Tag Archives: environment

When Workers Own Their Companies, Everyone Wins

In 1921, the Olympia Veneer Company became the first worker-owned cooperative to produce plywood. By the early 1950s, nearly all of the plywood produced in the United States was manufactured by worker-owned cooperatives. Today, however, worker-owned cooperatives seem few and far between. Say “co-op” and most people think of Park Slope foodies or strictly guarded apartment buildings. Worker ownership may seem a relic of the past, but it could actually play a significant role in reviving the union movement, bolstering the green economy, and stemming the tide of deindustrialization.

Today, there are only about 30,000 cooperatives, strictly defined, employing 856,000 workers in the United States. Most of these cooperatives are consumer cooperatives, owned by consumers, rather than workers. (Technically, cooperatives are defined by incorporation, ownership, and tax-filing status.) But about 47 percent of American workers participate in profit-sharing arrangements of some sort. Employee stock ownership plans (ESOPs), for instance, involve around 10 million workers and range from plans that are essentially cooperatives (in which workers have decision-making power) to plans in which workers have stock, but no ownership or decision-making powerthese are essentially profit-sharing by a different name. Procter and Gamble, the twenty-seventh largest corporation in America is estimated to be10 to 20 percent employee-owned. Among the Fortune 100, many companieshave employee ownership plans, including Exxon Mobile, Chevron, ConocoPhillips, GM, Ford, Intel, UPS, Amazon, Coca-Cola, Cisco, and Morgan Stanley.

Against this backdrop, it’s not so surprising that some are making the case for co-ops. Union leaders, in particular, argue that there is significant opportunity to expand the coop model by associating it more closely with unions. This make sense: Unions are looking for new allies and methods for increasing worker control, while cooperatives can benefit from the organizational skill and scalability of unions. Associating with coops would also allow the unions to extend their reach. While the union movement is concentrated in manufacturing, a recent study by Hilary Abell finds that 58 percent of cooperatives are in the retail and service sectors. “If you go back to the beginning of the labor movement,” says activist Carl Davidson, “unions and cooperatives used to go together like bread and jelly.”

Leo Gerard, the President of United Steelworkers Union, has been vocal about the possibility of what he calls “union cooperatives.” He has even studied this: In the wake of the recession, his union allied with Mondragon, a large federation of cooperatives based in Spain, and spent three years developing ways to build a similar movement in the states. Gerard noted that even while the Spanish economy has fared poorly in recent years, Mondragon proved resilient, maintaining steady employment.

The idea is catching on in the U.S. as well. In Pittsburgh, a “union cooperative” industrial laundry called Clean and Green uses green technologies and employs 120 worker owners. The business replaces a traditionally-run laundry; if it succeeds it will be a potent proof-of-concept for the cooperative movement. Two thousand minority home health-care workers in New York City formed a cooperative that increased their wages and benefits while also giving them more control of their working conditions. They are coordinating with the Service Employees International Union (SEIU. The coop model might provide unions with just the fresh air that they need. The economist Richard Wolff tells me that, “Unions concentrated mostly on how to minimize what to give back. They very rarely think in terms of strategic alternatives.”

Coops are also already an important part of the emerging green economy. In Cincinnati, one cooperative is connected with local building trades, and it retrofits buildings with green energy technologies. The nascent nature of the industry makes it ideal for cooperatives, which cannot be formed in industries already dominated by large hierarchical corporations. Ohio Cooperative Solar,for instance, installs solar panels on rooftops in downtown Cleveland.

Cooperatives can also supplement economic development programs in cities suffering under the weight of deindustrialization. In Cleveland, historian and political economist Gar Alperovitz has developed a cooperative model based on the idea of “anchor institutions.” He aims to use institutions like hospitals, local government, and universities, which are constantly in demand, to serve as a bulwark against the vicissitudes of the business cycle. He tells me that he’s had interest in his anchor-institutions model from representatives from about a hundred cities across the country. Cincinnati has experimented with the anchor-institution model, as well as Atlanta, Washington, D.C., and Jacksonville. Most of these areas are either deindustrialized or were hit hard by the housing crisis.

And coops are not just good for unions, the environment, and struggling townsthey are good for workers, too. A meta-study by economist Chris Doucouliagos examines 43 published studies and find that profit-sharing, worker-ownership, and worker participation in decision-making are correlated with higher productivity. The effects are stronger among labor-managed firms than among those with merely worker-ownership schemes like ESOPs. This seems to be playing out in the Union Cab Cooperative in Madison, Wisconsin. The coop was formed when cab driverswho were fed up with long hours, poor benefits, and low payditched management and bought the cabs themselves. The cooperative is run by a nine-person board of directors elected by the workers who sit for terms of no more than three years. In total, about 60 workers are involved in management, with representation distributed throughout the cooperative. The highest-paid workers make a base salary that is only 2.2 times the lowest-paid workers, although drivers who spend more hours driving and those elected to management positions make more.

The Union Cab Cooperative isn’t going to overtake Uber any time soon, but there is no reason to believe that cooperatives have to remain small. The Spanish coop that aligned with United Steelworkers, after all, has 80,321 employees. Its revenues in 2012 were €14.081 billion. In the United States, Hy-Vee, a chain of 235 supermarkets with 62,000 employees and $8 billion in revenue is entirely employee-owned.

The appeal of worker-ownership in the United States could even cross partisan lines. The two biggest supporters of ESOPs are the conservative Dana Rohrabacher and socialist Bernie Sanders. In 1999, they co-sponsored “The Employee Ownership Act of 1999” which would grant companies with a threshold of worker ownership an exemption from the federal income tax. Sadly, more recent cooperative bills have been primarily supported by liberals. But conservative policy wonks talk about an “ownership society,” and cooperatives are an ideal way to promote ownership and responsibility.

According to Democracy Collaborative, the world’s largest 300 cooperatives together constitute the ninth largest national economy. America is a land of ownership and democracyand yet these values are generally ignored in the workforce. Cooperatives can change that.

Originally Published on The New Republic.

Why we should abolish the GDP

Co-Written with Lew Daly.

Imagine this: your state is thinking about building a new coal plant. Gross domestic product measures how much money that project would produce. But it can’t account for the children who get asthma or the people who die from that air pollution. And that’s a problem.

What was once a highly technical debate about the failures of conventional economic metrics is fast becoming a world movement to unseat GDP and replace it with something better.

In America, many states are finding new, more holistic measures of progress. Already, Maryland, Oregon and Vermont have begun using the genuine progress indicator (GPI).

GPI takes into account 26 social, economic and environmental indicators. These include financial factors such as inequality and the cost of underemployment. But GPI also considers the cost of pollution, climate change and non-renewable energy resources. And it explores the possible social impacts, such as the cost of commuting and crime.

States that calculate GPI often find that while they perform well economically, environmental and social indicators lag. The GDP/GPI comparison below reflects a large and growing “well-being gap” in our development since the 1970s: We are growing in our national output and consumption, but the growth is not improving our well-being as a society.

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The GPI well-being gap also tracks closely with life satisfaction, which has stalled in the United States since 1973. Data from the General Social Survey and the World Bank show that while GDP per capita has increased dramatically, happiness has flattened out.

The percentage of people who are “very happy” has remained stalled at around 30 percent (“pretty happy” moved up two percentage points) for three and a half decades, even while GDP per capita (in 2011 dollars) doubled.

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And at the same time GDP has grown, progress on child poverty has stalled. In fact, the child poverty rate is eight points higher today than it was in 1969.

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While alternative measures sound ephemeral, they are not. When commenting on Bhutan’s Gross National Happiness policy, Cylvia Hayes, the first lady of Oregon says: “What Bhutan is doing is not trivial at all. They are running policy and infrastructure decisions through a more comprehensive set of metrics that gives a much fuller account of what the effects of those decisions will be.”

Oregon’s governor, John Kitzhaber (D), wants to tie GPI to a 10-year budget plan that encourages longer-range policy development for a more sustainable state economy.

And Oregon isn’t the only state looking for new ways to measure growth. In Maryland, GPI is influencing the development of new goals such as reducing infant mortality, cutting greenhouse gas emissions 25 percent by 2020 and planting more crops that improve soil fertility. Researchers in Utah and Colorado are also developing GPI estimates in collaboration with the other states.

Some countries are also making the shift. In France in 2009, then-President Nicolas Sarkozy asked Joseph E. Stiglitz, Amartya Sen and Jean-Paul Fitoussi to investigate the limits of GDP. As a result of these efforts, INSEE, the French statistics agency, has moved to use happiness as an economic indicator and released numerous reports on its inequalityquality of life and sustainability. One significant departure between GDP and other measures is the environmental impacts of growth, which are staggering. GDP growth has coincided with a massive and costly increase in carbon dioxide concentrations.

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As a group of social scientists argued in the journal Nature, “if a business used GDP-style accounting, it would aim to maximize gross revenue — even at the expense of profitability, efficiency, sustainability or flexibility.”

Originally published on The Washington Post.

What if economic growth is no longer possible in the 21st century?

Co-Written with Lew Daly.

For decades, rapid economic growth has been the norm for developed countries. An educated workforce, a large population boom, major technological advances, and abundant fossil fuels were the key components of growth, generating substantial and broadly distributed increases in standards of living in many countries. We have grown so used to such growth that we inevitably view it as a panacea for a host of economic ills, whether it’s a deep recession or income inequality.

We now understand, however, that the postwar growth paradigm is not environmentally sustainable. We also know that the shared prosperity it once delivered is itself unraveling. With these combined trends, something has to give in order to maintain living standards.

One possible scenario, with surprisingly good news for average Americans, is that constraints on growth will force political leaders to accept redistribution as a policy tool. Indeed, if we cannot grow our way to broadly shared prosperity again, redistribution is the only way to save the middle class.

Many economists have warned that the old model is dying out. In a much-cited paper, Robert Gordon argues that the rapid growth we take for granted is not only historically anomalous but likely to slow significantly in the 21st century, pointing in particular to diminishing returns from technology as one major drag. Developed countries have already picked the “low-hanging fruit” of technological advance (in Tyler Cowen’s phrase), and future innovations will produce far less growth, he argues.

Steven King, chief economist at HSBC, similarly argues, “The underlying reason for the stagnation is that a half-century of remarkable one-off developments in the industrialized world will not be repeated.” Gordon also points to rising inequality, which has led to stagnating middle-class wages, as a drag on future growth. As a result of these trends and others, average annual growth will fall below 1 percent in the 21st century, he predicts.

Then there is the impact on the global economy that will result from combating global warming. Working from a conservative carbon budget of 450 parts per million (PPM), Humberto Llavador, John Roemer, and Joaquim Silvestre predict that achieving this target will require a substantial slowing of growth, mainly borne by the United States and China. The U.S. and China must keep growth within the threshold of 1 percent and 2.8 percent of GDP per year, respectively, for the next 75 years, they say.

In an interview, Roemer tells us that these results are optimistic; after all, some economists have argued that growth may not occur at all. In the paper, the three argue that “there is no politically feasible solution to the climate change problem unless” both the U.S. and China “honestly recognize the connection between restricting emissions and curbing growth.” In contrast, the Congressional Budget Office’s long-range analyses use a growth projection of 2.2 percent on average over the next 75 years.

Other economists have come to similar conclusions about the connections between growth and sustainability. Early in 2012, Kenneth Rogoff argued that maximizing growth must be weighed against the negative possibilities of growth, like global warming. Indeed as James Gustave Spethnotes, environmental impacts are the most significant challenges to growth: “Economic activity and its growth are the principal drivers of massive environmental decline.”

Growth constraints will push the issue of distribution to the forefront of political discussions. In his forthcoming book Capital, Thomas Piketty predicts that growth will slow to between 1 and 2 percent — 19th-century levels — by the end of the 21st century. This trend, he further argues, will be accompanied by higher returns to capital and lower returns to labor, thereby exacerbating inequality.

The conclusions that flow from these observations are stark. The old economic paradigm relied on unsustainable growth, so we must change the paradigm. For decades, our rising standard of living came at a deep cost to our environment and our children’s future. There is simply not enough planetary bio-capacity to grow our way out of the messy moral discussions of distribution. The idea that inequality is merely an inefficiency to be corrected with a technocratic fix or perpetual growth is no longer tenable.

Fortunately, we have plenty of GDP that could help the middle class, with approximately $200,000 a year potentially available for each family of four. Given that the median family of four only gets about $67,000 a year at this point, it should be clear that it is possible to grow and strengthen our middle class, significantly, while adjusting to the lower GDP growth we are likely to experience in the future.

The question is, will political leaders accept the need for distributional remedies, or will they continue to side with the wealthy against the struggling middle class?

Originally published on The Week.

Moving Beyond GDP

The 2007 economic crisis and the lingering stagnation it wrought has lead economists, philosophers and policymakers to a profound rethinking of how we measure economic performance and social progress. As Joseph E. Stiglitz, Amartya Sen and Jean-Paul Fitoussi write in the foreward to their book, Mismeasuring Our Lives, during the run-up to the 2007 crisis, “the seemingly strong performance of some countries prior to the crisis (as predicted by GDP) was not sustainable and was based on “bubble” prices that exaggerated profits and output.”

The Inclusive Wealth Report introduces policymakers to a unique measure of economic progress that examines all of a country’s capital sources, including manufactured capital, human capital and natural capital. The Inclusive Wealth Index (IWI) measures the key inputs to a country’s productive capacity include natural capital, human capital and manufactured capital – later reports will also hopefully include a measure of social capital.  By examining progress towards a “Green Economy,” the Inclusive Wealth Report is a first step away from GDP and toward a more comprehensive metric of human progress.

GDP, the report notes, was developed during WWII to help policymakers determine what sectors of the economy were growing and which were lagging behind. It was never intended to be what it has become: the measure of a nation’s progress. The many shortcomings of GDP are laid out in a 2012 Demos report by Lew Daly and Stephen Posner.

The most important shortfall of GDP is that it measures income, not wealth. To see the difference, imagine two people, Bernie and Janice. Bernie earns $100,000 a year, but spends their entire on income on cruises to the Bahamas, pizza parties and wax statues. Janice earns only $50,000 a year, but uses $10,000 to go back to school and get a Master’s degree, $10,000 as a down-payment on a house and $10,000 to purchase stocks and bonds. Although Bernie’s income is higher, he has no capital stock, and therefore he has no wealth.

Countries, of course, are not like people. But the same distinction exists. Some countries spend their money on infrastructure and education, while others fritter it away on statues of their “Dear Leader.” Some countries work to use natural resources sustainably, others doze over rainforests.

GDP measures market output, but it does little to guide policymakers because it focuses exclusively on financial and physical assets. The most important forms of wealth are human, social and natural capital. This more expansive understanding of wealth is especially important given the current debate between austerity and reinvestment.

These shortcomings led the UN to develop the Human Development Index which considered indicators like literacy, mortality as well as the standard of living. Neither index however, takes into account the state of the environment and therefore the long-term  sustainability of growth.

The idea of sustainable development, or what E.F. Schumacher termed “Buddhist economics,” is not a new one. Schumacher feared, “An attitude to life which seeks fulfilment in the single-minded pursuit of wealth – in short, materialism – does not fit into this world, because it contains within itself no limiting principle, while the environment in which it is placed is strictly limited.” The inclusive wealth framework is an important step towards a more comprehensive measure of economic growth.

The framework moves from examining exclusively material progress to a framework that includes leisure, spiritual aspirations, social relations and environmental security. The framework was designed by the great Kenneth Arrow in collaboration with Partha Dasgupta, Lawrence Goulder, Gretchen Daily, Paul Ehrlich, Geoffrey Heal, Simon Levin, Karl-Goran Maler, Stephen Schneider, David Starrett and Brian Walker. In a 2004 Journal of Economic Perspectives essay entitled “Are We Consuming Too Much?” they propose the following criterion, whether a society’s investments in human and manufactured capital offset their use of natural capital.

By this measure, 14 of the 20 countries surveyed were growing sustainably, including the United States. However, the growth was not as dynamic as GDP growth. The United States provides an example. While GDP (the red line) increased by 37%, Inclusive Wealth Index (the dark green line) increased by only 13% because of a steep decline in natural capital (the light green line). Human capital (yellow line) increased by 8% and produced capital (grey line) increased by 68%.

In every country, human capital increased, and in most countries, produced capital increased as well. However, in Colombia, Nigeria, South Africa, Russia, Saudi Arabia, and Venezuela the natural capital depletion was not offset by increases in human capital and natural capital. This indicates that their economic growth is not sustainable.

By taking into account the capital formations which determine future growth, countries can better prepare themselves for the future. The U.N. report suggests that countries should target monetary and economic policy to IWI to ensure sustainable, rather than short-term growth. Such a shift was recently suggested by Jeffrey Sachs in a recent Huffington Post op-ed:

Since the 2008 financial crash, our country has been reeling without getting its economic policy right. What we needed then, and need now, is a new kind of macroeconomics; one that aims for investment-led growth, not consumption-led growth. But investment-led growth can’t be achieved by a temporary stimulus. It requires a very different kind of strategy and policy. Investment-led recovery requires a clear identification of our society’s longer-term needs, needs that can be filled through complementary investments by the public and private sectors. Think of railroads and farms in the late 19th century; highways, cars, and suburbs in the 1950s; and information technology, smart grids, and low-carbon energy for our time. And it requires a set of public policies to spur those investments, in part by using smart public investments to help leverage a private-sector investment boom.

If economic growth were targeted to the IWI instead of GDP, such a change would be easy. However, since GDP does a poor job of accounting for investments in human capital and the depletion of natural resources, it encourages policymakers to look toward short-term boosts, often encouraging wasteful spending. The changes Sachs wants to see will be nearly impossible politically as long as policymakers are arbitrarily constrained by the shortcomings of GDP.