From P2P FoundationKevin Carson
6th April 2010
The role of open manufacturing in “community bootstrapping”—i.e., the bottom-up economic development in struggling communities, using their own local resources—has been discussed more than once on the P2P Research and Open Manufacturing lists.
Experiments in commons- or cooperative-oriented local economies have also been a topic of interest. Most recently, my post on the cooperative economy in Salinas falls into this category.
Lately, the decaying rust belt city of Cleveland—aka “the Mistake by the Lake,” where the poverty rate is 30%—has attracted a lot of attention from the cooperative economics community with the Evergreen Cooperative Initiative. I argue in this article, among other things, that it’s an unprecedented opportunity for micromanufacturing enthusiasts to put their ideas into operation.
The micromanufacturing and open hardware movements are actively engaged in building the technological basis for the libertarian, decentralized manufacturing economy of the future. And right now Cleveland is engaged in the biggest experimental project around for building a relocalized cooperative economy. An alliance between the micromanufacturing movement and the Cleveland model would seem to be the opportunity of a century.
The Evergreen Cooperative Initiative is heavily influenced by the example of Mondragon. The project had its origins in a study trip to Mondragon sponsored by the Cleveland Foundation, and is described by Andrew MacLeod as “the first example of a major city trying to reproduce Mondragon.” Besides the cooperative development fund, its umbrella of support organizations includes Evergreen Business services, which provides “back-office services, management expertise and turn-around skills should a co-op get into trouble down the road.” Member enterprises are expected to plow ten percent of pre-tax profits back into the development fund to finance investment in new cooperatives.
The Evergreen Cooperative Laundry was the first of some twenty cooperative enterprises on the drawing board, followed by Ohio Cooperative Solar (which carries out large-scale installation of solar power generating equipment on the roofs of local government and non-profit buildings). A third and fourth enterprise, a cooperative greenhouse and the Neighborhood Voice newspaper, are slated to open in the near future.
The Initiative is backed by stakeholders in the local economy, local government and universities. The primary focus of the new enterprises, besides marketing to individuals in the local community, is on serving local “anchor institutions”—the large hospitals and universities—that will provide a guaranteed market for a portion of their services. The Cleveland Foundation and other local foundations, banks, and the municipal government are all providing financing. The Evergreen Cooperative Development Fund is currently capitalized at $5 million, and expects to raise at least $10-12 million more.
Besides the Cleveland Foundation, other important stakeholders are the Cleveland Roundtable and the Democracy Collaborative. The Roundtable is a project of Community-Wealth.org; Community-Wealth, in turn, is a project of the Democracy Collaborative at the University of Maryland, College Park. All three organizations are cooperating intensively to promote the Evergreen Cooperative Initiative.
This is one of the largest and most promising experiments in cooperative economics ever attempted in the United States, with an unprecedented number of local stakeholders at the table.
Putting conventional business enterprises under local, cooperative ownership is important, but it is only one leg of a three-legged stool. The two other legs of the stool, what is variously known as garage manufacturing or micromanufacturing, and the household and informal economy, are the subject of the rest of this post.
Building New Synergies: Micromanufacturing
As important as the cooperative model is, and as much as I admire efforts to build local economies on that model, changes in ownership alone are not enough. I get the impression that the primary focus of the Cleveland effort, so far, is on changing the structure of ownership and management, without much attention to the potential that new forms of production technology offer for freeing local economies from the need for external financing.
The orthodox model of community economic development is to encourage large-scale capital investment from outside as a source of employment, usually in the form of corporate colonization when local politicians can offer a sufficient tax break or subsidy to persuade some corporate home office to locate a plant in the local industrial park. But as Jane Jacobs pointed out decades ago, the best approach to community economic development is import substitution using local resources—particularly by putting formerly waste resources to use.
Recent developments in micromanufacturing technology coming out of the Fab Lab and hackerspace http://hackerspaces.org/wiki/ movements offer the potential of powerfully reinforcing efforts at import-substitution. Technological developments are causing the bottom to fall out of the price of producer goods. A garage full of CNC machine tools can produce what used to require a factory. Such garage factories, networked together with open source product design communities, can serve as the basis for flexible manufacturing networks with facilities even smaller and more affordable than those of Emilia-Romagna (see, for example, the 100kGarages project). And with the kinds of homebrew machine tools developed in the past few years by various open source hardware projects—open source lathes, routers, milling machines, cutting tables, and 3-D printers—the garage factory can be put together for under $10,000 (see, for example, the Open Source Ecology project’s plans for a Fab Lab). The practical effect is to make investment capital far less relevant as a bottleneck for local economic development. This dovetails with the strategy Jacobs recommended: Every technological change that reduces the capital outlays required for producing local consumption needs is a force multiplier, not only making import substitution more feasible but increasing its cost-effectiveness, and enabling local economies to do more with less.
There is enormous potential for fruitful collaboration between the Cleveland experiment and the micromanufacturing, Fab Lab and hackerspace movements.
What local resources exist in Cleveland right now for a networked micromanufacturing economy? Perhaps someone in our readership knows of someone in Cleveland with CNC tools who would be interested in joining the 100kGarages micromanufacturing network. Or someone in the Cleveland area with the appropriate skills might be interested in organizing a hackerspace.
Area universities are among the leading stakeholders in the Cleveland effort. Universities like Stanford, MIT and UT Austin have played a central role in creating the leading tech economies in other parts of the country, and the flagship project of the Fab Lab movement is the Austin Fab Lab created under the auspices of UT. Perhaps the engineering department at one of the universities involved in building the Cleveland Model would be interested in supporting local micromanufacturing projects. Or maybe some high school shop classes, or community college machining classes, would be interested in collaborating to build a local Fab Lab.
From the other direction, is anyone involved in networked manufacturing projects like 100kGarages, or in the Fab Lab and hackerspace movement, interested in feeling out some of the stakeholders in the Cleveland initiative?
Building New Synergies: Eliminating Barriers to Microenterprise
To repeat, it’s necessary to go beyond simple changes in the pattern of ownership that leave otherwise untouched the conventional model of business enterprise and treat current production technology as a given. Embracing new low-cost forms of manufacturing technology is one way to do this. But equally important is embracing the potential of old forms of production technology in the informal and household sector: the household microenterprise.
Micromanufacturing is a force multiplier because new, cheaper production technologies free local economies from dependence on external capital finance for organizing the local production of local needs. The microenterprise, on the other hand, is a force multiplier because it puts existing underutilized capital equipment to full use. The household microenterprise operates on extremely low overhead because it uses idle capacity (“spare cycles”) of the ordinary capital goods that most households already own.
The Cleveland initiative could achieve very high bang for the buck, in building a resilient and self-sufficient local economy, by eliminating all the local regulatory barriers to microenterprises operating out of people’s homes.
One of the greatest strengths of the alternative economy is its low capital outlay requirements and low overhead. The central effect of high capital outlays and overhead is to increase the size of the revenue stream required to service that overhead. Anything that reduces fixed costs also increases resiliency by reducing the size of the revenue stream required for basic survival. This is true of the small business enterprise, or of the “enterprise” of subsistence activity within the household. The lower the level of fixed costs and the revenue stream required to service them, the longer the periods both the small business and household can weather economic downturns and survive periods of low cash flow. For the small enterprise, this means the lower the volume of business required to keep it solvent, the larger the share of revenues that are a source of income free and clear, and the less meaningful the distinction between being “in business” and “out of business.” For the household, the larger the share of consumption needs that can be met either through direct household production for consumption or production for exchange in the informal economy, the less outside money income from wage labor is required for survival; hence, the household income pooling unit can survive with fewer wage earners and less full-time work.
Compare the household microenterprise to a conventional business. A household microbakery, for example, can function with virtually zero overhead cost because it uses an ordinary kitchen oven, refrigerator, dishwasher, etc. It pays no rent or mortgage besides what the residents would have paid anyway to keep a roof over their heads. So any income the home-baked bread brings in over and above the cost of ingredients is free and clear, and the microenterprise can ride out periods of slow business without piling up any debt.
But if the microbakery becomes sufficiently active to fully utilize the oven baking bread for the neighbors and farmers’ market, it may fall afoul of local zoning laws requiring operation to pay rent on a stand-alone piece of commercial real estate. Local safety codes may mandate expensive modifications of the structure, as well as expensive industrial size ovens and dishwashers. The result of this enormous capital outlay and overhead is the imperative to “get big or get out,” in order to service the fixed costs. A conventional business like this can’t afford to ride out periods of slow business, because the rent keeps coming due and the bank keeps demanding interest on the loans.
Other illustrations of the same principle include the out of work plumber who operates out of his van or truck, buying materials at the local hardware store and charging for straight parts and labor without the need to cover an employer’s cut or the high overhead of office rent and clerical staff. Or the unlicensed cab service consisting entirely of a family car and cell phone, without the $300,000 medallion. Or the beautician who operates illegally part-time out of her home, serving her friends and neighbors. Or the similarly unlicensed home daycare facility in which an unemployed person provides affordable care for the kids of her working neighbors.
When you consider the portion of such services that we consume that could be organized out of people’s homes, with a tiny fraction of the capital outlays and overhead mandated by local regulatory regimes, and with people directly transforming their own skills into a source of subsistence without the intermediation of a wage employer, the potential is absolutely revolutionary. If a significant portion of people in Cleveland with good sewing skills and a sewing machine started putting them to use for trade, and a significant portion of the unemployed and underemployed started turning to such home operations as their primary source of clothing—and ditto for home barbers and stylists, home-based daycare, plumbing, unlicensed cabs, bakers, etc.—it would be revolutionary.
Ted Trainer has argued that LETS systems and local currencies are virtually worthless unless they accompany the creation of new ways for the currently unemployed and underemployed to earn local currency through their own productive efforts. Otherwise, a LETS system becomes a glorified yuppie Green Stamps program where people earn official currency at their wage and salary jobs, exchange dollars for local currency, and spend it at participating local greenwashed enterprises. Trainer proposes Community Development Corporations to raise capital for new, local cooperative enterprises in which people can earn purchasing power in the local economy. But the most overlooked source of capital for employing people outside the wage system is the “plant and equipment” already located in people’s own homes: the ovens, sewing machines, home brewing equipment, garage workshops, and gardens.
Households already have the capital equipment and skills needed to meet a major portion of total consumption needs by such means, right here and now. And doing it, shifting that portion of demand from store goods purchased with wages to direct production for barter, would be—I repeat—revolutionary. It would be a devastating shift of economic activity from the corporate sector to the informal economy.
If such household production could be exchanged for the goods and services of larger, more conventional enterprises, within the framework of a local barter system like Tom Greco’s mutual credit clearing network, the effect would be revolutionary squared. Throw in garage microfactories into the mix, ignoring industrial patents and producing cheap generic replacement parts and accessories to keep mass-produced industrial goods in service and thwart planned obsolescence, and exchanging their services on the barter network with both the conventional cooperatives and the microenterprises, and we get revolution cubed!
So one of the most helpful things the local government could do in Cleveland would be to eliminate the regulatory barriers to low overhead household production.
Building New Synergies: Eliminating Barriers to Cheap Subsistence by the Homeless and Unemployed
So far I’ve used the three-legged stool as a metaphor for the place of cooperative business enterprises in a larger counter-economy. But perhaps there’s room for a fourth leg. No matter how large a share of the goods and services we consume can be produced and exchanged in the counter-economy, most people still bear one significant fixed cost that can’t be met outside the wage system: their rent or mortgage payment. And most of the possibilities for informal production go right out the window when a household lacks sufficient employment income to pay the rent or mortgage, and people consequently lose the roofs over their heads.
So the problem of “informal housing” needs to be addressed in some way as part of the larger agenda.
If the local Mayor’s office, police department and/or sheriff’s department is comparatively enlightened—and it also helps if they’re fiscally strapped by an eroding tax base and the requirements of fighting real, violent crime—they may be persuaded to move foreclosure evictions to a relatively low priority. Ideally, the Police Chief and Sheriff are smart enough to figure out that, while the resident and the house will probably still be around in five years, the Delaware-chartered bank that hold the paper on the house may very well not be.
Unused public buildings, decommissioned military bases and abandoned National Guard barracks, etc., might be opened as bare-bones homeless shelters, with such basis amenities as group toilets, water taps and hot plates, to be self-managed and self-policed by their own residents on the same model as the federal migrant worker camp Steinbeck described in The Grapes of Wrath. Or local government land might be opened as camping grounds with shared water mains and portable toilets. At the very least, the same leniency might be adopted unofficially toward squatters that is shown toward defaulting tenants and home-owners.
In any case, regardless of official policy in the Mayor’s office and City Council, those involved in the local cooperative initiative can provide political support to the evicted, squatters and homeless. Linking up politically with homeless advocates and creating publicity around evictions, and using all available tools of networked activism (like swarming) to arouse public sympathy and organize pressure, would probably be quite productive.
Conclusion
A sector of conventional enterprises reorganized on a cooperative basis is a very important part of a resilient local economy. But the synergies it could achieve in combination with a vigorous micromanufacturing economy of garage factories, and a thriving household sector of household enterprises—all coalesced into a single counter-economy—are almost unimaginable.
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What can we learn from Japan
A friend of mine sent me this 2008 video of Richard Koo from Nomura Research Institute in which he presents his theory of “balance sheet recessions”. Mr Koo has been consistent with this message, with his presentation appearing in 2009 and 2010, and consistency is something I respect.
Summary
Mr Koo makes the case that in the type of crisis we are in – one in which the private sector is not willing to borrow and are actually paying down their debt – monetary policy is pretty much useless. The only effective tool are sustained public stimulus over a long period of time, not a series of small or big ones as we come out and come back in recession. He argues that there is no need to worry about inflation and higher interest rate, even with increasing fiscal spending, the reason being that banks will be happier to lend the money to the government and earn interest, than not lend money at all i.e. destroying money.
My opinion
I agree with Mr. Koo on his analysis of balance sheet recessions. But I think there are important cultural and political parameters for his solution to be viable in each geography (US, Europe, Asia):