April 1, 1995
For over a decade the Naugatuck Valley Project has tried to hold on to jobs, to build community and to gain control over the Valley’s economy. What is most exciting about this pamphlet is that it shows how people in one locality can learn, change and assert themselves in the process of organizing around specific problems. But activists in the Valley and elsewhere understand that although local organizing can win important victories, many of the forces impacting the Valley are national and international.
Case Study Plus: The Naugatuck Valley Project
The author gratefully acknowledges support from the Bauman Foundation for the preparation of this pamphlet. He also wishes to thank the John and Clara Higgins Foundation and the Ford Foundation for their support of his research. The Naugatuck Valley Project deserves both thanks and credit for its exemplary willingness to facilitate external evaluation. This study is dedicated to the memory of Naugatuck Valley Project community leader Theresa Francis. “God didn’t make no junk.”
In the Old Testament book of Job, God poses the question “Canst thou draw out leviathan with a fishhook?” (Job 41: 1). The answer is, of course, no. The scriptural leviathan, which could not be brought under human control, has often served as a symbol of social power that dominates all who are subjected to it. Today, such social power is embodied in governments that are not under effective democratic control and in the giant multinational corporations.
Jeremy Brecher has been writing about modern leviathans for many years. He poses the question: what can ordinary people do together to bring these monsters under our authority? Can we gain some control over decisions having to do with jobs or with plant closings? Brecher’s analysis suggests that today’s favored arena for seeking answers to these problems—the market—is itself part of the problem. Government, which should be the vehicle for asserting public over private interests, often fails as well. Indeed, government is overwhelmed by the same corporate interests that it should regulate or bring under public control.
Nowhere are these tensions more evident than in the Naugatuck Valley. For over a decade the Naugatuck Valley Project has tried to hold on to jobs, to build community and to gain control over the Valley’s economy. What is most exciting about this pamphlet is that it shows how people in one locality can learn, change and assert themselves in the process of organizing around specific problems. But activists in the Valley and elsewhere understand that although local organizing can win important victories, many of the forces impacting the Valley are national and international.
Since this pamphlet was completed, the NVP has developed new economic and political strategies. It has helped foster three other projects in New England and linked them up through the InterValley Project. Other similar groups exist around the country; many of them, including NVP, are members of the Federation for Industrial Retention and Renewal (FIRR).
This pamphlet is also relevant to the work we at the Grassroots Policy Project are involved in, on alternative jobs policies and initiatives to increase public controls over corporations. Last year, with FIRR, we co-published a report, “No More Candy Store: States and Cities Making Job Subsidies Accountable.” This report documents efforts to make corporations receiving public subsidies more accountable to the public. In addition, the Grassroots Policy Project works with coalitions of labor and community activists who are developing alternative approaches to jobs creation and community development.
Many of the themes in Brecher’s pamphlet are pertinent to these struggles: no one fishhook can catch leviathan—we need multifaceted, comprehensive approaches. As Brecher and others have discussed, local struggles need to be linked to national and international efforts and informed by political analyses and new ideas. While none of us have come up with the perfect strategy for reeling in the untamed leviathan, the ideas which begin to take shape as we examine past and current struggles and as we make connections with broader issues, are fishhooks in their own right. Shared analyses and experiences are integral to the process of developing comprehensive, long term approaches to economic development, jobs and the modern leviathan.
Preface—”Canst Thou Draw Out Leviathan With a Fishhook?”
Just as the 1980s were beginning the Rev. Tim Benson, a Congregational minister being considered for a local pastorate, took his first ride through Connecticut’s Naugatuck Valley.
“I saw all these hulking, empty looking, huge old factories all over. I just scratched my head and wondered what that was all about. It wasn’t too long before the picture began to fill out that these were vacant factories and that there was lots of unemployment because of that situation. I didn’t know what to do about it at that point. It was a little bigger than I was.
This “Brass Valley” was once a thriving industrial complex, turning out clocks, boors, hardware, and innumerable brass widgets that were sold around the world. Now it might be described as “deindustrial valley.” [1]
Deindustrialization is not just a local phenomena. You can see similar scenes in Indiana and Los Angeles—indeed, in Germany, Brazil, and now even Japan. During the 1980s, plant closings became widely perceived as symbolizing the more general problem of economic decline and the powerlessness of those affected to control the economic forces impinging upon them.
Rev. Benson was not the only one to feel overwhelmed by this problem. Indeed, as I have observed the Naugatuck Valley over the past decade, I have been most struck by the relative passivity with which individuals and communities have accepted the destruction of their livelihood.
Part I of this pamphlet examines why those affected by deindustrialization in the Naugatuck Valley (and those similarly affected elsewhere), perceived themselves to be—and in many respects were—so powerless to forestall or reverse it, and why they continue to be so powerless to use their region’s un- and under-used human and material resources to meet their needs. The pamphlet starts with the barriers to effective action because these are the difficulties that will have to be overcome by any strategy to combat economic decline.
Part II examines the Naugatuck Valley Project (NVP), a coalition of religious, labor, community and small business organizations that has attempted for the past decade to develop innovative responses to industrial abandonment and community decay. Its work has included developing what was at its inception the country’s largest democratic employee buyout of an industrial company; starting an employee-owned home health care company; initiating a cooperative affordable housing project on a community land trust; and promoting dozens of smaller-scale efforts. The NVP is widely viewed as a pioneer in the application of community organization and citizen action strategies to community economic needs. Part II analyzes the NVP’s efforts in terms of how it tried to surmount the obstacles analyzed in Part I.
Part III characterizes the key elements of the NVP’s approach, evaluates their potentials and limits, and explores how they might be extended.
Part I: Leviathan Unbound: Why Communities are Paralyzed in the Face of a Devastating Threat
Connecticut’s Naugatuck Valley was once one of the most industrialized places on earth. In 1880, three-quarters of all rolling and manufacturing of brass and copper in the United States was done in Connecticut, mostly in the Naugatuck Valley, and it stayed there for another three-quarters of a century.
In 1955 back-to-back hurricanes struck Western Connecticut. The resulting floods broke dams, washed away downtowns, and devastated the massive brass mills that dotted the banks of the Naugatuck River. Many predicted that the thriving but aging industry would be decimated. But before the waters had even receded, workers struggled back into the factories and pitched in to restore them to working order. Within a few weeks the plants were back in production.
When the economic floods began destroying the region’s industry in the 1960s and 1970s, there was no similar response. The brass industry, which once provided more than 50,000 jobs in the Naugatuck Valley, declined to less than 5,000 by 1980. In Waterbury, the Valley’s largest city, official unemployment in the mid-1970s at times exceeded 15%, and Connecticut Magazine described Waterbury as “a dying city.” In 1992, Money Magazine rated the quality of life in 300 U.S. metropolitan areas and declared Waterbury number 300—the worst.
To understand why there was so little effort to resuscitate the Valley’s economic life, it is necessary to examine the two conventional ways for people to get their economic needs met in our kind of society: the market and the government. [2]
Market Failures
The conventional wisdom is that if there are unmet needs and unused resources, a free market economy will automatically develop circuits which use the resources to meet the needs. Certainly the prime impulse of many in the Valley was to seek or wait for entrepreneurs who would buy the Valley’s factories and put its people back to work. When that failed to happen, people had few ideas of what to do. [3] Why?
Property Ownership
The most direct barrier to action was the structure of property ownership. The factories and other economic resources of the Valley and the capital it would have taken to renew or diversify them were not owned by those who were suffering the effects of industrial decline.
Most Valley residence owned nothing except perhaps a bit of equity in a house and a car. They were among the ninety percent of Americans whose net worth barely equals that of the top one half of one percent. In a market based on exchange, they had little to exchange beyond their ability to work.
The Valley’s factories had initially been owned by partnerships of local individuals. By the 1840s, limited liability laws had allowed them to become corporations. Over the first half of the 20th century, many local companies had become part of national corporations, but a high proportion continued to be run by local managements and to retain a strong local identity. In the 1970s, however, plants in the Valley tended to become targets of speculative buying and selling by conglomerate corporations. By the early 1980s, more than thirty conglomerates owned factories in the Naugatuck Valley: Since these were generally viewed as short-term speculative investments, the plants were often milked and then closed or resold. The owners not only had no long-term interest in the Valley: they did not even have a long-term interest in their own factories. With the economic globalization of the 1980s, ownership became even more remote as conglomerates grew increasingly transnational.
The legal definitions of ownership meant that corporations had virtually no accountability to local communities; indeed, it was their “fiduciary responsibility” to eschew anything that would interfere with maximizing profits for their stockholders. [4] Until the Worker Adjustment and Retraining Notification Act (WARN) went into effect in 1989, employers did not even have to notify workers or local officials of a decision to close or move a workplace.
Under Federal labor law, corporations did have an obligation to bargain collectively with their employees. However, the subjects on which they had to bargain were carefully delimited. These limits were sketched in a concurring Supreme Court opinion [5] which stated that the duty to bargain does not extend to management decisions that “lie at the core of entrepreneurial control,” including decisions “concerning the commitment of investment capital and the basic scope of the enterprise.” The Supreme Court applied this logic specifically to plant closings when it held [6] that a decision to close a business was among the types of employer decisions that are “peculiarly matters of management prerogative.” [7]
As a smaller and smaller proportion of the workforce was covered by collective bargaining agreements, and as the labor movement grew weaker, even the modest accountability unions provided diminished. Companies had even less accountability to non-union workers and other community members affected by their decisions.
Side Effects
This absence of accountability extended to what economists call “externalities”—side effects that affect other parties besides buyers and sellers. For example, a century of industrial pollution had turned the Naugatuck River and many of the Valley’s industrial sites into toxic dumps. Plant closings by major corporations devastated the region’s small businesses, which were dependent on the incomes of factory employees. Extended families, parishes, and communities were undermined as workers had to move away in search of employment. These secondary effects enormously intensified the devastation in the Valley, but the market provided no mechanism for charging their costs to those who made the decisions.
Many of the consequences of market driven decisions fall outside the economic realm as conventionally defined. A crucial case in point was the separation, starting in the early decades of the 2Oth century, of the working population and its jobs into a cadre of managers and professionals and a mass of workers. Following the lead of Frederick Winslow Taylor, industry in the Valley, as throughout the United States, concentrated knowledge and responsibility in the management hierarchy and subdivided the tasks of the mass of workers to make them as unskilled and repetitive as possible. The anachronistic prolonging of this structure is now widely regarded as a major cause of the inflexibility and declining relative productivity of the US workforce.
This structure has had impacts far beyond the realm of production. It shaped motivations, expectations, time horizons, personal “investment” decisions, and ways of life. For many workers in the Valley economic security based on stable employment in a major factory became a central life strategy. Responsibility beyond the family level—whether at work or in the community—was neither encouraged nor regarded as necessary. For many, this pattern generated ingrained motivations and habits that militated against responding proactively to the Valley’s economic decline.
Interaction Effects
The same lack of accountability prevailed about the unintended consequences of interactions among different decisions and actions. For example, when Valley companies cut wages and laid off workers, overall consumer demand was reduced, creating the potential for a downward economic spiral. The market lacked a means for regulating the overall level of production. [8]
In classic Keynsian doctrine, it was the role of government to compensate for effects of this kind, for example by providing economic stimulus. With successful Keynsian economic management, a particular factory might close down, but a high level of effective demand would ensure that its workers would quickly be put to work by other entrepreneurs.
Keynsian policies did in face help counter negative interaction effects of the market and provided relatively full employment for the quarter century following World War II. But starting in the early 1970s, two factors undermined this approach. First, continuing high employment seemed to correlate with ever-higher rates of inflation. [9] Second, growing international economic integration meant that Keynsian policies pursued at a national level produced paradoxical effects: stimulation to the national economy frequently produced not domestic economic growth but instead growing imports, trade deficits, currency depreciation, and rising inflation. In the face of Keynsian policy’s failure to solve these problems, pre-Keynsian economic doctrines of monetarism and “free market” laissez-faire rose to dominance, creating an ideological barrier to efforts to compensate for market failures through government action.
The market’s failure to regulate interaction effects can be seen in other spheres as well. For example, the Naugatuck Valley represented an integrated urban industrial complex in which thousands of skills and technical capacities made possible the production of a wide range of related products. Each time a factory closed, it ripped a hole in this fabric, reducing the productive capacity of the region as a whole—a sort of negative synergism. Yet the market provided no way either to halt this process or to charge its costs to the decision makers .
Just as the market provided no means for addressing negative interaction effects, it also provided no adequate mechanism for realizing the potential benefits of positive interaction effects. [10] For example, economic renewal in the Naugatuck Valley could have been greatly aided by some system of “manufacturing networks” which linked small enterprises and perhaps academic institutions to provide benefits of synergism. Similarly, there could have been great benefits from long-term investment in education and infrastructure, and in a planning process which linked them to other aspects of economic development. Such activities did not maximize the profit of particular enterprises within the time horizon they regarded as most relevant, and therefore the market simply did not generate them. The market provided no vehicle for linking resources and needs into activities that might provide great social benefit but that didn’t maximize near-term profits of individual firms acting in ignorance of each others’ capabilities and intentions.
Political Failures
The government proved equally ill equipped to address the problem of deindustrialization. Although the US and Connecticut constitutions located ultimate authority in the people and provided popular elections and other mechanisms to make governments accountable to them, several factors tended to immobilize government response to the economic crisis that deindustrialization created.
The Powers of Property
While the early Puritans who settled the Naugatuck Valley established a highly communal form of property ownership, over the next century-and-a-half common rights were eroded and the protection of individual property ownership became an overriding responsibility of government. [11] Nineteenth-century Federal interpretations of “due process of law” extended to “corporate persons” the rights constitutionally protected for natural persons i.e., living human beings. These definitions of property rights forbade government action that might have challenged the decisions being taken by the owners of the Valley’s factories.
The day-to-day functioning of government is also strongly influenced by property interests. Campaign contributions from corporations and wealthy individuals associated with them pay for most politicians’ electoral expenses. Political party personnel are largely drawn from business. Direct corruption—often pervasive to the point of being systemic—also plays a significant role: a criminal conspiracy between Waterbury’s mayor, several council members, and a local banker blocked important NVP initiatives during the 1980s, for example.
In a larger sense, too, governments are dependent on property interests. Town, state, and even federal incomes ultimately depend on their jurisdiction’s tax base. To the extent that businesses are mobile (and that extent has been rapidly growing), public officials—whatever their own views and wishes— must please business interests or face “capital flight” and loss of their tax base. Geographically mobile businesses are in effect able to make governments compete to do their bidding.
Weaknesses of Political Accountability
The non-property owning population of the Valley, and of the US as a whole, is diverse. For their interests to be expressed in the political process, they need unifying political vehicles. In the past, this role has been played to a greater or lesser extent by the Democratic Party, by labor movement political action organizations, and by various coalitions. A number of factors have increased the fragmentation of these groups over the past several decades.
Evolving mechanisms of fundraising, professional lobbying, and targeted mobilization have led to a proliferation of and a growing political role for institutionalized specialized interest groups. Organizations that at one time claimed to represent broader class interests, such as the labor movement, have also evolved in this direction. Such interest groups have become adept at winning specific narrow objectives, but this very success entrenched a pattern which has made the formulation of broader objectives more difficult. Deindustrialization was hard to challenge in the political arena in part because there was no vehicle for addressing it as a broad community or social concern, rather than as solely the concern of the particular unions whose members were being affected.
In the same years, political parties moved from a central role in the political process to a more peripheral one. Politicians became to a considerable extent individual political entrepreneurs, dependent for support less on their parties than on a personal coterie of supporters. The accountability provided in democratic theory by the party system became an increasingly weak reed.
In this context, the government itself was able to become an increasingly self-maintaining institution. Government agencies became able to protect their own interests and budgets largely by means of “iron triangles” in which external beneficiaries, friendly legislators concentrated in oversight committees, and entrenched bureaucracies were able to establish virtually unassailable positions. [12] The consequence has been a lack of responsiveness to public concerns, as well as providing grist for the attack of political conservatives on the value of using government to solve social problems. Few in the Valley had faith that appeals to government would lead to constructive action to save their economy.
Part II—Fishing for Leviathan: A Local Response to Deindustrialization in the Naugatuck Valley
At the start of the 1980s, a cascade of plant closings in the Naugatuck Valley was drawing the attention of state-wide organizations with members in the Valley who were losing their jobs. Staff people in the UAW and the Connecticut Citizen Action Group (CCAG) had discussed with each other whether some kind of response was possible. At the same time Ken Galdston, a student at the Yale School of Organization and Management and a former organizer with Saul Alinsky’s Industrial Areas Foundation (IAF), began making the rounds of these and other organizations he thought might be interested in trying to respond to job loss and deindustrialization in the Valley. These were mostly non-governmental organizations (NGOs) which functioned primarily in “civil society” rather than either in markets or in politics. [13]
Based on these discussions, Galdston developed a plan for a Naugatuck Valley Project. It would draw on the traditions of community organization developed by Saul Alinsky and his followers, building an organization composed of already existing organizations, identifying and developing leaders, and challenging power actors to force them to bargain with and address the needs of the communities they affected. The central function of the organization would be to teach community leaders organizing skills which would make it possible for their communities to act on their own behalf.
The NVP would, however, also differ significantly from traditional Alinskyite practice. Instead of focusing on consumer and neighborhood issues, it would take on central questions of jobs and corporate power. Like Alinsky’s original Back of the Yards Council, but unlike most contemporary IAF projects, it would seek to draw together not only parishes but also unions, community organizations, and small business groups.
Galdston saw the 1980s as a new political and economic environment, in which community demands on government produced few results. A new strategy was necessary, The NVP would define local control of economic resources as the critical issue. Conglomerate corporations were using leveraged buyouts to buy, milk, and close local companies. Jobs were leaving the Valley because those making the key decisions were not accountable to people in the Valley. The NVP would challenge them and fight for industrial retention. The ultimate solution was described as “broad-based local ownership” of productive resources. This might involve employee ownership and/or assistance to locally-owned businesses. The ideological language was one of democratization or even of a better form of capitalism, not of public ownership or socialism. For Galdston and some of the Project’s other leaders, the preferred model was the network of linked cooperative factories, banks, schools, housing, stores, insurance programs, and research facilities created by the Mondragon Cooperative Movement in the Basque region of northern Spain.
The NVP would differ from conventional economic development efforts in emphasizing that economic issues were questions of power—who made decisions and in whose interest. Its basic goal, it was repeatedly emphasized, would be organizing—helping those affected by decisions to become collective actors.
In January, 1983 the UAW, the CCAG, and the Catholic Archdiocese of Hartford formed a sponsoring committee and hired Ken Galdston to launch the NVP on an experimental basis.
General Time Controls
Galdston began conducting what would ultimately add up to hundreds of interviews of leaders and potential leaders in the Valley. These discussions were essentially a means to begin mobilizing the NGO sector and building connections between fragmented organizations and constituencies affected in common by deindustrialization. He also began giving talks to local union leaders describing the “warning signs” by which workers in a plant could detect the threat of a closing or sale. These began redefining workers from people excluded from knowledge and responsibility for corporate decisions (“not paid to think”) to the eyes and ears of the community and its best informed experts on management intentions. The entire process redefined management decisions over the sale and closing of factories not as private business decisions but as ones with which workers and communities were entitled to be concerned because they were affected.
At one of the first union briefings on plant closing warning signs, the president of the UAW local at General Time Control (GTC) in Thomaston, a subsidiary of the conglomerate Valley Industries, said “That’s what’s happening where we are. We were suspicious but we didn’t know what to do.”
Galdston brought union leaders together with the local Clergy Association. They wanted to act but had no established vehicle for becoming players; the company had declined even to discuss its plans with the union. The group decided to call up the president of GTC and say, we’re from the Naugatuck Valley Project and we want a meeting. To their surprise, he agreed to meet—providing the NVP with a first small victory, an equivalent of union recognition. The next week, Valley announced it was putting GTC up for sale.
The company’s agreement to meet established at least the outline of a mechanism for accountability to the community. The NVP quickly pulled together a coalition of local and state union and church officials. They decided their goal would be to have the company give preference to a buyer who would keep the jobs in the Valley—in effect, to demand a say in a basic business decision. Catholic Bishop Peter Rosazza recalls,
We confronted the executive officer. I had never been involved with things like this before. You could just see people a little more proud of themselves because they were able to do something like that. Many of them had never been in situations where they could confront people at that level and feel supported by a group. If you took them one by one it would be intimidating, but I think this way we intimidated the opposition.
The company president promised that he would try to find buyers who would keep the jobs in the region. Ultimately, one GTC product line employing about 40 workers was indeed sold to a nearby firm; two other lines were sold outside the Valley.
For Galdston, the experience verified the Project’s premise: “that by being organized, we were going to get something.” It certainly contrasted with the sense of passivity with which Valley communities had responded to previous threats. It established a gossamer thread of accountability. It also showed the limits of actions whose sources of power were primarily an appeal to conscience and a capacity to shame the company before the public.
The GTC campaign established many of the approaches that would mark the dozens of others that followed. When workers or community leaders identified dangers to a local plant, the NVP started by going to the union as the representative of the group most directly affected, then drew in religious and other community leaders, elected officials, and local businessspeople. (This approach became more problematic as fewer and fewer of the Valley’s remaining plants were unionized.) The coalition would demand to meet with company officials, mobilizing public pressure on the company if necessary. The coalition would typically formulate demands that were realistic but which would save at least some jobs in the Valley.
Seymour Specialty Wire
Early in 1984, workers at the Seymour Manufacturing Company, a century-old brass mill with 250 employees in the Valley town of Seymour, learned that the company’s owner, National Distillers and Chemical Corporation, was planning to divest its metals division. Ken Galdston met with the Seymour UAW local and urged them to at least explore the possibility of buying the plant, arguing that even if they didn’t end up buying it, the effort would make them players and provide them much information that would be useful in dealing with any other buyer. Defining workers as potential purchasers could, in effect, serve as a vehicle for ending their exclusion from the “entrepreneurial core” of the enterprise.
Workers were highly skeptical but decided they should explore any avenue to preserving their jobs. Following the NVP’s organizing perspective, the union began to challenge the divisions among chose affected by the threat, reaching out to white-collar employees, retired union people, local clergy and politicians. The employees’ exclusion from knowledge of the firm’s true condition was countered by hiring as consultants the Industrial Cooperative Association (ICA), a Boston based consulting group specializing in employee-owned companies; prestigious Connecticut legal and accounting firms offered to provide additional technical support. The State Department of Economic Development and the town of Seymour kicked in money for a feasibility study, providing the beginnings of a financial base for the employees’ efforts.
With its community support and its expert team in place, the buyout coalition met with National Distillers’ brokers and were told that they would be accepted as potential buyers—but that they must submit a final bid within five weeks. Realizing this was an impossibility, the Project again drew on its organizing perspective to initiate a campaign of community members, archbishops, union presidents, Senators, and other national figures to pressure National Distillers for more time. This strategy redefined the plant’s fate as a broad social and class concern and mobilized resources in and beyond the community to affect what had previously been defined purely as a business decision. Two weeks after the start of the campaign, National Distillers agreed to extend the deadline, reduce the asking price, and help pay for a feasibility study.
The plan the coalition developed was for a leveraged buyout—the same technique used by the high-flying conglomerateurs who were taking over the Valley’s companies with “other people’s money” and virtually no capital of their own. The purchasing company would be owned by an Employee Stock Ownership Plan (ESOP), using a 10% pay cut as a downpayment. In contrast to most other ESOPs, this one would be highly democratic: the ESOP would own all the company’s stock and all company employees would vote for the board of directors on a one-person, one-vote basis. By this means the employees would gain direct control of the company’s decisions. As the loans were paid off, individual employees would be credited with shares of the company’s stock in proportion to their earnings. [14] The union contract would remain in force.
Ultimately a purchase price was negotiated, a bank supplied financing, the state provided a loan guarantee, and, after a job search, the current plant manager was hired to be company president. More than a year after the effort had begun, “Seymour Specialty Wire: An Employee-Owned Company” (SSW) took over the assets.
This pioneering effort soon came up against all the things that hadn’t changed. As one worker put it, “What he actually could see and hear, the guy in the shop, it was no different, except he knew the company belonged to him and he had x number of shares being built up on paper. There wasn’t the vehicle there yet to help him realize this really was his company.”
The first problem was that the division between managerial cadre and rank-and-file workers was little changed. [15] Work roles remained largely the same and workers continued to refer to management as “upstairs” and the mill as “downstairs.” Employees initially elected a majority-white collar board of directors who rarely challenged the company president; even when subsequently a blue-collar majority was elected, the board often felt inadequate to overrule what it regarded as the superior business knowledge of top managers, who were often reluctant to share full knowledge of the company’s situation and workings with the employee-owners. [16] When union members on the board did challenge management decisions, management sometimes charged them with conflict of interest and violation of their fiduciary responsibility to maximize the stockholders’ profits.
Many employees were reluctant to become actively involved in running the company, preferring to remain with the traditional roles to which their motivation and way of life had long been adapted. Conflict between management and workers festered over issues ranging from pay raises for managers to the accountability of front-line supervisors.
After evidence of sabotage indicated the seriousness of continuing labor management conflict, a “goal-setting process” was initiated: it established a system called Workers Solving Problems, something of a cross between quality circles and a union grievance procedure, which was designed to create a vehicle for active rank-and-file participation in day-to-day operations and for ensuring a mechanism besides the board of directors for holding managers accountable. Top management endorsed the plan and many workers were initially enthusiastic, but front-line supervision and middle level managers were widely reported to feel threatened by it. As workers found that the problems they identified did not move toward speedy solution, many lost interest and the system gradually petered out. Despite their ownership of the company, their efforts to assert day-to-day control were in effect repelled.
For the first year, SSW was a financial success, and the ten percent paycut was restored. The next few years saw ups and downs, due to a combination of the recession, intensified competition, and internal production problems. By 1989 the company was in crisis, and in a dramatic confrontation the board decided to “fire the boss.” A new president began a major turnaround effort, with new financing, reduced workforce, and a partially new management team. But after a few hopeful months the company was losing money and went into bankruptcy. Early in 1993 its assets were auctioned off for the benefit of its creditors.
Employee-ownership at SSW succeeded for seven years in preventing the company from being sold, moved, or shut down. The experience also showed some of the limits of employee ownership as an unsupplemented strategy. First, the legacy of a century of role division in the firm was never overcome. Employees were never able to control the managerial cadre; nor did the majority of them even try to establish an active role for themselves in running the company. Close observers of the company attribute many of its problems to poor day-to-day management of production [17] many efforts were made to get top management to address these problems and to hold lower-level management accountable for correcting them, but these efforts were generally unsuccessful.
Second, the company remained at the mercy of product, labor, and capital markets in which it was merely a chip on the waves. Like the rest of industry in the Valley and like the rest of the wire industry nationally, it was buffeted by international competition and declining markets for its products due to recession in its customers’ markets; its demise, like that of so many other companies, was in part the result of forces over which the owners, whether conventional or employees, had no control.
As with product markets, so with labor markets. Much internal conflict arose at SSW from efforts to raise the salaries of managers and high-skilled workers; these attempts were seen by workers who had taken a pay cut as exploitation, but by managers as necessary in order to hold on to key employees by paying salaries competitive with other companies. The overall polarization of income that marked US society in the 1980s was in effect imported into the employee-owned firm.
The peculiar nature of capital markets had made it possible for the workers to buy the company in the first place with “other people’s money.” But the necessity of paying off the loans on schedule gave the company little choice but to treat profit maximization as its basic criterion for decisionmaking. [18] Once the company got into financial difficulty, ultimate control turned out to lie with the lenders, who first forced the company into bankruptcy and then required the auctioning off of its remaining assets.
Perhaps SSW’s greatest success lay in redefining the issue of plant closings in the Valley. It demonstrated that workers and communities did not have to sit idly by while their livelihoods were destroyed. It indicated that the problem of economic decline had to be addressed as a question of power. It made an issue of who owned the Valley’s economic assets. For much of its existence it served as an inspiration for efforts by the NVP and others who sought an alternative to economic powerlessness.
Building the Organization
While the NVP was initiating its first job retention struggles, it was also becoming an organization. In October, 1984 100 people gathered for the first Valley-wide meeting and established an organizing committee of Valley leaders. The next year the Project held the first of its annual conventions and established an organizational structure of member groups, local chapters, and a Valley-wide representative structure. Hundreds of people became active in one way or another, staff eventually expanded to four, and a score or more meetings a week on one or another Project activities became the norm.
The early success of the Seymour buyout buoyed other NVP efforts to deal with the epidemic of plane closings and sales that was spreading through the Valley. Workers at many other plants organized, pressured their employers for meetings, and bargained for buyouts or other solutions. Feasibility studies were conducted at more than a dozen companies.
Successful buyouts turned out to require highly exceptional conditions, however. A protracted effort at the Torin Manufacturing Company, for example, ultimately led to a buyout agreement, but the company had been so depleted by poor management in the meantime that financing could not be secured. Another major effort at the Century Brass Company, heir to the Valley’s first brass mill, was stymied by insurmountable distrust between workers and management and by conflict within the union local. The NVP was peripherally involved with two consummated buyouts, one a management-led buyout at the Ansonia Brass and Copper Company, the other a union-initiated effort at Colt’s in Hartford, in which the state of Connecticut used its pension funds to become a major investor.
In the course of these efforts, the difficulty of finding initial funding was identified as a major barrier. Two strategies were developed to address this problem. First, a banking committee was established which researched local banks using information available under the Community Reinvestment Act (CRA) and made an unconsummated effort to pressure banks to establish a joint investment fund for local employee buyouts. Second, the state government was successfully lobbied to provide a fund for feasibility studies and a revolving investment fund for employee buyouts.
In most instances, buyouts turned out not to be feasible, but the buyout effort nonetheless succeeded in making workers and community groups players. In many instances they bargained successfully for more limited goals, such as sale to a local company, commitments to new investment in exchange for union concessions, an employee first option to buy, or severance payments to the local community as compensation for damage done by the closing. While such statistics are difficult to evaluate, the NVP’s claim to have saved 3,000 jobs does not seem unreasonable.
Other job-retention tactics have been tried as well, though with limited success so far. As defense downsizing followed the end of the Cold War, the NVP worked with the union at Textron-Lycoming, a large producer of tank engines in Stratford, to try to persuade management to engage in conversion planning. Corporate management showed little interest, but local managers in fact began to cooperate; massive downsizings ultimately made the effort moot.
More recently, the NVP has brought together mayors and development officials with consultants from Mt. Auburn Associates to try develop a regional strategic planning process for the Valley. Elsewhere in New England, Mt. Auburn Associates has identified key industries for local development and established cooperative networks among small manufacturers and local educational institutions. Such strategic planning is in effect an attempt to counter the lack of planning that characterizes a market economy. So far this effort appears to have been stymied in the Valley by the orientation of development agencies toward marketing town properties rather than toward strategic development; the competition among towns for private investment and public development funds; the division of the Valley between two state planning regions; and the interest of public officials in protecting their own administrative turf.
Beside responding to threats of plant closings, the NVP increasingly took on other roles, many of them more conventional for community organizations. In its earliest days, it helped lead a successful fight to prevent the closing of a Valley branch of the University of Connecticut. As supermarkets closed in inner city areas, the NVP worked to recruit new supermarkets and to provide transportation to existing ones. As trash-to-energy plants were proposed in several towns, the NVP worked with local environmental groups to challenge the siting of such facilities in a deep, narrow, already-polluted valley. The Project worked intensively with residents of Berkeley Heights, a Waterbury public housing project, to demand rehabilitation, ultimately winning a reconstruction based in part on tenants’ ideas about how to redesign entryways to make the projects safer and less inviting for drug sales. During the early 1990s, community residents expressed increasing concern about schools, and the Project began organizing around high school drop-out prevention.
Whether pursuing job retention or other community needs, all the NVP’s activities were directed toward something it summed up with the term “organizing.” This included developing leaders, teaching organizing skills, establishing new relationships, strengthening community institutions, and building the organization itself. By the end of the 1980s the NVP had more than fifty member groups and local chapters in most Valley towns. From this base it developed two other significant enterprises.
Brookside Housing Cooperative
During the mid-1980s, Connecticut was hit by a speculative real estate boom that dramatically raised rents and house prices, and community members pressured the NVP to become involved in the issue of affordable housing. In particular the Project began working with tenants at a privately-owned low-income housing development who had received a series of severe rent increases. The tenants explored the possibility of buying the project, but found the cost of purchase and rehabilitation excessive.
The NVP then began working with the tenants association to create their own housing project. The effort in many respects followed the organizing model worked out for employee buy-outs. The organized tenants formed the core initiators and decisionmakers; when obstacles were encountered, support was called in from the wider community.
With help from the Institute for Community Economics (ICE), a consulting organization specializing in community land trusts, they developed a plan designed to prevent speculation and assure permanent affordability for the housing while also providing residents with the security of ownership and the benefits of an equity stake. The land is owned as a community land trust by a non-profit organization established for the purpose, the Naugatuck Valley Housing Development Corporation. The housing itself was owned and managed cooperatively by the residents. Residents in effect had use rights and acquired equity over time; they could pass these on to family members or other heirs, but could not sell them to anyone but the coop.
The tenants and the NVP won state bonding for their plan. They received support in public from city officials, but permit applications met a stone wall of resistance from city government. Federal prosecutions later established that for most of the 1980s, the Waterbury city government was controlled by a conspiracy led by a local savings and loan president, the mayor, and several members of the city council; they conspired to block the project in order to channel state funds to a developer of their own choosing.
After a protracted struggle and a mobilization of community support, the NVP won approval for a site and 102 units of affordable housing were built, with sweat equity providing part of the investment. A tenant selection process, tenant training, and the formation of coop groups culminated in the opening of Brookside in 1991.
Brookside has provided low- and moderate-income people, many of whom never expected to be anything but tenants, secure possession of attractive and comfortable homes. Additional benefits are that several people who have been long-term activists in the NVP have ended up living there, and a number of residents have become active in other NVP activities.
Several problems remain at Brookside, rooted in broader social conditions. The residents are truly multiracial, and the project has experienced a certain amount of low-level racial tension, though as yet no major conflict. Many residents are experienced neither in home ownership nor in coop management, and the level of participation and responsibility has not always been adequate. So far none of these difficulties seems to have threatened Brookside’s viability.
Valley Care Cooperative
In the course of door-knocking in downtown apartment buildings for a campaign demanding transportation to supermarkets, NVP activists were surprised at the number of elderly people living alone with little help available. In response, the NVP established a home health care committee, which included retirees, health care professionals, and disability activists. The idea developed to combine the need for homecare with the NVP’s emphasis on employee-owned businesses as a way to meet the need for jobs. The NVP would serve as a vehicle for connecting the community’s unmet needs with its underutilized human resources.
With help from ICA, the committee conducted a feasibility study. They discovered that there was a rapidly growing need for home health care, but that there was a shortage of trained paraprofessionals and that the work was poorly paid, with few benefits and insecure employment. They proposed a company in which employee-ownership would serve as a means to upgrade the workforce, increase motivation and commitment to the work, reduce turnover, and improve the reliability, quality, and continuity of care. They hoped that ultimately the competition provided by such a model agency would create upward pressure on wages and other benefits and set higher standards for the quality of working life in the industry as a whole.
The committee developed a business plan for a company which would provide a full range of services, including skilled nursing, physical therapy, and occupational therapy, while specializing in home health aide and homemaker services. The largest market would be a state agency which administers programs for lower-income frail elderly persons, supplemented by some direct referrals from hospitals, private physicians, and the state, subcontracting from other agencies, and some private pay clients secured through the NVP network.
Following a scheme developed elsewhere by ICA, ownership of the company was to be based on two classes of stock. Employees become members of the coop by purchasing a share of Class A stock; only current employees can buy the stock and they must sell it back when they leave the company. Class B stock is owned by the NVP as the sponsoring organization. It carries a blocking vote over any by-law or strategic change which affects the public purpose goals of the organization. This arrangement is designed to assure that community service remains a prime goal of the company and to tie it in with the developing network of NVP-related institutions and enterprises. Ultimately the coop can pay off the NVP for its stock, thus establishing full control by the workers and freeing funds for reinvestment in other ventures.
With start-up funding from several foundations, Valley Care Cooperative (VCC) opened in 1991. It currently employs more than thirty full and part time workers, a high proportion formerly unemployed or underemployed African American and Latina women. Training and upgrading have been successful. Initially the company was not able to provide full-time work and benefits, and its managers believed this is why it was not able to overcome the industry’s chronic high turnover. By early 1993, the company had been in the black for three quarters and had started to offer health insurance; employment appeared to be stabilizing.
VCC is currently just beginning an extended and carefully planned educational process for increased employee participation, designed to culminate in the introduction of employee ownership. By the end of VCC’s third year, five of the seven members of its board of directors will be elected by the employees. How this new company will deal with the gaps between management and workers that were so difficult for SSW remains to be seen.
From the start, the NVP health care committee was concerned about those potential clients who “fell between the cracks,” unable to pay for care themselves yet ineligible for government aid. To provide services for them, the NVP is hoping to establish a “service credit” system. Under this system, which is now operating in nine states, volunteers donate services, often the care of elders or others in need of homemaking or companionship, and are credited by the sponsoring agency with a “time dollar” for each hour’s service they perform. If they or relatives or friends need assistance, they can “cash in” on their time dollars, receiving help in turn from other volunteers; they can also donate their credits to a general fund that helps people unable to earn credits themselves. Such a system would complement and work in tandem with VCC. It would provide an additional way of mobilizing community resources left to languish by the market and using them to provide for community needs.
NVP Strategies and the Sources of Community Powerlessness
NVP strategies addressed many of the forms of powerlessness described in Part I of this pamphlet. They challenged the lack of corporate accountability by demanding and winning bargaining relationships with many corporations. They created vehicles for the redistribution of ownership and increased control of management decisions through employee ownership. They encouraged a government role in the economic arena based on providing support for threatened enterprises and community- and employee-owned coops. Above all, they challenged the passivity and fragmentation of those affected by bringing them together, teaching them organizing skills, and encouraging them to act.
The effectiveness of these approaches nonetheless remained limited. Only a small proportion of threatened jobs were saved and by the end of the 1980s the decay in the Valley’s employment, schools, infrastructure, housing, and social conditions was palpable. That decay seemed to be spreading throughout the state as well; between 1989 and 1992 Connecticut lost more than 10% of its jobs. Despite the fragility of its efforts, the NVP provided one of very few models available for a constructive response to such decline.
Part III—Two, Three, Many Fishhooks “?”
Conventional approaches to the failures of the market have generally focussed on expanding the role of government, either through regulation and demand-creation in the market (Keynsianism) or government ownership (socialism). Conventional approaches to failures of government have generally focused on increased participation and accountability (democratization) or on reducing the role of government and expanding that of the market (privatization).
While the NVP and similar efforts at grassroots economic change may at times utilize or support any or all of these approaches, they represent a fundamentally different orientation. In effect, they attempt to compensate for or correct the deficiencies of market and government by local intervention by nonprofit organizations. By itself, this approach is inherently limited. In a globalizing economy, no purely local initiative is likely to solve all economic problems unless it can build a wall around its community and be entirely self-sufficient within it. There was little that the NVP could have done, for example, about the market shrinkage and credit squeeze that devastated SSW in the early 1990s. [19]
It is entirely possible, however, for interventions at a state, national, or even global level to take the form of empowering activities at less central levels. The Wagner Act, instead of trying to set wages and working conditions for all companies, protected workers’ right to organize and bargain over such matters; the Community Reinvestment Act, instead of directly dictating bank policies, provided grassroots groups with the information and performance requirements needed to hold banks accountable.
This Part examines the core elements that characterize the approach of the NVP and similar grassroots efforts. It identifies their strengths and weaknesses in overcoming the failures of market and government described in Part I. And it asks what additional elements, whether at grassroots or higher levels, might increase their effectiveness.
Vehicles for Popular Intervention in the Economy
The NVP was neither a company nor a political party; it was a nonprofit organization in civil society. Such organizations have proliferated both in the United States and, as non-governmental organizations (NGOs), worldwide over the past decade. They provide a vehicle for people who have been excluded from influence in market and government to explore new ways to act.
The NVP has provided an alternative to the exclusion of ordinary people from decision-making and to the culture based on that exclusion. More than one NVP activist has said that, before becoming involved with the Project, their only social participation was to take care of their family, go to work, and sing in the church choir. [20] Both in its internal workings and in its social demands, the NVP challenges the assumptions of a Taylorist, class-divided society, in which responsibility for thinking and deciding is limited to a tiny managerial cadre. It stands as a symbol of the alternative assumption that ordinary people have a right, a capacity, and a responsibility to participate in that process. As one NVP stalwart summed it up,
You have to become involved and help with creating your community because if you don’t you are a victim, and God didn’t make us victims; He made us co-creators. And that’s what we’re about and that’s what we’re supposed to be about. That’s my way of saying what the Naugatuck Valley Project is about.
No doubt the form of such vehicles will vary depending on the local social and economic infrastructure and traditions. The Alinskyite model of an organization of organizations on which the NVP drew is only one of many, and itself is still evolving. Whatever the form, however, such organizations are likely to have the character of what have been dubbed “bridging organizations.” [21] It is precisely the defining of a wider interest that brings together varied particular interests, the crossing of pre-established boundaries among special interests, and the drawing together of different groups with varied identities that begins to open up possibilities for action that previously seemed foreclosed.
Such efforts can transform the public dialogue. Prior to the NVP, for example, the most common explanation of plant closings in the Valley was probably that wages were too high and unions too demanding; the most common remedy was to lower wages and create a more attractive climate for business. The NVP reframed the issue of deindustrialization for a wide public in the Valley. It provided an alternative explanation of why industry left the Valley, based on research and education about the transition from local to conglomerate ownership. It promulgated the idea that plant closings should be regarded not just as private business decisions but as a shared, public concern. It turned the idea of employee ownership from a wild-eyed, incredible notion into a living possibility that many workers chose to explore when their own companies were at risk. It thereby propagated a sense that it was at least possible that people could be something more than passive victims when their jobs were threatened.
Mechanisms for Accountability
While law and practice gave managers authority over plant closing decisions, the NVP developed techniques to make them the subject of negotiations. ” [22] In many if not most cases, managers intitially refused to meet, but eventually reversed their position in response to pressure campaigns which mobilized the local community and if necessary national allies to demand that the company meet and bargain.” [23] The pressure was rooted primarily in an appeal to conscience and a danger of bad publicity, although the threat of boycotts and corporate campaign techniques may have crossed the minds of some of those agreeing to enter negotiations. The ability to mobilize allies and use the media was essential to these campaigns. In several instances the ability to define the employees as potential purchasers provided another crucial point of leverage.
Demanding accountability to the affected community and workers was a way to partially counter the “external effects” of corporate decisions. Of course, even when negotiations were established, the NVP and its allies possessed very little bargaining power. Their impact lay primarily in the creative formulation of demands which would help save jobs in the Valley yet not prove too costly to the company.
Several proposals for increasing and institutionalizing corporate accountability around such issues as plant closings have been suggested. Building on the very limited WARN Act, it might be possible to develop a legal obligation for corporations to bargain with communities, employees, and other affected parties, somewhat like their responsibility to bargain with workers under the Wagner Act. [24] The CRA model may also be appropriate here: legislation might specify information and public responsibility requirements around which local groups could organize. Where companies have received public subsidies, they may be held accountable by the granting jurisdiction. [25] Another suggestion has been to utilize the historic power of states over the chartering of corporations to reassert public authority. [26] Reflecting the growing importance of the global economy, some groups have proposed international codes of conduct for transnational corporations (TNCs), to be enforced initially through corporate campaigns and other forms of pressure and ultimately to be incorporated in trade agreements, treaties, and/or other instruments of international law. [27]
Mobilizing Community Resources
Communities possess large amounts of time, talent, and physical resources that are normally unutilized by profit-maximizing institutions under conditions of maldistribution of wealth. [28] Mobilizing these resources can be one of the key elements of economic development.
That, however, requires ways of circumventing the existing market norms which leave these resources to languish.
One key technique is so-called “sweat equity,” which essentially transforms labor into a claim on its product. [29] Thus, when the employees purchased SSW, they took a ten percent pay cut—in effect a contribution of ten percent of their labor—which was counted as equity and provided their downpayment on the company. Prospective residents of Brookside were required to put in a certain number of hours of work on the buildings before moving in, which was counted as part of their equity and also as part of the match required for state funding.
The service credit program which the NVP hopes to institute in connection with VCC provides another approach, based in effect on a synthesis of volunteerism and barter. During the Great Depression, hundreds of thousands of people survived in part because they exchanged services, often through structures established by organizations of the unemployed; [30] in 1933 there were ninety self-help cooperatives with 25,000 participating families in Los Angeles County alone. While such programs are no substitute for real jobs, they can be both an aid to survival and a means of community building.
Finally, voluntary work with the NVP itself should also be seen as a form of community resource mobilization. Hundreds of people gave thousands of hours to help organize the community, to nurture enterprises and other projects, and to participate in demonstrations, work projects, park cleanups, and other volunteer endeavors.
Connecting Resources and Needs
Only in theory do markets automatically connect resources and needs. In practice this process can be blocked by factors which include the structure of entrepreneurial units, the time horizon of entrepreneurs, the overall interest and profit rates, consciously-determined business “hurdle rates” for investment, lack of technical capacity, and lack of knowledge about real economic conditions and the intentions of other actors. Many governments and NGOs, even ones promoted by business and ideologically committed to capitalism, have begun taking on some of the classic functions of private entrepreneurs because these are not being performed by profit-maximizing companies under prevailing conditions.
The NVP’s development of VCC represents a classic case of an NGO linking a community need with underutilized community resources. [31] The NVP’s home health care committee noted the presence of seniors with no assistance and linked this with the NVP’s mission of creating jobs. A complex process of market research, organizational development, workforce recruitment, and capital raising created an organization capable of using those resources to meet those needs. While the initiative for VCC came from the NVP, technical assistance was provided by ICA, funding came from private foundations, and much of the market was provided by government agencies.
Such efforts at “social entrepreneurship” in effect create new circuits of goods, services, and capital. [32] The agencies that perform this function may have various relations to the state. In the cases of the Greater London Enterprise Board and the Steel Valley Authority, for example, some of the functions performed in this case by the NVP have been performed instead by governmental or quasi-governmental institutions. In the case of the Mondragon Cooperative Movement, conversely, some of the functions performed by city and state governments in Connecticut, such as funding feasibility studies and business plans, were taken over by an NGO.
Whatever their form, such agencies generally perform the same basic functions. They conduct research. They provide or recruit capital. They give technical support, education, and training. And they provide continuing support to help protect against the varied ills that developing enterprises are heir to.
Alternatively-Owned Enterprises
Countering market failures requires the development of enterprises which are not exclusively owned by a tiny number of wealthy stockholders nor exclusively driven by the dictates of profit maximization. This in turn requires modifications of the standard model for enterprise ownership. [33]
The NVP’s first experiment in alternative ownership was SSW. How much SSW would resemble a conventional corporation was contested from the start. Ultimately it was structured as a for-profit business owned by an ESOP with highly democratic by-laws. This structure proved to have both internal and external problems. Internally, the change in ownership turned out to generate only a limited change in role structures. Little effort was made to restructure work roles or the distribution of authority in the work process. Expectations regarding the respective roles of managers and workers were reinforced by long-standing cultural assumptions. Management and the law governing for-profit corporations both dictated that, whatever the democratically-expressed will of workers might be, the directors had a fiduciary responsibity to maximize the stockholders’ profits, rather than pursue other objectives such as maintaining jobs. While role divisions, cultural expectations, and profit maximization were all periodically contested, they remained largely intact.
SSW’s external relations also changed only marginally. [34] While some employees wanted a strong relationship with the NVP, and the NVP hoped to make SSW the flagship of a fleet of community based enterprises and institutions, SSW’s management kept the NVP at arm’s length. When the NVP brought SSW board members to visit another ailing brass mill where a buyout was under discussion, SSW’s president threatened to charge them with violating their fiduciary responsibility to the SSW’s stockholders. Nor, despite the crucial role of community support in the buyout, was there any accountability to the local community beyond that of a conventional company. Employee ownership by itself does not overcome the problem of external effects: SSW retained the same incentives to minimize expenses for environmental protection as a conventional company, for example.
The absence of a necessary link between employee ownership and wider social concerns is also shown by two employee buyouts with which the NVP was peripherally involved. After a long strike, Hartford weapons manufacturer Colt’s was bought by an ESOP, the state of Connecticut, and private investors; despite the appeals of gun control advocates (including Mrs. Brady), it decided to make civilian assault rifles the centerpiece of its production. Ansonia Copper and Brass helped initiate a statewide Manufacturers Alliance of Connecticut dedicated to improving the business climate through “reform” of workers’ compensation, unemployment insurance, environmental regulation and business tax rates. [35]
The lesson of these efforts is that alternative enterprises can’t just take an established form and change one element. Subsequent NVP experiments with alternative ownership forms reflected this lesson. [36] They attempted to provide an alternative to profit maximization, a vehicle for external oversight, and a conscious restructuring of roles.
At the Brookside housing development, land ownership takes the form of a land trust owned by a nonprofit organization and dedicated to the public purpose of providing permanently affordable housing; individual residents acquire only limited equity in their homes, while having well-protected use rights. The Naugacuck Valley Housing Development Corporation retains a residual oversight authority to ensure continuing affordability and financial responsibility. Rather than hiring professionals to manage the project, a strong emphasis has been placed on training residents in the skills necessary for self-management.
At VCC, the structure of Class A stock owned by the employees and Class B stock owned by the NVP provides a vehicle for asserting social interests other than profit maximization. The NVP’s veto power over basic decisions provides an accountability structure for assuring the enterprise’s public purpose of providing good jobs and quality care, while also involving the NVP in a continuing support role. An elaborate, phased, three-year training plan for employee participation and ownership is designed to systematically transform internal governance roles; implementation of the plan is spelled out as a key responsibility of management, and the NVP remains involved in the process.
Brookside and VCC embody new ownership models which combine direct control by participants with vehicles for social oversight. This approach in effect create property as a “bundle of rights” [37] which can be distributed to different parties representing different interests. Some have suggested that alternative enterprises should be owned by non-profit organizations with the public purpose of providing jobs and needed goods and services. This is essentially the model of Brookside and of the initial phase of VCC. What would happen if this model were applied to industrial enterprises like SSW remains to be seen.
Transfer of Resources
The maldistribution of property means that ordinary people usually lack the resources to establish NGO- and coop owned enterprises. Therefore such enterprises generally require the transfer of resources from other sources. [38] The sources of funds used by NVP-initiated projects included donations, private loans and investments, and government. At SSW, employee purchase was made possible by city and state grants for feasibility studies, a bank loan, a state loan guarantee, and a note from the seller. At Brookside, state bonding provided the principal funding. At VCC, foundation grants to the NVP provided most of the start-up funding, while government-provided fees for services provided the bulk of revenue.
Three other approaches to the securing of capital were developed by the NVP though never actually utilized. The state of Connecticut was persuaded to establish a revolving fund for investment in employee buyouts. Local banks were researched using CRA requirements and a revolving fund for employee buyouts was proposed though never established. Religious and other organizations pledged to move several million dollars in deposits into NVP-designated banks if necessary to encourage financing of buy-out deals.
Some related approaches to securing capital have been used by similar groups elsewhere, thought not yet by the NVP. Groups like ACORN have used the CRA to force local banks to expand investment in impoverished communities. Organizations like Chicago’s South Side Bank and various credit unions have provided funding for housing and economic development. [39] Public entities like the Steel Valley Authority have used or threatened to use the power of eminent domain to acquire resources needed for community economic purposes. In some cities the concept of “linkage” has been used to require developers using downtown space to invest in affordable housing and other needed community facilities.
Various proposals have been made to expand these mechanisms. A Massachusetts bill, for example, would extend CRA requirements to business investment and to insurance companies. The Financial Democracy Campaign has proposed that the properties acquired in the savings and loan bail-out serve as the basis for creation of a public purpose banking system. The state of Connecticut recently established a Community Economic Development Program which uses a variety of social criteria in providing development funding to public, for-profit, and non-profit enterprises in the state’s poorer communities. [40]
The maldistribution of property ownership is a primary source of both market and government failures. The 1980s saw the transfer of even more wealth to the wealthiest Americans. The various forms of funding for NGO- and coop-owned enterprises provide a potential vehicle for correcting this maldistribution of wealth. Used more extensively, they could generate a growing “third sector,” neither governmental nor private for-profit, which could address unmet social needs and mobilize underutilized resources while redressing the imbalance in ownership of social resources. [41]
Democratizing the Market
The various NVP initiatives include a number of elements which are designed to help counter the side effects and interaction effects that lead to market failures. A fundamental goal of VCC, for example, was to restructure the home health care labor market; employee ownership, it was hoped, would make possible a decasualization of the workforce, which would in turn create upward pressure on wages, benefits, and worklife patterns for the industry as a whole. A key goal of the Brookside land trust was to insulate housing from the speculative character of the housing market. The NVP’s efforts at strategic planning and the initiation of manufacturing networks reflect an effort to modify the market by consciously promoting interaction benefits. All these efforts continue to function within markets governed by a price system, but the dynamics of those markets could potentially be changed by the changed structures of ownership, governance, and/or cooperation among the players. [42]
The redistribution of resources to underaddressed social needs and interests is also a vehicle for correcting the anti-social biases of purely market systems. NVP model projects like Brookside and VCC were designed to meet multiple criteria and provide multiple benefits to various constituencies whose needs were not met by the unmodified market. Vehicles for subsidizing pro-social enterprise, like the Steel Valley Authority, the Greater London Enterprise Board, and the Connecticut Community Economic Development Program, can serve as ways to compensate for externalities, maldistribution of resources, and inability to mobilize unused resources. [43]
Such programs need not eliminate competition; indeed, they can increase competition by allowing public, nonprofit, and for-profit enterprise forms of various sizes to compete to provide social benefit.” [44] Unlike a conventional market, however, they systematically reward enterprises with positive social characteristics, rather than those that only maximize the “bottom line.” [45]
Faced with enormous obstacles and wielding only the slenderest of resources (its annual budget just might pay for the limousines of a typical corporate CEO), the NVP has made a significant impact on the lives of thousands of people in the Naugatuck Valley. Not only has it won concrete benefits in jobs, housing, education, health care, and other areas, it has provided thousands the empowering experience of participating in collective action aimed at solving community problems. It has provided inspiration for similar efforts throughout the country. It takes a lot of fishhooks to capture leviathans; the NVP experience teaches a lot about how to make those fishhooks and where to get them in.
1 For background on the rise and fall of Naugatuck Valley industry, see Brass Valley: The Story of Working Peoples Lives and Struggles in an American Industrial Region, The Brass Workers History Project, Compiled and Edited by Jeremy Brecher, Jerry Lombardi, and Jan Scackhouse (Philadelphia: Temple University Press, 1982).
2 The analysis in terms of market failures and political failures presented here draws on chapters 5 and 6 of Charles E. Lindblom’s Politics and Markets (New York: Basic Books, 1977).
3 As we concluded work on Brass Valley, we looked for, but failed to find, a single person with a positive vision of the region’s future. A common prescription was that workers should accept lower wages and worse working conditions in order to make the region “more competitive.”
4 Whether the high-flying speculative managers of the 1980s actually served the interests of their stockholders, rather than their own self-aggrandizement, would be a worthy topic for investigation. Their behavior often seemed to illustrate Lindblom’s concept of “exceeded authority,” in which authority granted for one purpose is used by those who received it for other purposes—generally their own.
5 Fibreboard Paper Products Corp. v. NLRB, 379 U.S. 203 (1964).
6 Textile Workers Union v. Darlington Manufacturing Co., 380 US 263 (1965).
7 For a recent discussion, see Terry Collingsworth, “Resurrecting the National Labor Relations Act—Plant Closings and Runaway Shops in a Global Economy,” Berkeley Journal of Employment and Labor Law, Volume 14, No. 1, 1993
8 John Maynard Keynes found the origin of “inadequate demand” in the possibility of “liquidity preference” the ability of capitalists not to invest out of expectations of better gains from waiting than from investing. Karl Marx also found the possibility of downward economic spirals to originate in the ability of a capitalist to sell without buying: an interruption of the circuit “commodities money-commodities.” However, for Marx it was the absence of an adequate overall regulator of the capital-labor relationship (other than the class struggle itself) which led capitalism to produce periodic economic crises and a chronic “relative surplus population” or “reserve army of labor.” The system’s regulator, the accumulation of capital by private firms, did not dictate full employment, particularly under changing conditions of labor productivity. Those versions of general equilibrium theory which assume full employment to be an automatic feature of a market system have the superb virtue of making mass involuntary unemployment impossible.
9 Economists referred to this as “the shift in the Philips curve.”
10 A classic example of such benefits is co-generation: the use of heat generated as a side effect of one company’s production process to provide an energy source for another enterprise.
11 The evolution of property ownership forms in early Waterbury, and the conflicts it entailed, are traced in considerable detail in The Town and City of Waterbury, Joseph Anderson, ed. (New Haven: The Price & Lee Company, 1896)
12 This provides another illustration of Lindblom’s concept of “extended authority.”
13 Some definitions of “civil society” include the market, but the term will be used here for the sector commonly referred to as citizen, voluntary, or non-governmental organizations.
14 The model of individual capital accounts had been elaborately worked out by ICA, drawing on the Mondragon experience, to circumvent some of the common problems experienced by previous producer cooperatives.
15 This dimension of the story is explored in greater depth in my “Upstairs, Downstairs: Class Conflict in an Employee-Owned Factory” in Building Bridges: The Emerging Grassroots Coalition of Labor and Community, Jeremy Brecher and Tim Coscello, eds. (New York: Monthly Review Press, 1990).
Marx distinguishes the “formal” and the “real” domination of capital over labor. The contractual relationship between buyer and seller of labor power is only formal; after it is established the problem of actually making workers work remains. In effect, SSW illustrated a similar distinction regarding worker-owners’ control of capital: employee-ownership provides employees a formal domination over the firm, but that turns out to be far from a real determination of its life and fate.
16 Diane Elson, in “Market Socialism or Socialization of the Market?”New Left Review, November/December 1988, points out the difficulties with openness if there is “an unstable environment, requiring lots of discretionary powers in the hands of a few decision-makers.” This surely describes the situation at SSW. She notes that “The possibilities for egalitarian forms of worker management thus have implications for and depend on relationships between enterprises. It is not possible to have a fully open information system within an enterprise and to keep secrets from other enterprises.” She argues that what she describes as “socialized markets” organized by public agencies would be “much more compatible with industrial democracy” than are “markets organized by enterprises.”
17 Many advocates of employee ownership argue that the employees’ stake in the company guarantees cooperation and increased effort to improve the functioning of the company; the SSW experience does not support this claim.
18 This criterion was contested. Some union officials maintained that “saving jobs” had been the original purpose of the buyout and that avoiding layoffs was a proper criterion for company decisions as long as it did not undermine the company’s viability; some managers countered that only conventional business criteria should be applied.
19 Global institutions for the regulation of trade, investment, growth rates, lending, TNC behavior, and the like are essential in a global as in a national economy, even a purely capitalist one; their absence today is generating global economic chaos. Strategies for addressing the globalizing economy are beyond the scope of this paper; reflection on the practice of local organizations is not likely to be a sufficient basis for developing them. I have discussed them in Global Village or Global Pillage by Jeremy Brecher and Tim Costello (Boston: South End Press, 1994), “International Capital Mobility and the U.S. Economy” Z Papers,1992, and the “Introduction” to Global Visions: Beyond the New World Order, by Jeremy Brecher, John Brown Childs, and Jill Cutler (Boston: South End Press, 1993). In “The Stupid Economy,” Z Magazine, April, 1993, I try to initiate a discussion of the relation between global approaches and local ones. Neither local nor global strategies obviate the need for such established forms of government economic policy as central banking, Keynesian fiscal policy, and regulation of finance, investment, environment, labor standards, etc.
20 Of course, an important role in the Project was played by union leaders, clergy, and others with extensive prior organizational experience. But even for many of them, participation in the NVP represented a move into social spheres from which they had previously been excluded.
21 See “Bridging Organizations and Sustainable Development” by L. David Brown in Human Relations, Vol. 44, No. 8, 1991. A bridging organization “can be a conduit for ideas and innovations, a source of information, a broker of resources, a negotiator of deals, a conceptualizer of strategies, a mediator of conflicts. By the same token, the bridging organization is subject to many conflicting demands from its diverse constituencies.”
22 The governmental arena of course already possesses formal mechanisms for accouncability to the people. The NVP, however, generally eschewed the traditional forms of political participation, opting instead for the Alinskyite form of making demands, mobilizing pressure, and then entering negotiations. This was particularly true in those situations where the dominance of property-owners over the political system was strong. For example, when the city government stonewalled on the permit process for the NVP’s housing project, the NVP investigated and publicized contributors to the mayor who might have had an interest in blocking the project.
23 As in the case of union recognition, the agreement to bargain with the NVP possessed a significance for the affected communities independent of the concessions that might ultimately be won. Anyone who has seen Michael Moore’s documentary Roger and Me, which revolves around an attempt to get the top manager at General Motors simply to visit Flint for one day to see the effect of his decision to close a major plant, will appreciate the insupportable indignity of having decisions made over the fate of a community without an opportunity to confront the decision maker with the human impact of the decision.
24 Various proposals for strengthening or going beyond WARN have been developed by the Federation for Industrial Retention and Renewal.
25 In 1993, Judge Donald Shelton enjoined General Motors “from transferring the production of its Caprice sedan, and Buick and Cadillac station wagons, from the Willow Run plant to any other facility,” but the decision was overruled on appeal. For a number of examples of legislation about corporate accountability, see No More Candy Store: States and Cities Making Job Subsidies Accountable (Washington, Grassroots Policy Project, 1994).
26 See Taking Care of Business: Citizenship and the Charter of Incorporation by Richard L. Grossman and Frank T. Adams (Cambridge, MA: Charter, Ink, 1993.)
27 See Global Village or Global Pillage for more on these proposals.
28 The extent of this underutilization is difficult to measure, but it is hinted at by the enormous expansion of production that in fact occurs during wartime. A principal deterrent to the full utilization of resources is the change in the balance of power between workers and employers that occurs in situations of full employment, which generally manifests itself in inflation. It is paradoxical but normal for mass unemployment and other underutilization of resources to coexist with excessive and increasing hours of labor. See “The Great Time Squeeze” by Jeremy Brecher and Tim Costello in Z Magazine, October, 1990.
29 Sweat equity could be regarded as a form of “primitive accumulation.” Unlike other historical forms of primitive accumulation, however, it is voluntary and the capital accumulated is owned by those whose labor produced it
30 These are extensively documented in the four volumes of Clark Kerr’s “Productive Enterprises of the Unemployed, 1931-38,” (unpublished Ph.D. dissertation, University of California, 1939)
31 In the case of SSW, in contrast, the existing market was simply accepted.
32 This is sometimes discussed in the development literature in terms of creating “internal markets.”
33 The approach taken to employee ownership here is controversial among advocates of employee ownership, some of whom believe the employee-owned company is and should be nothing but a superior, more competitive form of private, profit-maximizing enterprise.
34 The shift from subsidiary of a large corporation to an independent small business raises questions independent of employee-ownership which are beyond the scope of this analysis.
35 New Haven Register, January 31, 1993, p. J13.
36 From the start, the NVP’s conception was not one of isolated employee-owned enterprises functioning independently in the market, but rather of a cluster of linked enterprises and institutions, somewhat like those of the Mondragon Cooperative Movement. Making Mondragon by William Foote White and Kathleen King Whyte (Ithica, New York: ILR Press, 1991 second edition) makes clear the extent to which the Mondragon Cooperative Movement is less a collection of individual coops than a central entrepreneurial structure generating self-managing but still dependent subsidiary units.
37 This approach to property as a “bundle of rights” which can be distributed among various actors was clearly formulated by Adolph Berle and Gardiner Means in The Modern Corporation and Private Property (New York: Macmillan, 1933). That such property rights are a product of and dependent upon authority relations, rather than somehow originating in the market, is forcefully brought out by Lindblom in Politics and Markets. When property is looked at as a “bundle of rights,” the gap between “economic” models based on “ownership” and “political” models based on “rights” can be bridged.
The theoretical significance of leases as a vehicle for desegregating and assigning various sorts of use and usufruct rights has been explored by Roberto Unger. Shortly before his political demise, Michail Gorbachev was advocating the leasehold as a form for combining the benefits of social ownership with those of decentralized economic initiative. Combining control of an enterprise’s day-to-day life by participants with control of its core decisions by a wider community organization is a theme of “Towards a New Vision of Community Economic Development” by Dan Swinney, Miguel Vasquez, and Howard Engelskirchen, distributed by the Federation for Industrial Retention and Renewal.
38 Unutilized resources in the community, discussed above, can make an important contribution, but they are insufficient in themselves for any but the smallest scale enterprises.
39 It should be recalled that this was also the original purpose of the savings and loan system.
40 Jeremy Brecher, “Connecticut Community Economic Development Program” in Jobs & The Economy: A Survey of 1993 New England Legislation (Cambridge, MA: Progressive Policy Initiative, 1994).
41 The contemporary trend toward NGO and coop rather than government ownership is largely an effort to circumvent the forms of political failure delineated in Part I above.
42 There are many interesting historical examples of such efforts which are perhaps due for reevaluation and possible replication: an example is the bank established by the Amalgamated Clothing Workers which became a prime source of loans for clothing manufacturing and used that role for such purposes as stabilizing employment by de-seasonalizing the industry.
Of course, not all interaction effects are likely to be countered “from below.” For example, some overall regulation of growth/investment rates at a national and today an international level seems necessary to address problems of inflation and stagnation.
The failure of SSW reflects in part the inability to control an out-of-control market in which neither conventional nor employee-owned companies were likely to thrive.
43 The Connecticut Community Economic Development Program is charged with seven goals: (1) job creation and skill development for the unemployed and underemployed and persons receiving public assistance; (2) leveraging of private and community investment; (3) community participation in decision-making; (4) the establishment of self-sustaining enterprises; (5) improvement of the physical environment of the community and the state; (6) promotion of affirmative action and equal employment opportunities and minority-owned businesses; (7) coordination with the State Plan of Conservation and Development and local, regional and state strategic economic development plans.
Such programs provide a mechanism for redistribution of investment flows which partially counters the necessity to maximize enterprise growth while continuing to utilize the price system as a vehicle for rational choice. In effect, such approaches adjust the supply and/or price of capital to correct for market failures at the point in the reproduction cycle where investments are determined.
44 An example of such an increase in competition is a bill currently under consideration in the Connecricut legislature to allow nonprofit organizations to apply for small business set-asides from which they are currently excluded.
45 This section is only meant to begin a discussion of “democratizing the market” to compensate for market failures, a subject which goes far beyond the scope of this paper. Two examples will illustrate directions the discussion might go.
Perhaps the largest-scale historical example of “market modification from below” is the labor movement, at whose core lay the goal of eliminating labor costs as a factor in competition to prevent wages from falling to the lowest level the poorest worker is forced to accept. (The NVP, as a union-oriented organization, has generally supported this role and opposed competitive wage cutting.) Competition among localities, states, and now nations to reduce taxes and regulation and to provide subsidized amenities to businesses has similar effects today, and an equivalent way of removing these factors from competition is required. Strategies of “upward harmonization” in the globalizing economy, such as social charters and labor rights protection, are discussed in Global Village or Global Pillage. Domestically, no raiding pacts among municipalities and states, possibly backed by Federal legislation, are vehicles that might be explored.
A second example: a fundamental cause of market failure is the lack of adequate information. In a theoretical perfect market, all players have full information, but this is far from the case in reality, as illustrated, for instance, in recent debates over whether drug makers charge excessive prices and the inability of citizens in most states to know the value of tax abatements. Diane Elson (op cit) explores the central role of lack of information in market failures and proposes “socialized markets” with knowledge of all costs and intentions available to all players as a crucial correction. Elson’s model of “socialized markets” might represent one possible endpoint for the processes described in this section. As a step in this direction, third sector firms could serve as “benchmarks,” as the publicly-owned TVA was originally intended to do for the power industry; their public subsidy would be provided in part in exchange for completely open operation which would allow all social players far more perfect knowledge of real costs.
Copyright © 1995 by the Grassroots Policy Project.