The Preston model
In 2010 in Cleveland, Ohio, a community was on the verge of ruins. The USA and the Western world had come a hairs width away from total collapse in 2008 following reckless and unregulated speculation by bankers and investors in the financial districts of New York, London, Paris and Frankfurt.
Government spending had all but come to a halt in rural areas like Cleveland and a community once proud of its steel manufacturing and industrial heritage. Located on the Cuyahoga River and Lake Erie had been key to its growth. The Ohio and Erie Canal coupled with rail links helped establish the city as an important business centre.
All this came to a halt post-2008 and the community at large were struggling with a stalling economy, high unemployment and poor living standards. The poverty rate in Cleveland is more than 30 percent and the population has declined from 900,000 to less than 450,000 since 1950.
In this backdrop of decline the city decided to take action and employ radical thinking to restructure its failing economy for the benefit of all of its residents.
The city council of Cleveland opened a new model of large-scale worker- and community-benefiting enterprises. The enterprise is beginning to build serious momentum in one of the cities that was most dramatically impacted by the nation’s decaying economy. The Evergreen Cooperative Laundry (ECL)–a worker-owned, industrial-size, thoroughly "green" operation–opened its doors in Glenville, a neighbourhood with a median income hovering around $18,000. It’s the first of ten major enterprises in the works in Cleveland,
The idea was heavily influenced bythe Mondragon Cooperative Corporation in the Basque Country of Spain, the world’s most successful large-scale cooperative effort (now employing 100,000 workers in an integrated network of more than 120 high-tech, industrial, service, construction, financial and other largely cooperatively owned businesses).
The results have been staggering; with the Evergreen Cooperative Laundry Company supplying the local university and a majority of local businesses with laundry services that are eco-friendly, cost effective and worker owned.
After a six-month initial "probationary" period, employees begin to buy into the company through payroll deductions of 50 cents an hour over three years (for a total of $3,000). Employee-owners are likely to build up a $65,000 equity stake in the business over eight to nine years–a substantial amount of money in one of the hardest-hit urban neighbourhoods in the nation.
Many economists who have studied and written about poverty stricken areas of America and the wider Western economies have remarked that one of the most common reasons that people stay in poverty is the inability to acquire assets and, in turn, wealth. This model provides the local community the opportunity to keep its wealth locally, and to create jobs for the benefit of the whole community.
Let’s take for example, the idea that the local hospital and university would normally employ a national company to do its laundry at a nominally low price. Once that money is spent it immediately leaves Cleveland to be spread across the tax-effective branches of a national corporation. The workers it employs in the community will be paid minimum wage and they will have little to no opportunities to accumulate assets in the form of investments or properties. People will then leave Cleveland in search of higher paying work and the decline will continue. With this model people are paid a decent wage, are able to accumulate wealth and the entire community benefits as wealthier residents are able to spend disposable income at local businesses and shops.
The successful model is now being brought to Preston by an ambitious Labour council, in one of the country’s most deprived areas.
According to The Guardian, in 2013, Preston council employed a think tank, the Centre for Local Economic Strategies (CLES), to help identify 12 large institutions anchored to Preston, including the city and the county council, the university, the police and the hospital. It looked at redirecting the £1.2bn total annual spending power of these anchors to local businesses. Preston city council has since spent an additional £4m locally, from 14% of its budget in 2012 to 28% in 2016.
Furthermore, they are aware of the limitations. The council is looking at setting up a local bank to provide loans to small businesses and becoming a municipal energy provider. The developments so far are part of a wider programme of getting wealth to remain local that includes attracting outside investment from corporations that may take their profits elsewhere.
Regardless of the outcomes of these models, the rest of the UK should be watching with great interest.