The answer to decades of stagnation? Localization and democratization

Peter Vittek

In the 1980s, the northeastern and midwestern United States were hit by a wave of deindustrialization, which brought about a sharp decline in the economy and living standards. One of the main reasons was the success of the neoliberal version of globalization reinforced by new "free trade" agreements. These treaties “freed“ capital from the “tyranny“ of regulations and allowed the relocation of industrial production and related jobs to lower-wage countries. Other jobs have disappeared due to automation. These processes led to widespread devastation and left behind dilapidated factories and crumbling cities. The whole area has since been carrying a “proud“ label – the Rusty Belt. Detroit, Buffalo and Pittsburgh lost nearly half of their population within the course of a few decades, the incomes of the remaining residents sharply fell, and social pathologies were on the rise.

One of the most affected cities was Cleveland. In the 1950s, it had almost a million inhabitants, in 2018 it was just over 380,000. In 2019, it became the city with the highest poverty rate in the United States: 114,000 local people lived in poverty, including nearly 40,000 children, almost half of the child population. If cities like Cleveland want to break away from the cycle of poverty and change its post-apocalyptic appearance they have to find an answer to the question of how to keep people in the city and provide them with a decent living.

At the beginning of the story that began to change the devastated urban landscape for the better is the research center The Democracy Collaborative. In agreement with the city and other local institutions, they created a model based on the localization and democratization of the economy. Cleveland is home to large hospitals and university, which are city’s main economic players, but unlike other companies, they have one feature important for long-term planning of the local economic development: they are unlikely to move out of the city. Every year, they spend huge sums to procure goods and services used in their day-to-day operations. In the past, much of these spendings left the city. Profits flowed into the pockets of the inhabitants of rich suburbs or to bank accounts of large corporations in tax havens, and local communities remained closed in a vicious circle of poverty and deprivation.

The solution is very simple. The flow of resources needs to be redirected and kept within the local economy. In Cleveland, an incubator was set up to support the development of local employee-owned cooperatives. Its establishment was supported by the city and the local development foundation, hospitals and university. Thanks to the incubator, cooperatives gradually began to emerge, employing exclusively people from local communities and providing services to hospitals and university, and gradually to other local companies and institutions. A cooperative laundry was the first to be established. In addition to hospitals, its most important customers include social services homes, facilities for the elderly or hotels. Another cooperative provides hospitals and other institutions with energy from renewable sources. The most recently established cooperative so far runs a hydroponic farm in the city and supplies vegetables and herbs to hospitals and university, as well as to several shops and restaurants. In a relatively short time, the cooperatives have created around 100 jobs for people from local communities and the goal is to grow up to 1,000.

Most employees are also members of the cooperatives. Democratic control of the companies ensures that both jobs and profits remain in the community. In cooperatives, they are divided among the people who contributed to their creation. More resources in the hands of the locals mean that the local economy can grow and more jobs are being created. Large Cleveland institutions would buy services anyway, but now most of them remain in the local economy, helping to create sustainable jobs in their environs. By getting energy from renewable sources and buying local food, the institutions also reduce their carbon footprint.

The Cleveland model soon gained attention and so far has been adopted in various forms by other North American cities. It is also an inspiration for Preston, England, where public procurement has become an important driver for the development of the local economy. Increasingly, public institutions have begun to buy goods and services from local companies and cooperatives. The Banská Bystrica self-governing region (BBSK) has recently embarked on a similar journey. After 30 years of neoliberal regulations, many districts and cities in Slovakia are reminiscent of the Rust Belt. The local economy is stagnating and poverty is rampant. These include, for example, the Poltár district, where the BBSK established an agroforestry social enterprise that will supply food to schools and social service homes under the regional administration. The BBSK has also published lists of procured goods and services and called on local businesses to get involved in the public procurement.

There is no reason to believe that the dominant concepts of economic development will bring us anything other than what they have been able to deliver thus far: concentration of power and property in the hands of the few, enclaves of destitution, poverty and decay or environmental degradation. The localization and democratization of the economy offers us answers to all kinds of crises. At the very least, it can improve the lives of specific people that have been for a long time overlooked and marginalized. Many alternatives exist and change is both necessary and inevitable.

Slovak version of this article was published in the daily Pravda:
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Photo by Erik Drost, CC BY 2.0, via Wikimedia Commons