INTRODUCTION

FROM CLEVELAND TO PRESTON

A new paradigm for economic transformation

Imagine, for a moment, a business owner positioned to benefit from the next big thing in our economy, the person emblematic of the innovation that will transform the economy. Picture that owner this way: an African-American man, early 40s, formerly incarcerated, at one time a drug dealer, employed at a commercial laundry.

His name is Chris Brown. He sold crack cocaine more than 20 years ago in the Cleveland neighborhood of Glenville, an unlikely place to find the seeds of the next political economy growing.

Cleveland is the city Rockefeller built. John D. Rockefeller made Cleveland the home of Standard Oil, and the city in its heyday had more headquarters of Fortune 500 firms than any place but New York. Steelworkers in Cleveland, highly organized by unions, once made the highest hourly wages in the nation. With that prosperity came the mansions of Glenville and the elegant sculpture gardens and manicured lawns of nearby Rockefeller Park.

Today, Cleveland is the city Rockefeller abandoned. The flight of white residents and businesses grew in the 1960s, cutting the city’s population by more than half from its 1950s peak. Once one of America’s wealthiest large cities, it is now one of its poorest. And Glenville, now 95 percent black, is one of Cleveland’s poorest neighborhoods. On Glenville’s South Boulevard, a once- stately three- story brick home sold a few years back for $5,000.

That’s the neighborhood Chris came home to after three years in prison. He faced long odds against making a good living there, with unemployment at 24 percent and median annual income around $19,000. Back in 1993, Chris was attending college and had dreams for himself. But his girlfriend became pregnant and he had to drop out. With no marketable skills and a new baby to feed, he turned to selling drugs.

After serving his time, Chris found work as a roofer, at a telemarketing company, and as a janitor, all at low pay with no benefits.¹ Then he landed a spot with Evergreen Cooperative Laundry.

The laundry is one of three Evergreen Cooperatives—the other two are a green energy company, Evergreen Energy Solutions, and Green City Growers, an urban vegetable farm—employing 212 people in all. They’re owned by their workers, and each worker gets one share and one vote. Their mission includes hiring people like Chris and other formerly incarcerated residents of Cleveland’s deteriorating neighborhoods. Their customers include large, local nonprofits, such as the Cleveland Clinic, that remained rooted in these neighborhoods as other businesses and institutions left. These are considered anchor institutions because they’re anchored in place, not inclined to abandon their community as profit-maximizing corporations did. These anchors are being harnessed to buy goods and services from local businesses that hire, train, and empower local residents, thus recycling wealth in the community, in contrast to absentee corporations that draw wealth out of the community.

At Evergreen, Chris started at $10 an hour with benefits, a living wage in Cleveland’s economy at that time. Within six months, he became plant supervisor, with a raise. Most importantly, Chris got a piece of ownership, sharing in the decision-making and in the fruit of those decisions.

Chris’s story is at the center of a flourishing venture known as the Cleveland Model. It’s a new approach to economic development. But it’s far more. It’s a demonstration project for a new, democratic economy—emerging from the wreckage of the old—that is designed to serve the many, not just the few.

AN ECONOMY OF, BY, AND FOR THE PEOPLE

A democratic economy is an economy of the people, by the people, and for the people. It’s an economy that, in its fundamental design, aims to meet the essential needs of all of us, balance human consumption with the regenerative capacity of the earth, respond to the voices and concerns of regular people, and share prosperity without regard to race, gender, national origin, or wealth. At the core of a democratic economy is the common good, in keeping with the founding aims of democracy in politics. “There must be a positive passion for the public good, the public interest,” as John Adams wrote, “and this public passion must be superior to all private passions.”²

A democratic economy designs social architectures around what we value, with community and sustainability the alpha and omega, our interrelatedness and interdependence at the center. It involves the development of what ecologists call symbioses. As conservationist Aldo Leopold once put it, “Politics and economics are advanced symbioses” in which free-for-all competition is replaced by structures for cooperation.³

That’s not to say a democratic economy is a utopia in which all our problems will be solved. What it does mean is that it’s possible to design ordinary economic activity to serve broad well- being, not to extract maximum profits.

The system of democracy produced by the American Revolution is rightfully criticized for its deep and tragic flaws—most flagrantly, slavery, but also denial of citizenship rights to people of color, women, and those without property. Yet the founders fed a revolutionary river that flowed far beyond their limitations, working a radical transformation in society, which for millennia across the globe had been designed to serve the elite of the monarchy and aristocracy. The new system of democracy, as historian Gordon S. Wood observed, “made the interests and prosperity of ordinary people—their pursuit of happiness—the goal.”⁴

Yet this new system democratized only government, not the economy. A democratic economy is about completing in the economic realm the work begun by the founders in the political realm. The movement for a democratic economy forms a tributary to many streams of liberation flowing through history, from abolition and women’s suffrage to the formation of unions and the rights of gay marriage. As New York Times columnist Michelle Alexander wrote, “the revolutionary river that brought us this far just might be the only thing that can carry us to a place where we all belong.”⁵

AN ECONOMY OF, BY, AND FOR THE 1 PERCENT

When the US Constitution was written, the Industrial Revolution, engineered by the new aristocracy of the railroad barons and kings of capital, had not yet emerged. The word corporation appears nowhere in that document. But by 1813 John Adams was writing to Thomas Jefferson, “Aristocracy, like Waterfowl, dives for ages and then rises with brighter plumage.”⁶

We’ve seen that happen throughout American history, from the Gilded Age of the late 19th century to the “new Gilded Age” of the 21st. Today we live in a world in which 26 billionaires own as much wealth as half the planet’s population.⁷ The three wealthiest men in the US—Bill Gates, Jeff Bezos, and Warren Buffett—own more wealth than the bottom half of America combined, a total of 160 million people.⁸ Since 2009, 95 percent of income gains in the US have gone to the top 1 percent.⁹ Meanwhile, an alarming 47 percent of Americans cannot put together even $400 in the face of an emergency, leaving most of us unprepared to face such ordinary mishaps as a flat tire or a child’s twisted ankle.¹⁰

Our economy is not only failing the vast majority of our people, it is literally destroying our planet. It’s consuming natural resources at more than one-and-a-half times the earth’s ability to regenerate them.¹¹ Soil depletion has ravaged one-third of all arable land.¹² Nearly two-thirds of all vertebrates have disappeared from the earth since 1970, part of a sixth mass extinction that is terrifyingly underway.¹³ We are razing the only home our civilization has, yet we remain caught inside a system designed to perpetuate that razing, in order to feed wealth to an elite.

Ours is an economy “Of the 1%, By the 1%, For the 1%,” as economist Joseph Stiglitz put it.¹⁴ At its core, it has what we, the coauthors, call capital bias, a favoritism toward finance and wealth-holders that is woven invisibly throughout the system. We might call it an extractive economy, for it’s designed to enable a financial elite to extract maximum gain for themselves, everywhere on the globe, heedless of damage created for workers, communities, and the environment.

Capital bias is often advanced by policy—as with lower taxes on capital gains than on labor income, bailouts for big banks but not for ordinary homeowners, or tax breaks given to large corporations that put small locally owned companies out of business. Yet capital bias also lies more deeply in basic economic architectures and norms, in institutions and asset ownership. Speculative investors holding stock shares for minutes enjoy the rights of owners, while employees working at a corporation for decades are dispossessed, lacking a claim on the profits they help to create.

We’re all caught in this system. Pointing fingers won’t change it. But we need to get it—really get it in our gut—that the design of the extractive economy lies behind today’s multiplying crises. We can see this in the way the financial elite wields its wealth to overpower democracy, the way wages are held down and jobs automated out of existence, the way the growth mandate overpowers the planet’s resilience.

IN THE BELLY OF THE BEAST

Using old approaches to regulate this system is like putting a picket fence in front of a bulldozer. Take the minimum wage. Certainly a higher minimum wage is vitally needed. But it’s a solution from last century, when more people had full- time jobs at single employers. Today, 40 percent of jobs in the US are insecure, part- time, contract, gig- economy–type work, and even those jobs are disappearing in the face of offshoring and automation.¹⁵ We’re getting these precarious jobs because of the system’s natural functioning. The reality is that the pursuit of profits often means holding down wages—and that’s a feature, not a bug. In fact, we haven’t fully confronted the fact that corporations believe they have a fiduciary duty to systematically suppress labor and labor income—and weaken environmental regulation—in order to increase profit for wealthy shareholders.

But that confrontation is starting, with an eye toward building a more democratic economy.

Senator Elizabeth Warren’s Accountable Capitalism Act is an example. She proposes that all corporations with more than $1 billion in revenue be required to obtain new federal corporate charters with broader fiduciary duties. Overnight, large corporations would have a new internal purpose: they’d be required to consider the interests of workers and communities, in addition to stockholders. Workers would get seats on boards.¹⁶

Similarly radical is the Labour Party plan in the United Kingdom for inclusive ownership funds (IOFs). This proposed legislation would require companies with 250 or more employees to transfer 1 percent of ownership into an IOF each year, until the funds hold at least 10 percent ownership of each firm. The funds would be run by worker trustees, wielding the substantial clout of voting rights. And workers would receive dividends—a slice of profits—just as all shareholders do.¹⁷

There’s the Green New Deal advanced by US Congresswoman Alexandria Ocasio- Cortez. Not only would this plan for a massive public works program to shift to 100 percent renewable energy in 10 years create tens of thousands—possibly millions—of jobs, but it would also open up possibilities for system-level policy changes to advance shared prosperity as well as sustainability.

Or consider the problem of the big banks. After the 2008 financial crisis, the big financial players who caused the crisis got bailed out, allowing them to return to mischief as usual. A more radical movement in the US and UK is pushing for publicly owned banks, like the Bank of North Dakota, owned by the state, with assets of more than $7 billion, which helped that state avoid the ravages of the downturn. Banks rooted in community are already in place across Germany. Now community leaders and elected officials from London to Los Angeles are exploring the idea. New Jersey Governor Phil Murphy, a former Wall Street banker, is committed to establishing a state public bank, as is Gavin Newsome, the new governor of California.¹⁸

These kinds of policies begin to get to the core of the system. They get beyond tax- and- spend transfer measures, which today are being dismantled by tax cuts and austerity. They get beyond the regulatory state, today being crushed beneath the onslaught of deregulation, privatization, and the dismantling of government. These new approaches don’t seek to simply put back what’s being destroyed. They point to how a whole new system is being born now, in the belly of the beast. They herald a potentially profound shift from an extractive economy to a democratic economy.

The problem is that people by and large don’t see this—not even the people who are part of it. The work of employee- owned companies, impact investing, public banking, racial justice in economic development, local purchasing by anchor institutions, and more is being done in siloed activities all over the world. But it’s a movement that doesn’t know it’s a movement.

TOO MANY NAMES

It’s not that the new system hasn’t been named. It has too many names: stakeholder capitalism, the solidarity economy, new economy, sharing economy, regenerative economy, the living economy. Some call themselves impact investors, others, mission investors. Some work passionately for worker cooperatives, while others support employee stock ownership plans (ESOPs), and sometimes the two groups take potshots at each other.

A new generation of progressives and visionary political leaders have embraced the label socialist, and certainly their emergence is an explosive development for positive change. Yet the use of this term begs the question: Why do we feel constrained by a supposed binary choice between capitalism and socialism?

The struggle for new language is a sign of the times. We stand at a turning point where many share a sense of peril about the possibility of systemic collapse, “a heightened sense that civilizations are themselves vulnerable,” philosopher Jonathan Lear writes. At such a time of radical cultural disruption, he says, history holds out to us a “call for concepts.” As the old system fails, we’re losing the conceptual world that has given our lives meaning. To move into the new, we need the skill of “imaginative excellence.” We need sweepingly new vision and new naming.¹⁹

State socialism isn’t it. Corporate capitalism isn’t it. An economy adequate to today’s challenges just isn’t there in those 19th- century paradigms. The democratic economy isn’t yet a term in common use. It’s offered here as a unifying frame for the movement that doesn’t know it’s a movement, helping more of us recognize the potential for system-level transformation, to be unafraid of real ambition.

A democratic economy isn’t a top- down command economy. It isn’t capitalism plus more regulations and social safety nets, nor is it capitalism plus green technologies. Building a democratic economy is about redesigning basic institutions and activities—companies, investments, economic development, employment, purchasing, banking, resource use—so that the core functioning of the economy is designed to serve the common good. Anything less than deep redesign will likely fail to see us through the tumultuous era ahead for the earth community.

BEYOND BARNACLES ON THE WHALE

Democracy needs to move inside the economy. Putting such values as sustainability or fairness on the outside of the system through regulation and social safety nets is like attaching barnacles to the side of a whale. These values need to be in the DNA.

The soul of a new system is its first principles. These are what knit together diverse approaches into a common paradigm. Systems thinking tells us human systems are self-organized around what we naturally care about, our values. Self-organization also means that, when old ways stop working, systems have the capacity “to change themselves utterly by creating whole new structures and behaviors,” as systems theorist Donella Meadows wrote. That’s what is underway, spontaneously, in our time.²⁰

The first principle of the old system is capital bias; that’s at the core of the capital-ist system that serves the interests of the wealthy few. Serving the common good is the core of the new system. This plays out through seven principles of a democratic economy, which we find organically embraced by the people we visit in this book. They are principles of community, inclusion, place, good work, democratic ownership, sustainability, and ethical finance. These represent a new common sense.

In chapter 1, we look at how they contrast with the principles of the extractive economy, as we also look at the surprising, largely invisible worldwide phenomenon of the democratic economy quietly arising. In each subsequent chapter, we take up one principle, as seen in the work of some remarkable folks.

In chapter 2, we visit Nick Tilsen, a thirty- something Lakota Sioux on Pine Ridge Indian Reservation in South Dakota, who has begun building a regenerative community that will produce all its own energy, while training youth in construction skills and creating an employee-owned construction company and Native women’s quilting cooperative. The principle of community—where the common good comes first—is at the core of the indigenous worldview. It’s a different mindset from that of high- tech founders seeking to become billionaires even as one out of three children in Silicon Valley faces hunger throughout the year.²¹

In chapter 3, we visit Tyrone Poole, a young, formerly homeless African- American who became entrepreneur of the year in Oregon, and who was aided by the city economic development organization that renamed itself Prosper Portland as part of its focus on racial justice and gender equality. The principle of inclusion is at work, creating opportunity for those long excluded. It begins by acknowledging—as leaders of Prosper Portland did—that the present economic system has been built on a foundation of racial exclusion and dispossession.

In chapter 4, we meet Kim Shelnik, vice president of human resources at University Hospitals in Cleveland, who is creating innovative ways to train and hire locally from the disadvantaged neighborhoods at the hospital’s doorstep. What motivates anchor institutions like these is the principle of place—a shared devotion to a particular place, as they seek to build community wealth that stays local. This contrasts with our globalized economy’s indifference to place, where corporations view places primarily as either better or worse for financial extraction.

In chapter 5, we talk with the leaders of Cooperative Home Care Associates (CHCA) in the Bronx, an employee- owned company employing 2,300 mostly Latina and African- American women. This company is built on the principle of good work, with labor coming before capital. CHCA is an island of human decency amid an extractive economy increasingly hostile to worker prosperity.

Chapter 6 brings us Loren Jensen, the ecological scientist who founded EA Engineering, an environmental consulting firm with 500 employees and revenue of $140 million. For a time, this firm’s shares traded on NASDAQ. Under pressure for short-term profit maximization, the company cycled through three presidents, saw morale collapse, and ended up in trouble with the Securities and Exchange Commission. Loren bought it back, and it is now an employee-owned for-benefit corporation, with a commitment to the public good in its governing frame. It’s a model of enterprise design for an era of equity and sustainability, embodying the principle of democratic ownership. It shows a potential evolution beyond the extractive corporate model, where fiduciary duty to maximize returns to shareholders is believed to be the primary moral obligation.

In chapter 7, we explore the work of Carla Santos Skandier, our colleague and a young lawyer, formerly with the Rio de Janeiro Environmental Protection Agency, who is advancing an audacious idea to break the gridlock on climate change legislation: buy out the 25 largest US fossil fuel companies using the power of the Federal Reserve. Such a move is emblematic of the principle of sustainability, showing what it would mean to truly put sustaining life on the planet ahead of short-term financial gains.

In chapter 8, we talk with Matthew Brown, half- time city council leader in Preston, England, a town that saw its efforts to attract a large corporation shattered after the 2008 financial meltdown. Inspired by the Cleveland Model, Preston created a model that goes far beyond it, with a new credit union, a nonpredatory payday lender, and potentially a new community- owned bank. At work is the principle of ethical finance, where lending is for people and place—a critically needed aspect of taking our fate back from the impersonal forces of extractive finance.

Each of these places might be considered a laboratory of democracy—a term coined by US Supreme Court Justice Louis Brandeis, who, during the Great Depression, said states may serve as laboratories for “novel social and economic experiments without risk to the rest of the country.”²² At the onset of the Depression, farmers gathered together in cooperatives and federations to even the odds against corporate conglomerates. Alaska established a program giving aid to elderly people who lacked caregivers. City and rural leaders built publicly owned sewer, water, and electrical systems.

These kinds of initiatives formed the basis for Social Security, national agricultural investment, and the Tennessee Valley Authority. Experiments we visit in this book can likewise pave pathways to scale. Such possibilities for scale are explored throughout the chapters, with some ideas on what we all can do—and some thoughts on large questions left to tackle—in a brief conclusion.

STARVED FOR SOMETHING NEW

Most of us know that our economic system is broken; 71 percent of Americans say they believe the economic system is rigged against them.²³

Strange to say, that breakdown isn’t the real problem we confront. The system is broken, yes, but the larger challenge is that we feel terrified by the scale of the problem, and that we despair that anything can be done. The enemy to be overcome is our sense of futility, discouragement, and paralysis. Lacking a shared and practical vision of a next system, we’re unable to believe such an alternative could ever be built. Many of us can more easily envision the end of the world than we can envision the end of capitalism.

People come from all over to walk through the Evergreen Cooperative Laundry—policymakers, staff members of mayors’ offices, economic development leaders, investors, hospital system administrators, foundation staff. They come to see the employee- owners pushing towels and sheets into commercial washers because this place silently tells them—at least in microcosm, at least here—something new is possible. Energized by Evergreen, related models have been created in numerous places, including St. Paul; Milwaukee; Albuquerque; Rochester, New York; and Richmond, Virginia.

Preston, England, once deemed the “suicide capital of England,” was inspired by Evergreen and built a more far-reaching model; in 2018 it was named by PricewaterhouseCoopers (PwC) and the London think tank Demos as the most improved city in the UK.²⁴ Preston has in turn inspired city leaders across England, Scotland, Wales, and as far away as Tanzania to reexamine what’s possible locally. Its success has led to the creation of a community wealth building unit in the UK Labour Party. That party is headed by Jeremy Corbyn, who entered 2019 having a good shot at becoming the next prime minister. The Economist called Preston Corbyn’s “model town.”

It’s not just leftists and Labour leaders who are interested. When the US Congress in 2018 passed new employee ownership legislation, it had bipartisan cosponsorship.²⁵ In England, Conservative leader Edward Carpenter from Rochdale is looking at how he can build community wealth in his town.²⁶ In the US, New Mexico Republican Richard Berry, until recently mayor of Albuquerque, was at the table when Healthy Neighborhoods Albuquerque was built, helping large anchor institutions buy locally, an initiative modeled on Cleveland.²⁷

The Cleveland Model and Preston are magnetic because of how starved we are for a glimpse of what might come next. These places embody the unlikely, seemingly foolhardy trust that amid our society’s growing political, economic, and ecological chaos, something good can emerge. Something is already emerging, as people join together.

In Cleveland, Chris Brown’s work at Evergreen put him in a position to make a leap in his career. He left the laundry for a job with a global company where he now makes $60,000 a year. Evergreen “gave me a chance when most wouldn’t,” he wrote to us by email. “It gave me the skills and confidence I needed to be a leader of men!”²⁸

After the Evergreen Cooperative Laundry tallied annual profits not long ago, the employees enjoyed profit-sharing bonuses of about $4,000 each. Twenty- one workers have participated in an Evergreen program to help them purchase rehabilitated houses, costing $15,000 to $30,000, through payroll deductions of roughly $400 a month, plus property tax abatement by the city. Tim Coleman—once a driver for the laundry, later promoted to customer service manager—bought a four-bedroom, two-bath home in Glenville in 2014. He will own it free and clear in 2019.²⁹

Through the Cleveland Model—this green shoot of a democratic economy—something has emerged that’s in scarce supply these days. As Chris told reporter Dale Maharidge shortly before he left Evergreen: “What I’ve got that I didn’t have is hope.”³⁰