“It takes money to make money,” the saying goes. Does it also take money to make the new economy? And if so, where will that money come from?
The Hudson Valley is awash in great ideas and projects for a more just, equitable, and sustainable economy. Social enterprises, green businesses, cooperatives, adaptive reuse of our historical building stock, and our desperate need for more affordable housing.
The bottleneck for many of these projects is raising the capital to finance them. Our old industrial growth economy models of financing often don’t work very well for them.
Considerable affordable housing. I’m told by affordable housing developers that building affordable housing, when done well, is indeed profitable. That is, the controlled, affordable rents will more than pay for the cost of building the units over time. So what’s the problem? It’s not as dramatically profitable, as quickly, as building market rate housing. So it’s difficult to attract investors, unless they have a dedicated social mission.
The same problem faces any enterprise that takes a regenerative or justice-building approach to their work. One can almost always make more money faster in an extractive way, whether by literally extracting resources from the earth without replacing them — as we all do, for instance, when we burn fossil fuels and overuse the absorptive capacity of the atmosphere — or by paying workers less than a living wage. So any project that promises only modest returns gets outcompeted when it comes to attracting investor finance by projects that are willing to extract profits from the community or to pitch their services to a class of customers that can pay more.
Startup businesses seeking debt financing face their own set of challenges. Traditional bank loans, even those backed by federal small business programs, almost always base their evaluation of creditworthiness on the finances of the individual business owners. Startup businesses typically have very little in the way of collateral, and so banks typically require personal guarantees for small business loans. This means the forty percent of Americans with no savings whatsoever are out of luck.
It’s even harder for startup worker-owned cooperatives. Bankers may not be familiar with the coop form of business, and even if they are, personal guarantees can become cumbersome and difficult to enforce when there are more than a few business owners.
But these financing difficulties go beyond just practical hurdles. They are inherent to our current industrial growth economy, in which the fundamental purpose of business is to provide returns on capital through growth. Whatever gets built, whatever needs get served, whatever enjoyments get created are all a byproduct of the profit-making process.
A new, more just, democratic, and sustainable economy will require a reversal of the role of capital. In the new economy, capital needs to flow where people have identified needs that they can meet, through a sound business plan that they’ve created. Capital becomes a tool, or a facilitator, for projects that serve people and restore the environment. Today this kind of capital is sometimes called “patient capital” because it has other priorities than simply growing as fast as possible. Someday it will need to be just how things are, much like our impatient capital is today.
Communities all over the country are developing ways to mobilize patient capital, as well as increasingly to pull together funds from ordinary people who want to invest in their own communities. In the cooperative sector, several community development financial institutions (CDFIs) now focus on lending to cooperatives, including the Cooperative Fund of New England and Shared Capital Cooperative. In March, at Commonwealth Hudson Valley’s launch event, Angela DeFelice recounted how the worker coop she cofounded, Rock Steady Farm and Flowers, got started with a loan from one such lender, The Working World.
Angela explained that The Working World’s lending approach is non extractive, meaning the lender is not attempting to gain anything at the borrower’s expense. In practice, this means that individual owners won’t be asked to co-sign for the loan or put up personal assets as collateral. Only any assets purchased with the loan will serve as collateral. And crucially, all repayments come out of the business’s profits. The borrower doesn’t start paying until the business turns a profit, above and beyond what is needed to pay the business owners a fair wage for their work. Non-extractive lenders also typically work with businesses to help them become stronger, offering technical support and business education, so that they are more likely to succeed.
The Working World is co-developing a national financial cooperative called SeedCommons, along with several other coop support organizations. It will be a revolving loan fund, democratically controlled by participating local funds, and guided by values of radical inclusion, democratic ownership, non-extractive capital, and maximizing community benefit. The goal is to provide a big pool of capital that the local funds can draw on, along with back-end services to support the operations of the local funds.
Angela and co-organizer Diana Warwin are working on organizing one of these local funds here, the Hudson Valley Community Wealth Fund. Rock Steady’s loan repayments to date will provide the initial capital for the local fund, backed up by additional funding from the cooperative network if needed. DeFelice and Warwin are currently setting up an advisory council to develop the fund’s own guiding values and principles, and plan to begin connecting with potential projects later this winter. They hope this fund can serve as a resource to increase worker ownership here in the Hudson Valley, and ultimately build wealth and community self determination, especially in communities that have experienced the brunt of the extractive economy.
Another kind of coop-centric fund is aiming to stem the silver tsunami of small- and medium-sized business closures anticipated as baby boomers retire without any succession plans. In Cleveland, the Evergreen Cooperatives — whose three worker-owned cooperatives now employ more than two hundred people — recently launched a fund backed by patient investors dedicated to purchasing local businesses from their retiring owners and then helping their employees convert them to worker-owned coops within the Evergreen coop group.
Other communities are starting funds that draw from a wider pool of investors and support a wide range of locally-owned businesses. The Boston Ujima Project fund may be one of the most innovative. The project combines a democratically-governed loan fund, which welcomes participation from large charitable and other patient investors along with ordinary community members. It will finance small businesses, real estate, and infrastructure projects in Boston’s working-class communities of color, according to priorities set by solely those investors who identify as resident in or from those communities. An array of other economic development, educational, and cultural activities support the work.
And in Vermont, Janice Slade, who I met at the ComCap conference in Detroit this summer, is working on a fund that will allow Vermonters to invest in small businesses in the state’s Northeast Kingdom. I’ll be catching up with Slade on Commonwealth Kingston radio on Thursday, November 21st, so tune in to hear more about how her fund aims to boost local business development.
Here in Kingston, where we are wrestling with gentrification and the rapid buy-up of our local building stock by outside mega-investors, I’m often asked why we can’t get together to purchase vacant buildings for reuse ourselves. The answer is that we can, and some other communities are already doing it.
In Minneapolis, a group of community members started the nation’s first commercial real estate investment cooperative. Members invest $1000 to join, and then can purchase additional non-voting shares when the coop has a project under active development. So far its nearly 300 members have renovated and leased out one building to a bakery and a cooperative brewery and have a second renovated property listed for sale. “Our dream is to be part of a movement to take back our main streets from outside forces and companies,” said members Justin & Brenda Dittrich. Other members speak of the satisfaction of seeing their investment dollars directly at work in revitalizing the community.
Another local capital expert I met at ComCap, attorney Brian Beckon, told me that a real estate fund is one of the easiest community investment funds to set up. “Every community should have a real estate fund,” Beckon says. Maybe we should have one here?
Perhaps the most ambitious community capital mechanism under development in terms of sheer scale may be the push for public banks. The Bank of North Dakota — created just over 100 years ago during a wave of pro-farmer and small business progressive organizing — holds all North Dakota state and local government funds. The Bank is able to use those deposits to invest in North Dakota farms and businesses, low-cost student loans and mortgages, and rapid disaster relief loans. It’s also returned more than $1 billion in profits to the state’s General Fund, and it helped the state weather the 2008 financial crisis better than anywhere else in the country. Other states and municipalities keep their funds in large investment banks like Citibank, Bank of America, and Wells Fargo, who invest those public funds in whatever businesses — often extractive ones — that they see fit.
A growing movement seeks to create public banks in other jurisdictions. The California legislature just passed a bill allowing municipalities to create public banks. The bill awaits the governor’s signature. There is also an effort to create a public bank for New York City — though not yet for the rest of the state — and the Green New Deal resolution mentions public banks as one possible source for financing the massive investment that meeting the climate challenge will require.
I’m aware of several efforts within the Hudson Valley to create new community-based ways of moving capital, from solidarity lending circles to local impact investment funds. And I’m sure there are other such efforts underway that I’m not aware of. (Please get in touch and let me know.)
And of course, there are lots of new economy tools that don’t require mobilizing investment in dollar terms, from sharing gatherings like Repair Cafe to the community-wide celebration of non-market exchange that is the O+ Festival. The Hudson Valley Current is taking things in still another direction, creating a fully local currency that facilitates exchange among local businesses and residents without the need for bringing in dollars.
We will probably need all these models and then some to take a new, more just and sustainable economy to scale here in the Hudson Valley. The good news is, there are lots of models we can learn from and many good efforts we can build on.