Identifying a Strategy
Building a responsible movement for a new economy will require planning how to create new jobs without increased growth. One approach is a strategy of import-replacement with more labor intensive, smaller batch production, transported over shorter distances. The goal would be to create more jobs, but not more “stuff,” with a smaller carbon footprint overall. Ambitious, but necessary if we are to transition to an economic system that is both equitable and sustainable.
Such a strategy will take a cultural shift as well as economic.
Precedent at Mondragon
There are precedents in the past century for such an economic transformation at the regional level. In the 1950s in the Basque region of Spain a village priest, Father José María Arizmendiarrieta, inspired the development of a series of cooperatively owned industries to employ the youth of the region. Jobs, yes, with ownership by the workers, so that the wealth created by the new industry was distributed to those who created it and to the larger community that nourished and supported them.
There are now some 102 Cooperatives that grew out of Mondragon, employing over 100,000 people and turning over annual revenues in the six billion range, making them collectively the seventh largest business in Spain. Each of the Cooperatives is required to donate 10% of yearly profits to education and social good projects meaning a steady stream of philanthropic funds to support Basque cultural institutions once outlawed by the Spanish dictator Franco and now thriving.
The Cooperatives are also required to place 10% of annual profits with Mondragon Corporation—an umbrella corporation for all the cooperatives. These funds are then used for research and development of new cooperatives or to expand existing cooperatives so increasing opportunities for employment to others and further supporting the regional economy. A social welfare secondary cooperative provides health insurance and supplementary retirement funds.
At a time when Spain is experiencing 25% unemployment, 50% unemployment with youth, the Mondragon Cooperatives have no unemployment. They do this by retraining workers from sectors that are slow for more active sectors and by cooperative-wide voluntary reduction of hours. The highest paid workers earn no more than eight times that of the lowest — further distributing wealth and purchasing potential.
A robust consumer cooperative movement compliments the worker cooperatives, providing necessary goods at a fair price. Eroski, the anchor store of the consumer cooperatives, now produces many of the products it sells, providing additional employment in the region.
In the course of 60 years, Mondragón has developed from an impoverished town of metal workers with little opportunity into the home of the largest worker-owned cooperative business group in the world.
How do we learn from and replicate the best parts of the Mondragon experience in face of the mounting challenges of a fragile global economic system.
The home of the Schumacher Center for a New Economics is the Berkshire region of Massachusetts. Of natural necessity, that is our testing ground. The task before us is how to encourage a diverse and vital Berkshire economy independent of and resilient to fluctuations in the outside economy pressing in on it—so creating an example for other regions facing similar pressures.
Roots in Community Supported Agriculture
Community Supported Agriculture (CSA) started in the USA in 1986 at Indian Line Farm in South Egremont, Massaschusetts, just a couple of miles down Jug End Road from the Library and offices of the Schumacher Center for a New Economics. The farm was run by Robyn VanEn, a pioneer of the CSA movement.
In a CSA, the farmer creates a yearly operating budget and citizen/members pay in advance for a percentage of that budget – a share. In exchange the members of the CSA receive a weekly distribution of the produce from the farm. In a year when the weather is perfect for basil production, bunches of basil fill every distribution box. But if it is a bad year for tomatoes, the boxes are empty of tomatoes. Members share the risk with the farmer and in the process become educated about regional growing conditions.
Since its beginning in the 1980s, the CSA concept has grown to a worldwide movement involving thousands of farms. Proud of the historic roots in the region, Community Supported Agriculture is now a strong part of the Berkshire ethos. Berkshire residents understand that to have locally grown, high quality, fresh food requires citizen partnership with our farmers to guarantee a fair price for their labor and to share in the risks of changing weather conditions, plant disease, and equipment failure; it means adapting our cooking habits to crop availability and arranging shopping patterns to stop by the farm or farmers’ market. As engaged risk-takers, the shareholders make up an informal marketing team for the farm and farmers, reducing marketing costs and serving as community advocates for farm-friendly policies.
Expanding the CSA Model
What would it mean to develop a similar understanding for other local production? Can the Berkshires also model an ethos that would support a Berkshire furniture factory, a wool products industry, an applesauce cannery, a humane slaughterhouse, a water-powered electric generation plant, or that small-scale business that a resident of the Berkshires or his/her neighbor has already imagined? Can the Berkshires also lead the way for “Community Supported Industry”? Can it build the “import-replacement” businesses that provide well-paid jobs for its youth and keep the Berkshires vibrant with a diversity of production, skills, and people while maintaining a commitment to a healthy ecology?
Many willing hands are needed to make a concerted effort to build the culture of citizen support for Berkshire businesses that was cultivated at Mondragon. It will necessitate convening meetings of business owners, retired persons, youth, investors, organizational leaders, public officials, and concerned citizens to ask the questions:
- What products might be produced in the Berkshires that are not here yet?
- How can citizens help create conditions to ensure the success of these new enterprises?
- What skills can be offered to help in the process—such as development or review of business plans; market research; site selection; equipment identification; mentoring; financing; permitting; skill development?
How can the Berkshires leverage the wealth of community resources to support the budding entrepreneurs who in turn will run the new appropriately scaled and environmentally sound businesses that are the foundation stones of a socially and environmentally responsible economy?
And can the Berkshires again become a model for other regions in establishing an understanding that it will take multiple villages and villagers to build a thriving regional economy.
Community Tool Kit
A first step would be to create a community tool kit for use at a series of public and private gatherings that would include:
- Discussion Points—background material in written, video, and power point form to inspire engagement.
- Library of Good Business Ideas—surveys for soliciting, recording, and organizing the best ideas for expanding existing businesses and creating new import-replacement production that meets ecological and social criteria and is appropriate in scale for the region
- Community Resources Inventory—who in the region can offer marketing, business planning, researching equipment, worker training, financing, and general mentoring to new business start ups to ensure their success
- Building a Culture of Change—development of follow up material using Internet and social media, which multiple groups could draw on and add to.
Implementation – Land, Labor, and Capital
But it is not enough to imagine the new green, fair, sustainable, slow, resilient businesses; not enough to build a library of good business plans; not enough to whet the appetite for regionally made goods and locally grown food. To implement the new industries identified and fostered under the umbrella of Community Supported Industry will take securing affordable access to land, identifying (or training) skilled workers, and accessing appropriate capital.
Affordable access to land for community-based industries is a whole area of expertise and initiative on its own. In the Berkshires we are fortunate to have a collection of citizen-run conservation land trusts and an active community land trust (CLT). In a community land trust, the land is purchased and held by the non-profit organization and then leased for productive purposes through 99 year lease agreements. The lessees own improvements to the land—buildings, fencing, perennial stock, even soil improvements—but not the land itself. The land use plan developed for each parcel and an important part of the lease, determines the use of the land. It can be as specific as requiring that the site be used as a cannery turning local crops into value added products or as general as housing for year round residents. The resale agreements keep the cost of the land out of the sale cost of the buildings and so keeps the site affordable for the next homeowner or entrepreneur.
To re-establish industries appropriate for the region will necessitate working closely with the Community Land Trust in the Southern Berkshires and other land trust groups to identify and secure appropriate sites—a regional solution to a regional problem.
The lessons from Mondragon are critical in furthering a Community Supported Industry—the establishment of training courses and apprenticeship programs that prepare workers for what are often highly technical jobs. Philanthropy and citizen advocacy will be important factors in achieving this objective.
And we will fail if we do not consider a fundamental lesson from Mondragon—that the workers need to share in the ownership of the wealth they create and share in the decision making about how their businesses are run. The templates for worker ownership and management are available from Mondragon. Not all start-up business are of the scale for establishing a cooperative structure, but as a business grows, future access to community capital funding might be tied to implementing a cooperative structure.
The economist, Fritz Schumacher, author of Small Is Beautiful: Economics as if People Mattered, argued that the soundest economic system is one in which the goods consumed in a region are, for the most part, produced in the region. The consumer then knows the stories of how the products are made—the conditions of workers, the effect of production on the environment. A responsibility and mutuality exists between consumers and producers weaving together the strands of the regional economy and strengthening it.
To support such regional production will require regionally appropriate capital.
Lessons from Mondragon
Mondragon solved the problem of access to capital by creating a bank, Caja Laboral, exclusively to finance new cooperatives in the Mondragon region. The organizational structure of the cooperatives as set up by Father Arizmendiarrieta required that 10% of all profits from the cooperatives would be applied to research and development of new industries in Basque territory. The research was initially carried out by the social entrepreneurship arm of the bank. The bank then went on to finance these new industries. But by the 1980s Spanish banking regulations required banks to diversify and the Caja Laboral was forced to go outside the cooperatives and outside the Basque region with its investments. Only 10% of investment funds were retained locally.
The result proved harmful. What was considered a “safe” investment in Lehman Brothers turned into a 40 million Euro loss. The cooperatives and the bank were strong enough to weather such a loss, but the story raises a caution.
Role of Regional Currencies
Regional currencies like BerkShares are adept at encouraging local economic transactions and drawing attention to the small, locally owned businesses in a region that accept the currency. But how can these currencies be expanded to finance new production? How can they be tools for Community Supported Industry? How can they help take the wealth generated in a particular place and reinvest it in the same region in inter-related import-replacement business? What might a regional economy look like with such a citizen wielded economic development tool in place?
History of Bank Issued Scrip
Regional currencies are not a recent invention—the practice is centuries old. The so-called free banking era in the late 1800s of U.S. history, when many currencies circulated, contributed substantially to bringing about Thomas Jefferson’s dream of a nation of small, independent, self-reliant farmers who found ready credit with community banks to produce and sell their goods. Even in the early years of the 20th century local banks issued their own currency, which John Kenneth Galbraith says was important for the rapid development of the American economy.
How were these banks different from banks today? Because they were located in small towns, the bankers knew the people they were dealing with in a personal way and could make loans on the basis of “character,” not strictly on the basis of how much collateral an individual had to secure the loan. A more striking difference is that each bank could issue a local scrip. Unlike a national currency, which easily leaves the region in which its value is created, the local currency could circulate only in a limited regional area; local currencies and local capital could not travel to the money centers to finance the operations of multinational corporations or interest payments on debt. Credit decisions were made by local bankers with particular personal knowledge not only of the borrowers but also of the needs of the region as a whole.
Issuing for Productive Loans
The soundest method for issuing any currency is to extend credit for productive loans. A productive loan differs from a consumer loan in that it provides the recipient with the capability to produce goods for market with a value in excess of the loan, thereby creating new economic wealth in the community. The classic example of a productive loan is one made to the farmer for seeds in the spring, contributing to an abundant harvest of food in the fall. Currency that is created responsibly for productive loans will maintain its value or even strengthen in value as the wealth of the community increases relative to the supply of scrip in circulation.
BerkShares Loan Program: The plan for BerkShares is simple: to begin issuing the currency, not just at the point of exchange with federal dollars, but in addition for productive loans supported by a community process—the Community Support Industry initiative. The loans would actually be made and serviced by partnering banks. At first those loans would have federal dollars on deposit to back the new currency in circulation. A group of supporters of the Schumacher Center for a New Economics has pledged their intention to open Certificates of Deposits at the banks to stand as guarantee funds. But once the banks gain confidence in the process—the BerkShares would be issued at the point of making the loans, without the federal dollar reserve, effectively increasing the money supply. BerkShares would move from a stand in for the dollar to a truly independent currency.
Loans would be made for a small administrative fee—without interest. As there is no “cost” of the money, no investor to pay, interest is not required.
If recipients of the loan find they require federal dollars to buy equipment not available in the region—they would then turn to their customers asking customers to trade federal dollars for the BerkShares at par. In this way the consumer would be helping the entrepreneur obtain low cost capital while using the currency in normal everyday transactions. Producer and consumer would both benefit from the cooperation.
New goods would then be made, sold locally for BerkShares, and the loan would be repaid in BerkShares.
“Good Money” versus “Bad Money”: As more and more loans are made and repaid—it would readily be seen that the amount of goods created as a result of BerkShares loans is significantly in excess of the amount of currency issued. BerkShares would be recognized for holding good value in the local economy. It comes to be seen as the “good” money and therefore more desirable if given a choice.
At that point the Board of BerkShares, acting as a Berkshire Reserve Board (instead of a federal reserve board) would instigate a floating exchange rate between BerkShares and the federal dollar. BerkShares would be valued not in gold (a rare international commodity), but rather by a basket of local goods—a gallon of maple syrup, a tub of Monterey Chevre, three bushels of Ted Dobson’s field greens. The exchange rate between federal dollars and BerkShares would vary depending on the purchasing capacity of each.
While in 2013 a gallon of grade A maple syrup from Turner Farm in South Egremont might cost $100 or 100B$, establishing a one to one exchange rate, by 2016 the purchasing power of the dollar may have so degraded because of inflation that a gallon of the same syrup will cost $125 but remain available for 100B$.
In this way the Berkshire economy potentially remains strong and resilient against the failings of a national economy.
A Good Community
Father Arizmendiarrieta’s genius was to recognize that it was not one single thing that would rebuild and revive the community of Mondragon. His approach was multi-faceted—education, jobs, ownership, culture, health care, research, reinvestment.
BerkShares expansion to an independent currency is an important tool—but only if used in concert with a community wide initiative to support new import-replacement businesses. Such a program of community supported industry will involve a reconsideration of conventional forms of land ownership, a partnership between consumer and producers, an investment in education, an ethos of sharing risk to shape a common future.
“A good community insures itself by trust, by good faith and good will, by mutual help. A good community, in other words, is a good local economy.”
-Wendell Berry from “Work of Local Culture”