30,000 to lower- and moderate-income business owners.

This localist agenda is part of Mayor Spencer’s ambitious program to create a fairer and more sustainable local economy whose businesses stay put and where money spends more time circulating locally among networked enterprises. His administration is promoting worker cooperatives, energy efficiency, public banking, a local “food shed” and urban agriculture, remunicipalization of jobs (like the Socialists before them), and creating new jobs by reclaiming the city’s waste. No other current city administration in the United States, to my knowledge, is embracing such a broad range of “solidarity economy” strategies (although Spencer himself doesn’t use that specific term) to promote the well-being of its residents. And few other city administrations also face such steep challenges.

What’s the solidarity economy?

In this hemisphere, the “solidarity economy” idea first took root in Latin America and Quebec in the 1990s. It was popularized in North America by activists during the U.S. Social Forum in 2007. American activists were inspired by participatory budgeting in Brazil, a process where citizens get to vote on how to spend public money; by workers occupying abandoned factories in Argentina in the wake of its 2001 financial crisis and making them worker-owned; and by other examples of cooperative and democratic challenges to neoliberal approaches to the economy that had dominated the continent for decades. Quebec was long a center of cooperative businesses; the Desjardins Group, a credit union network owned by its depositors, is one of Canada’s largest financial institutions.

And residents took for granted another key strategy of the solidarity economy—government ownership of key enterprises like electricity generation. But the solidarity economy movement truly blossomed as a phenomenon in Quebec in the 1990s, resulting in the government launch of Chantier de l’Économie Sociale du Québec to promote cooperative and other social enterprises including nonprofits. Public money gave the sector a huge boost in that decade. Quebec unions took on a leadership role as well and their pension funds remain an important source of capital for the growth of this democratic sector of the economy. The solidarity economy is a “prefigurative” movement, which aims to create a model of the kind of society it envisions by creating democratic institutions run by workers (or farmers or consumers or citizens) themselves.

Black America’s long tradition of co-op banks and other enterprises is another source of inspiration for solidarity economy activists. Civil rights activist Ella Baker was director of the Young Negroes Cooperative League in the 1930s, and as economist Jessica Gordon Nembhard has documented in her pathbreaking research, black people pooled their resources to create mutual insurance companies, relied on consumer co-ops through the Great Depression, and established agricultural co-ops during the Populist era and through the Federation of Southern Cooperatives starting in 1967. Today, three of the mayors who have championed co-ops as a way to build jobs in poor communities are African American: Reading’s Vaughn Spencer, Chokwe Lumumba of Jackson, Mississippi (who died in Spring 2014), and Dwight Clinton Jones of Richmond, Virginia.

The work of political scientist Gar Alperovitz has been vital to the solidarity movement as well as a direct inspiration to those in Reading (with whom he has met). Alperovitz and his allies at the Maryland-based Democracy Collaborative advocate democratizing the economy by creating ties among existing networks of land trusts, consumer and worker cooperatives, employee stock-ownership programs, and credit unions. In their view, these endeavors provide the base for “community wealth-building” and a more egalitarian future. This vision echoes the “cooperative commonwealth” advocated by late nineteenth-century Populists and socialists. Markets would be left intact, but government would step in to advance the interests of the great majority.

A more obvious stream of inspiration for Reading’s civic activists is “localism,” a largely middle-class movement, often of small-business owners, which challenges the inevitability of globalization by promoting local small enterprises, municipal ownership, and sustainable local economies. Like solidarity-economy activists, localists are trying to rebuild social relations in communities hurt by disinvestment, not just create jobs and growth. Localism is visible in the growing prominence of the 40-year-old “think and do tank” Institute for Local Self-Reliance and organizations such as the 22,000-member Business Alliance for Local Living Economies (BALLE), which the City of Reading has joined. Like solidarity-economy activists, localists are refusing to accept their weakened influence on the economy and public policy in the face of corporate power. Like solidarity-economy activists, many embrace municipal ownership of utilities or even champion cooperative ownership. But it is a diverse movement and at its worst, localism can be “reduced to shopping at farmers markets and local stores” and “turning your back on the world’s environmental and social problems,” as scholar David Hess warns. In addition, some localists are skeptical about the role of unions in building economic alternatives.

As it happens, several cities with healthier economies than Reading are also adopting some of the same ideas. In New York in June 2014, with the support of the powerful Federation of Protestant Welfare Agencies and the local cooperative movement, the City Council, under progressive leadership, appropriated $1.2 million to launch new worker co-ops as a way to fight poverty, inspired in part by immigrant-owned cleaning co-ops. Some of their members increased their hourly wage to $25. (However, the power of cooperation is not infinite. Cooperative Home Care Associates in the Bronx, the largest worker co-op in the country, pays only $10 an hour plus benefits given the constraints of the health care market it operates in.) Perhaps more importantly, New York City’s small business support network is now promoting worker co-ops. In Madison, Wisconsin, starting in 2016, Mayor Paul Soglin will spend $1 million a year for five years on co-op development.

But it is elected officials in smaller, gritty cities who view the systematic building of local economic democracy as a form of survival. Other “solidarity cities” in the making could include Richmond, Virginia, where Mayor Jones hired political scientist Thad Williamson, a longtime collaborator of Gar Alperovitz, to lead his new Office of Community Wealth Building starting in the summer of 2014.

In Richmond, California, outgoing Green Mayor Gayle McLaughlin helped launch the Richmond Worker Cooperative Revolving Loan Fund (RWCRLF), providing small loans to co-op businesses; she hired seasoned co-op developer Terry Baird as part of her Worker Empowerment Based Economic Development Initiative in 2011. “There are three benefits to co-ops,” McLaughlin said. “Job creation, democracy in the workplace, and local wealth building.” Facing a 17 percent unemployment rate, she embraced this development strategy after a fall 2010 visit to the Mondragon network of cooperatives in the Basque region of Spain, the largest co-op in the world. While Baird is no longer on staff, the city has not abandoned the strategy. Her winning “Team Richmond” slate for city council in November 2014 promoted the idea of the city giving co-op businesses additional points when selecting vendors and contractors. The mayor-elect Tom Butt won a resounding victory against candidates backed by the city’s largest industry, Chevron.

Jackson, Mississippi, is the Southern pioneer of the solidarity economy. Neighborhood assemblies organized by the black nationalist Malcolm X Grassroots Movement helped win the election of Mayor Lumumba as part of its campaign to promote worker cooperatives and local jobs using municipal resources. Many city services like garbage pickup are provided by white contractors who don’t even live in the city; Lumumba and his allies wanted to train local residents to form co-ops to bid on the city contracts themselves, and they organized the inspiring Jackson Rising conference last May to start that process. Lumumba, however, tragically died before the conference even took place, and the movement has sought to retain its momentum after one of Lumumba’s rivals was elected to succeed him. In November, Cooperation Jackson issued an ambitious call for $500,000 in donations to launch the Chokwe Lumumba Center for Economic Democracy and Development, along with a community land trust for residential and commercial properties and an urban farm in West Jackson. The activists want to build a “Mondragon of the South” using a community development corporation as the hub.

Reading reformers are not abandoning traditional economic development strategies enticing larger employers—as one leader said, “in an economy that is struggling, it’s not whether it’s a co-op but whether an enterprise is viable.” Indeed, they are challenged by civic activists like Sheila Perez who says, “there’s a lot of reasons we’re in a financial hole—Keystone Opportunity Zone is able to claim exemption from taxes!” And somehow, she points out, the big giveaways to developers and businesses don’t end up in the hands of Latinos, even though they make up 61 percent of Reading’s population.

But the Mayor’s staff and Sustainability Committee also want jobs that are more likely to stay put, and this is a big reason why they are promoting worker cooperatives. Worker-owners rarely outsource their own jobs and their enterprises seem to be surprisingly resilient during downturns.

“I’ve been interested in anything where workers could control their own destiny,” said Dean Showers, the local Steelworkers president. “We had about 2,400 members spread out over sixteen employers a little over ten years ago. Each year we’ve seen that erode. This year, we have only about eight employers and 600 workers.” When I met Showers at the office building his union had recently bought, meeting in a nearby room were steel-tube workers from nearby Hofmann Industries who had been locked out for 173 weeks.

Conversions of existing businesses to worker ownership tend to be among the most successful co-ops, since they don’t face the deadly challenges of a startup. But industrial conversions require a lot of capital to buy out the owner. Showers struggled to save one local smelter by converting it to a co-op. Although his union, the United Steelworkers, forged an alliance with Mondragon in 2009, Showers says he didn’t receive much support from its leadership. On the other hand, offering inspiration is the Cincinnati Union Coop Initiative, an alliance of unions including United Food and Commercial Workers, USW, NAACP, local universities, Mondragon USA and others, which has already launched a unionized farm and distribution co-op and an energy retrofitting co-op.

The local Laborer’s Union is also interested in taking ownership of a demolition company. But it looks like the first worker co-op the mayor’s Sustainability Committee will create will result from expanding Philadelphia-based Home Care Associates, which has 200-plus members. Unlike its counterpart in New York, this branch of HCA is not unionized. But an affiliate of the United Way, which was launched by local unions, will take charge of training the worker-members of the new home care co-op in Reading.

Vaughn and his allies want to create greater reciprocity among local institutions, for instance by borrowing the “anchor institution” model of economic development in Cleveland, promoted by Alperovitz and the Democracy Collaborative. In Cleveland, a major hospital, university, and the hospitality industry became the clients for new worker cooperatives, including an industrial laundry and hydroponic farm, so their purchasing power provides good jobs for low-income residents. Sustainability Committee member David Myers, a former aide to Pennsylvania Governor Ed Rendell now based at a local Roman Catholic college, is leading the charge in this area and an industrial co-op laundry for local health networks seems most viable.

Mayor Spencer and his allies also want to keep money circulating in Reading longer. Reading has two credit unions. But unless they receive accreditation as a “community development” credit union (CDCU) serving a low-income or other underserved group, these financial institutions are barred by laws—promoted by the banking industry—from giving business loans over $50,000. Rather than promote CDCU status in Reading, Spencer hopes to create a city-owned bank—like the state bank in North Dakota, which began in 1919 as a project of the left-wing Nonpartisan League. A former top aide to Spencer served on the board of the Pennsylvania Public Bank Project, and its chairman, Mike Krauss, drew up a strategy document for Reading. “Right now, as in most local governments, we’re dealing with large banking institutions like Wells Fargo,” Spencer explains. “When it comes to investing in the city, they are not interested. Put our monies into a community bank that is committed to giving loans locally—it helps money circulate, builds small businesses, and builds our local economy.”

Even in the midst of stiff financial and political challenges, the mayor and his team have gone beyond the idea stage in a few areas. They turned recycling, once contracted to a private company, into a municipal concern. Now 10 local workers earn a living wage with the city. Just as Cooperation Jackson is trying to do, Reading launched a CDC dedicated to coordinating alternative forms of economic development to supplement the existing initiatives. Called Redesign Reading, it was created by four city authorities—parking, water, housing, and redevelopment—as well as the City and the Reading Downtown Improvement District. The three authorities provide the funds for its operation.

While it is exploring creating a community land trust for housing, and supporting the development of worker-co-ops as staff for the Sustainability Committee, thus far, ReDesign Reading is most visible from its efforts to enhance Reading’s livability and attractiveness for newcomers through such projects as pop-up art exhibits in the downtown area, collective bike rides, and a volunteer-run bike shop.

Community broadband is another development goal, and ReDesign Reading explored the issue with Christopher Mitchell, Director of the Community Broadband Networks Initiative at the Institute for Local Self Reliance. But Pennsylvania law creates huge barriers to community-owned broadband. “In 2004, Verizon basically went to the Pennsylvania legislature saying it’s unfair this little town of Kutztown built one of the best fiber-optic networks. Verizon said … cities shouldn’t be allowed to compete with us unless they get permission first from an existing provider.” A national coalition is opposing these laws, now in place in nineteen states. Until then, Reading can only promote fast fiber-optic cable with its local provider or draw on a model from rural Vermont, where EC Fiber sold community shares to fund a community network.

The Institute for Local Self Reliance also worked with the city to create a waste-to-wealth plan, which, along with replacing city traffic lights with energy-saving models, anchors the mayor’s environmental plan. The program began by bringing recycling pickup in-house. But it also helped enlarge the mission of Opportunity House, a shelter and supportive housing nonprofit, so that it can become a reuse center that now provides low-skilled jobs. Promoting industries and co-ops that can employ the city’s poorly educated workforce while also investing in them is one of the Sustainability Committee’s priorities.

An expert in zero waste, Neil Seldman, the ILSR consultant, also connected the city to a Canadian paper-recycling company to set up a plant in the town, but the project is currently in limbo. Like the Mayor’s other initiatives, it faces opposition from a city council, which once worked well with Spencer when he was council president. (A bemused Seldman said he’s never seen elected officials oppose good paying jobs coming to town.) Local activists dismiss the opposition as stemming from thwarted ambition—everyone wants to be mayor! Indeed, council members failed to get on the fall ballot a proposal to shift to a city-manager form of government, with the city council president as leader.

On the other hand, council members faced an uprising of citizens who joined the mayor in opposing their plan this spring to basically dissolve the city water authority by leasing its operation to a private business. The privatization of assets that the Act 47 activists originally feared finally loomed. The council voted in the summer to dissolve the authority, then reversed course and negotiated for the authority to pay $8 million in leasing fees to the city (up from $3 million) to help with next year’s budget. There is a Keystone Kops quality to some of their actions that, in the end, support the status quo.

Sheila Perez, the civic activist, was one of a diverse group of citizens including a former city council member who circulated petitions that helped secure a vote in November for a requirement that citizens approve any sale or lease of city assets valued over $1 million. Despite low turnout, the city voted overwhelming to defend the water authority against privatization. “We busted our butts with the petitions, protecting the assets,” said Perez.

Even without a skeptical city council, the alternative economic development strategy faces a hydra-headed opposition from a variety of businesses, the state government, and some local residents. Pennsylvania bars public utilities from channeling funds to their city governments, putting the $8 million from the water authority in doubt and creating legal pressure for privatization of public assets. Banks weave a web of rules through their paid representatives in statehouses to ensure they will continue to receive government deposits; in New York, former Mayor Bloomberg couldn’t invest even a small share of city receipts into local credit unions because of one such rule in his state. Entrenched contractors don’t want to see municipalities bring jobs in-house or have the city require them to pay a living or prevailing wage that would raise the living standards of their workers. A group of city residents are suing Reading over charging a recycling fee; it turns out that, under state law, cities can only fund collections with grants from the state or by selling the waste. Meanwhile, businesses continue to fail or leave, taking jobs and tax receipts with them. The vital United Community Services, a potential hub to support worker co-ops and training for the new home care workers, lost a grant for $1 million and, like any nonprofit, is looking for funds to do its most innovative work. And as Luis Tejado, head of the civic group Dominicans United and a strong Spencer supporter explained, to keep the city running and pay arrears into the pensions of retirees, “They have to collect $2 million a month from 90,000 people.” People move to Reading for the affordable housing and then feel squeezed.

Against these obstacles, Mayor Spencer and his team can muster an energetic but narrow base of community leaders and local foundations. Theirs is like a movement of Progressive-Era reformers, mostly educated, mostly—though not entirely—white, and mostly middle class, in a city made up largely of working-class Latinos. Looking ahead to the mayor’s race for re-election in 2015 and the pressures of the Act 47 process, they are in a race against time and money; they need to fill pension coffers in order to dig themselves out of the city’s financial hole.

In the absence of a widespread movement, Reading civic leaders seek out support where they can. Co-op activists from Cincinnati come to talk about their success in starting unionized co-op businesses. The mayor’s staff search for ideas in ALICE, a database of model progressive state and local laws created by the Center on Wisconsin Strategy. They think about empowering a demoralized constituency through participatory budgeting, where residents have a direct say in how the city spends some of its money. They are trying everything they can think of, including promoting structural changes to the economy. What I did not hear was confidence that the federal or state government was on their side, helping them find a way out of Act 47 bankruptcy or other ways to enrich their community.

“We’re a mini-Detroit,” said one civic leader, burdened by years of disinvestment. Or maybe, if somehow all their plans come to pass, they are building the city of the future.

Tags: building resilient communities, new economy, policy, relocalization, solidarity economy