7 Paths to Development That Bring Neighborhoods Wealth, Not Gentrification

November 19, 2015

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This article was adapted from Cities Building Community Wealth, a project of The Democracy Collaborative, for New Economy Week.

In cities across the nation, a few enjoy rising affluence while many struggle to get by.

An August 2015 study by The Century Foundation reported that—after a dramatic decline in concentrated poverty between 1990 and 2000—poverty has since reconcentrated. Nationwide, the number of people living in high-poverty ghettos and slums has nearly doubled since 2000. This situation is created in part by the practices of traditional economic development, which prioritize corporate subsidy after corporate subsidy over the needs of the local economy. Current trends threaten to worsen, unless we can answer the design challenge before us.

Can we create an economic system—beginning at the local level—that builds the wealth and prosperity of everyone?

Economic development professionals and mayors are working in partnership with foundations, anchor institutions, unions, community organizations, progressive business networks, workers, and community residents. What’s emerging is a systems approach to creating an inclusive, sustainable economy where all can thrive. The work is place-based, fed by the power of anchor institutions, and built on locally rooted and broadly held ownership. It’s about building community wealth across the United States—in more places than most would imagine, a new kind of economy is beginning to appear. It’s an economy that, because of its fundamental design, tends naturally to create inclusion and prosperity for many, not simply for the few.

The answers are beginning to appear in cities nationwide—in the tools and approaches of community wealth building, as they are wielded by cutting edge city economic development professionals. This work is only beginning to be widely recognized as a cohesive field. Yet as this report shows, it is in fact a coherent, systemic approach to economic development—one that embodies a powerful set of common drivers, and offers a broad set of powerful strategies.

Building a place-based economy

Traditional economic development is too often captured by the demands of major corporations and site development consultants. The place that drives such players is in reality no place at all, for they embody a worldview of a generic, commodified economy, where firms are objects to be lured from place to place by the $80 billion in incentives given annually by cities, states, and counties.

The system that is supported in this way is one of wealth inequality, where most assets are owned by the few. The ownership driver is absentee ownership, with most incentives flowing to corporations owned outside the community. Inclusion is lacking, with benefits flowing to a financial elite—since ownership of publicly traded firms is overwhelmingly concentrated among those in the top 10 percent of society.

Inadvertently, but pervasively, incentives tend to neglect local firms, which can too often be driven out of business. Thus traditional approaches operate the multiplier effect in reverse: Taxes are extracted from local firms and residents and given to corporations whose ownership is not local, even as local schools and parks suffer cuts in funding. Missing throughout is the driver of collaboration, with little transparency or democratic public input into development decisions.

In its workforce drivers, traditional economic development focuses on counting the number of jobs created, but too rarely tallies whether these are living-wage jobs, or whether they go to those with barriers to employment. Traditional approaches also fail to subtract jobs destroyed when Main Street retailers quietly close their doors—or when firms outsource manufacturing and other work abroad, or move operations out of the community.

The mindset missing in traditional approaches is commitment to place, and a recognition that economic entities can be designed to benefit community.

More than a label, community wealth building is also a framework. It has multiple drivers that work together to create a system that delivers the outcome sought: an inclusive, sustainable community economy where all can prosper—particularly those normally excluded. This system can be defined as having seven key drivers.

1. Place

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Community wealth building begins with loyalty to geographic place. If globalization is the hallmark of today’s mainstream economy, relocalization is the hallmark of the alternative. Globalization works well for capital, which can move across borders with a computer keystroke. But the real economy of jobs and families and the land always lives someplace real. The real economy is place-based. And a real place is more than a free market of footloose players, where firms are like objects that can be moved anywhere.

In contrast to luring companies from elsewhere, building community wealth is about developing underutilized local assets of many kinds—social networks, the built environment, cultural riches, local ecology, anchor institutions—and doing so in a way that the wealth stays local and is broadly shared. When families possess assets—skills, social networks, a home, savings, an ownership stake in a business—they are better able to withstand shocks like unemployment or illness. They can plan for their future, send a child to college, and feel secure in retirement. A job may start or stop. Assets yield greater stability and security. As Boston’s John Barros told us, “It takes a job to get out of poverty, but it takes assets to keep you out of poverty.”

What’s true for families is true for communities. Jobs may be drawn into a community but leave without warning. “There’s nothing worse than a company that you‘ve worked with for ten years just leaving because the incentives wore off,” said Tracey Nichols of Cleveland. “But having the community own the enterprise, it will always be there.”

2. Ownership

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Ownership of assets is the foundation of every economy, for it determines who has control and who receives the lion’s share of benefits. Community wealth building deploys a whole spectrum of inclusive ownership models. At the non-inclusive end of the spectrum we see absentee-owned firms. Corporations with shares trading on public stock markets are inherently absentee-owned.

Inclusiveness has more of a chance with locally owned firms. When money is spent at locally owned firms, studies show that revenue recirculates locally at least three times as much. Local ownership is vital. But local ownership by a few wealthy families only gets us part of the way toward broad prosperity. More inclusive are firms owned by women and people of color, who have traditionally been excluded from asset ownership. Still another consideration is a longer time horizon. When local owners retire or sell, how do those firms stay local?

Social enterprises are likely rooted in community over the long term, for they have a primary mission of providing social benefit, and many are owned by nonprofits and unlikely to be sold. Also inclusive are firms with employee stock ownership plans (ESOPs), which allow founders to exit their ownership by selling to employees—who are likely to remain loyal to place over the long term, since employee-owned companies are typically locally owned. Still more inclusive are cooperatives, where all members have one share and one vote. Particularly valuable for job creation are worker-owned cooperatives, where workers are the ones who control the company and elect the board.

When employees not only have a job but an ownership stake, they enjoy greater control of their economic fate.

3. Multipliers

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While ownership shapes the skeleton of enterprise, demand is its lifeblood. Community wealth building asks: Where is the large-scale demand that can drive the growth of local, inclusive enterprise? What kind of demand cares about place?

A critical force generating momentum for local enterprises is the purchasing power of anchor institutions, like nonprofit and public hospitals and universities, which are rooted locally and have missions of service. Other types of anchor institutions include museums, community foundations, and local government. When anchors deploy their economic power to strengthen local enterprises, especially inclusive enterprises, they are engaging in what The Democracy Collaborative has termed an “anchor mission.” An anchor mission consciously links the well-being of an institution and its community.

Support for an anchor mission has grown over the last decade among nonprofit hospitals and universities, which together represent well over $1 trillion in economic activity, about 7 percent of GDP.

The procurement, hiring, and investment practices of anchor institutions represent a potentially enormous source of economic development support, which cities like Cleveland, Chicago, Baltimore, and New Orleans are beginning to tap. For instance, when anchor procurement supports locally owned businesses, cities enjoy a powerful multiplier effect, keeping money circulating locally. Over the past decade, more than two dozen studies have shown that local businesses generate two to four times the multiplier benefit, compared to non-locally owned firms. As author Michael Shuman observes, that means that every dollar shifted to a locally owned business generates more income, more jobs, higher local tax revenues, and greater charitable contributions.

4. Collaboration

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In traditional economic development, collaboration involves the two traditional players of city government and the private sector. Community wealth building is more broadly collaborative—involving nonprofits, philanthropy, anchor institutions, community residents, local businesses, and workers.

“What’s happening in New York City is fascinating, and I think it’s the way things might happen in the future,” Melissa Hoover, executive director of the Democracy at Work Institute, said. “What it looks like from the outside is that the City authorized $1.2 million for cooperative development [for 2015, increased to $2.1 million for 2016]. What really happened is that grassroots organizations had been working toward this for a long time.” The City’s allocation was encouraged by these nonprofits, and went to fund their work. The process, in short, was highly collaborative.

Among cities taking seriously the power of collaboration is Philadelphia. When the mayor in 2013 created a new anti-poverty office, the Office of Community Empowerment and Opportunity (CEO), the initiative embraced the philosophy of “collective impact,” said CEO Executive Director Eva Gladstein. In creating and implementing its action plan, CEO involved close to 200 stakeholders in meetings, focus groups, and interviews.

5. Inclusion

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Inclusion lies at the heart of community wealth building, adding a driver lacking in much of economic development. Economic inclusion is the opening up of economic opportunities to previously underserved social groups. It requires creating targets and indicators—as well as participative processes—to ensure that disadvantaged individuals and communities can participate in a meaningful way in the economy.

Consider the seeming success of the innovation economy in Pittsburgh, a former Rust Belt city which in recent decades has enjoyed a resurgence in health care, education, and technology. The City now offers good white-collar jobs and cultural amenities. It’s seen as a “turnaround city,” William Generett, CEO of Urban Innovation21, told us. “But it’s been a very uneven transformation.” The poverty rate among working-age African-Americans remains the highest among the nation’s 40 largest metropolitan areas. “This population has not connected to the new economic drivers,” he said.

To spread the wealth of the technology sector to disadvantaged communities, in 2007 Generett created Urban Innovation21, a consortium of 20 businesses, nonprofits, and government organizations, using business incentives, grants, internships, and training programs. It’s the kind of experiment in inclusion that deserves emulation.

Urban Innovation21 has worked with unions and others to launch an employee-owned commercial laundry, still in development. It’s a wealth-building strategy that takes inclusion into the realm of asset ownership; as Generett said, it goes “beyond the traditional activities that have been used in low- and moderate-income communities,” such as low-income housing and social services.

Inclusion is both a moral imperative and an economic one. Research shows that areas extending greater economic opportunity to people of color enjoy longer periods of growth and shorter downturns. Inclusion is particularly powerful when combined with anchor strategies.

6. Workforce

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If worker ownership is a key long-term goal of community wealth building, workforce participation is often a more immediate step toward prosperity. Economic development professionals serving an entire city do not have the luxury of focusing solely on ideal models. They face the tough job of helping those with barriers to employment find good work, and helping low-income workers move up.

Bringing a community wealth frame to workforce development means two things. First, adding a systems approach means linking training to the needs of employers and anchor institutions, and creating support services. Second, it means being intentionally inclusive—deliberately reaching out to communities of color and those with employment barriers.

University Hospitals (UH) in Cleveland, developed the Step Up to UH program to create a pipeline for hiring residents of neighboring low-income African-American communities. The program includes training and wraparound support services to ensure long-term success. A different systems approach to workforce development deploys anchor support for social enterprise. For example, the nonprofit Momentum in Minneapolis operates three social enterprise businesses that provide transitional employment and job training for those facing barriers to employment, such as felony convictions or substance abuse history.

7. System

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Beyond time-limited programs, the aim of community wealth building is creating a new system. It does this by building institutions that stand over the long term, creating an ecosystem of support for a thriving local economy. This includes examples like New York City funding the ecosystem supporting cooperative development, Richmond creating a new Office of Community Wealth Building in city government, Cleveland launching a network of worker-owned companies, or North Dakota creating the state-owned Bank of North Dakota (BND). With the support of BND, locally owned banks of small and medium size have been able to extend their lending capacity; 83 percent of all deposits in the state, compared to 29 percent nationwide, are managed by community banks. Community banks, in turn, support local business—lending four times as much to small business as the national average.

These institutions are designed to support communities, not to extract profits from them. They show how—from enterprise ownership up to the banking system—we can design for the outcomes we desire.

The seven drivers of community wealth building work together. Starting with a devotion to a place, this approach builds on local assets of many kinds. At the heart of it all is an inclusive focus on the needs of low-income families, people of color, and those with barriers to employment. The end goal is a new system that helps broadly held community wealth to flourish.

Marjorie Kelly

Marjorie Kelly is the Senior Fellow and Executive Vice President of The Democracy Collaborative (TDC) and a leading theorist in “next-generation enterprise design.”  At Tellus Institute, Kelly cofounded Corporation 20/20 to envision and advocate enterprise designs that integrate social, environmental, and financial aims. Kelly is coauthor of The Making of a Democratic Economy (2019, Berrett-Koehler Publishers), author of Owning Our Future: The Emerging Ownership Revolution (2012) and The Divine Right of Capital, which was named one of Library Journal’s 10 Best Business Books of 2001.

Tags: anchor institutions, building resilient communities, community wealth building, economic justice, new economy, Placemaking, relocalization, social enterprises