Michael McCabe, Place Entrepreneurs

[This essay was the runner-up in the 2010 Gandhian Forum Student Peace and Justice Writing Contest.]

 

Place Entrepreneurs, Private Capital and the Growth Machine Model of Urban Development or Bust – A False Choice:

A Counter Argument to the Institutional Logic of Urban Development and Revitalization

Michael McCabe

Introduction

     Private capital cannot fix our inner-cities. In fact, I will go one step further and claim that it is arrogant for the same capitalist interests that robbed working people of their industrial jobs for the pursuit of increased profits throughout the last three and a half decades to return with words of hope as they ponder reinvestment into the very cities they once bankrupt, setting in motion a downward spiral of joblessness, decaying infrastructure including abandoned factories and warehouses, the destruction of social solidarity, and the creation of what William Julius Wilson refers to as “hyperghettoization.” Now, certainly, it is not the very same people who once outsourced American industry who now return with anticipation of reinvestment. Instead, I am referring to an ideology which places profit over people; which writes off the social consequences of various business ventures as mere externalities. And, it is for this reason that I argue private capital cannot fix our inner cities; at least not for those predominantly low-income and marginalized residents who currently inhabit them. In order to better understand why private capital spells disaster for the future of our inner-cities, we must explore its relationship to real estate. Upon doing so, I will go on to describe how I see a new paradigm of urban renewal potentially manifesting itself.

Decline of the Inner-Cities

     Starting in the mid to late 1970’s, hitting its peak in the 1980’s and continuing through today is the phenomenon of deindustrialization. Industrial cities throughout the entire North East of the United States that were once economic hubs for industrial production have been rapidly reduced to bastions of unemployment and social pathology. For, due to the quest for ever-increasing profits, private capital retreated from the strong union contracts that guaranteed workers medium to high wages and a dignified quality of life in their industrial jobs, moving to the US South and beyond where the rights of workers were easily ignored over the industrialists’ greed for increased profits. Therefore, Logan and Molotch, in their groundbreaking book Urban Fortunes were not incorrect in stating that “capitalists’ use of place is less fragile than that of residents.”[1]

     Today, as a result of deindustrialization, our inner-cities are plagued by rampant unemployment which some argue is the root cause of the social pathologies within inner-cities such as crime, drug and alcohol abuse, the increase of domestic violence, etc.. In When Work Disappears, William Julius Wilson agues “that the disappearance of work and the consequences of that disappearance for both social and cultural life are the central problems in the inner-city ghetto.”[2] For, as joblessness increases, the temptation to turn to drugs and alcohol as an escape increases exponentially, as does the temptation to enter into the lucrative drug trade which is extremely profitable as it provides residents with a temporary escape from their material conditions.

     As joblessness increased over the years, so too did the purchasing power of inner-city residents, leading to a rapid closure of local stores and restaurants which were often owned by fellow community members. “As Loïc Wacquant, a member of the Urban Poverty and Family Life Study research team, put it: ‘…The only enterprises that seem to be thriving are liquor stores and currency exchanges, these ‘banks of the poor’ where one can cash checks, pay bills and buy money order for a fee.’”[3] Therefore, tax-revenue has also suffered from this decline of joblessness which has lead to reductions in affordable housing and other social services as well as the decay of public infrastructure including parks which now serve as safe havens for drug dealers and schools that have become rundown, overcrowded and unable to afford a full staff of qualified teachers, leading to the creation of a new generation of youth who stand very little chance of “making it” in the formal economy. And, with these and many other variables combined, we see a general deterioration of the social fabric which holds communities together, resulting in what Emile Durkheim referred to as “anomie,” or in other words, the breakdown of social solidarity and “social organization.”[4]

     It is very clear that something must change in our inner-cities. We cannot allow the stagnation of the inner-city economy to continue while millions of poor, marginalized residents continue to drift deeper into the psychological clutches of anomie and the material conditions of abject poverty. Therefore, there must be a push towards inner-city revitalization. The question, however, is how we might go about doing so without further harming those who have already suffered dearly at the expense of a ruthless quest for profits.

Place Entrepreneurs, Private Capital and the Growth Machine

     Going forward, I will focus on real estate within the inner-city, and its relationship to private capital. Although it is rarely conceived of in this way, real estate is really at the root of our society, as it is the land we build on, the housing we live in, the private property we operate our businesses upon. Therefore, if we are to discuss the revitalization of our inner-cities, it seems necessary to focus on real estate; especially when private capital has already invested so much of its efforts on transforming this pseudo-commodity to meet its own goal of extracting yet more capital from the already severely wealth-drained inner-cities.

     Initiating our discussion of inner-city revitalization must be an analysis of the antithetical relationship between the use and exchange values of real estate; especially within the city. For those who live in the inner-city, the most common use-value of real estate is housing. These residents often live in apartments, and rely upon the costs of their rent to remain relatively pegged to their income, or rely upon public assistance to make up for any imbalance between the two. At the other end of this relationship is those who collect rents, and for them, it is the exchange-value of real estate which they take great interest in. Initially referred to as “place entrepreneurs” by Logan and Molotch, these entities rely upon the housing needs of city inhabitants. Theoretically, such a relationship appears to be anything but antithetical, but instead perhaps symbiotic. And, in some cases one could at least conditionally make such an argument. However, as place entrepreneurs seek to maximize their profits, what once appeared to be mutual relationship between tenant and super quickly becomes an exploitive condition under which the owners of real estate set out to embezzle greater and greater wealth by “intensifying the use to which their property is put,”[5] often at the expense of those who rely upon fair and affordable housing most.

     Place entrepreneurs are not just the owners of housing. They are also real estate developers, financiers, and other private entities who set out to restructure and literally transform the city into an engine of economic growth under the guise of providing a social good to destitute cities whose survival supposedly hinges upon their investments. They work “together in organized groups”[6] and “strive to increase their rent by revamping the spatial organization of the city.”[7] They hold a monopoly over real estate, as there is only a fixed amount of land to own in any set location, and as such, the more land that place entrepreneurs own within a set location, the stronger their command is over the future of that area. And, this is where a very particular form of place entrepreneurs, structural speculators come in: Their “strategy is to create differential rents by influencing the larger area of decision making that will determine locational advantage”[8] for the sole purpose of accumulating greater profits no matter the human or social costs, as “Growth machine activists are largely free from concern for what goes on within production processes (for example, occupational safety), for the actual use value of the products made locally (for example, cigarettes), or for spillover consequences into the lives of residents (for example, pollution).”[9]

     Stemming from the practice of structural speculation is a phenomenon within real estate which defies the standard bourgeois-economic theory of supply and demand. For, the “changing relations among properties”[10] “makes land relatively impervious to economic laws of supply and demand, and it alters assumptions about the operation of land markets … [The] uniqueness of individual parcels and their monopolistic character arise from situational and contextual factors, and it is not the product of an entrepreneur’s inventiveness.”[11] In fact, we see that rapid rates of housing construction often leads to higher housing costs, just as high levels of vacancy does not correlate with lower costs.[12] Logan and Molotch succinctly summarize this phenomenon by explaining that “In the modern context, as in the ancient and feudal, the amount of rent is not determined by any balance between supply and demand or by what people can “afford” to pay. Instead, price is driven by competitive bidding on a fixed resource by investors who assume that the future price will be greater than the present one.”[13] Therefore, we see that the actual outcome of these practices is city after city becoming an economic growth machine which enriches place entrepreneurs at the expense of city inhabitants. When these practices are applied to our inner-cities, it is true that the material conditions within the city improves – new shopping centers are created, once decrepit infrastructure is repaired or replaced, café’s and restaurants replace existing liquor stores and currency exchanges, and new luxurious housing is created out of the ruins of abandoned factories and subsidized housing projects. But, there is a problem… not a single resident of the old can live within the new as the costs are simply too high. Therefore, the previous inhabitants of a worn down inner-city are simply gentrified and further marginalized into yet another poor inner-city where they can continue living as second-class citizens within a nation of riches, but this time, more crowded than they were before.

     Now, if this is the case, a logical question would be why inner-city policymakers often invite place entrepreneurs to operate within their cities, while even subsidizing their projects in many cases. I believe the answer to this is a combination of desperation and an institutional logic which sees private capital as being a necessary variable within any equation of development. There have been few attempts to propose alternatives to the growth machine model, and as such, politicians are essentially caught between a rock and a hard place whereas they either invite place entrepreneurs to turn their inner-cities into laboratories of capitalist accumulation or fall deeper into the depths of poverty. Therefore, we really can’t place much blame on politicians, but instead should focus our energy on crafting viable solutions for the future. And, I believe that we should center our efforts around the idea of removing, at least as much as possible, private capital from the process of urban development; especially within the context of our deindustrialized inner-cities.

The City as a Growth Machine or Bust - The False-Choice of Urban Renewal

     To suggest that our only two options going forward are transforming our inner-cities into growth machines which become so unaffordable that current residents are forced to leave them, or allowing them to continue eroding is a false choice. We know that there is a contradiction between the use and exchange values of real estate and that growth machine activists will do whatever they can to maximize their profits regardless of the social impact. We know that their policies of unfettered growth have served only to further marginalize communities that have already suffered greatly at the hand of private interests. We know that these communities desperately need jobs that provide fair and dignified pay. And, we know that housing must remain affordable. Therefore, going forward we must construct an urban renewal strategy that takes into account all of these factors.

     The most pressing issue within our inner-cities is unemployment. Since deindustrialization, many of the employment opportunities with these communities have disappeared, forcing many residents into abject poverty. Therefore, we must prioritize job creation as we go forward with our plan of urban renewal. A problem, however, becomes who provides such jobs. If our goal is to avoid the growth machine model, what is the alternative? I believe that we must begin to entertain the idea of forming worker and community cooperatives within our inner-cities. Such models already exist throughout the world, the Mondragon cooperative in Spain being one of the largest and most successful. It is not my purpose in this paper to discuss the inner-workings of such models of production, and is instead to simply raise awareness about possible alternatives for urban renewal as we go forward. But, I will briefly discuss some potential benefits of basing business and employment on a cooperative mode of production.

     Cooperatives are owned and managed by their workers. There are several different models of ownership, but the important thing to emphasize here is that it is the workers themselves who determine the fate of their workplace, not a capitalist who may choose to outsource the business in the pursuit of greater profits. Therefore, a repeat of some form of deindustrialization is quite unlikely. Furthermore, the likelihood of high rates of exploitation, or exploitation at all, is a thing of the past, as workers determine their salaries rather than a sole capitalist owner whose interests are not aligned with those of their workers. And, the democratic nature of the workplace holds the potential for recreating the social solidarity and social organization that existed prior to the alienating effects of sustained widespread unemployment.

     Initial sources of funding for such an experiment must be investigated. The US federal government has expressed little interest in providing funding for the purpose of establishing cooperative enterprises, however, this could change; especially with a strong social movement. Private banks have not been known to provide startup money for such projects either. Some sources have suggested this is because most states lack a formal legal structure for cooperative enterprises. Regardless, private banks are not likely a route we should take, as their interests may be more closely aligned with those of the growth machine activists than our own, but perhaps credit unions and other community owned banks could be a viable alternative. And, another banking alternative may exist overseas. For example, the Mondragon Cooperative in Spain is a federation of several hundred cooperatives, and owns its own cooperatively owned and managed bank, the Caja Laboral Popular which lends money to burgeoning cooperatives. In fact, it “has been a highly successful financial institution that in less than a quarter century has become Spain’s twenty-sixth largest bank, with 120 branches, over a thousand workers, and a half million customers. Its ability to accumulate savings has been so great that by 1982 its lending capacity has begun to exceed the needs of the cooperatives.”[14] Perhaps, such a lending institution could help facilitate the growth on inner-city cooperatives in the United States. And, lending credence to such ambitions is the recent news that the United Steelworkers and Mondragon Internacional, S.A. “announced a framework agreement for collaboration in establishing MONDRAGON cooperatives in the manufacturing sector within the United States and Canada. The USW and MONDRAGON will work to establish manufacturing cooperatives that adapt collective bargaining principles to the MONDRAGON worker ownership model of 'one worker, one vote.'”[15] Therefore, there exists some potential for international collaboration, which could solve the issue of funding while also forging international solidarity among working people around the world who all feel the pinch of a globalized capitalist economy.

     The types of cooperatives to be established are really dependent upon the needs of ‘x’ city, however, I believe a constant for any city that utilizes the cooperative approach to development is the establishment of community gardens. Many cities have already experimented with these, and they have the potential of yielding vast amounts of highly affordable, organic produce that has the benefit of being locally produced. Down the road, the construction of vertical hydroponic grow centers could even be contemplated, with the potential of creating enough produce to sell to markets outside of the immediate inner-city. In conjunction with these cooperatively managed community gardens could be the creation of cooperative grocery stores that carry this locally grown produce. And, by adopting a model similar to the Park Slope Food Coop in Brooklyn, NY, groceries could be sold at a fraction of the price of standard grocery stores. This can be achieved by creating a membership-only criterion, whereas members must volunteer three hours per month as workers, as a way of significantly reducing the overhead cost of paid workers.[16] Such an approach could provide employment through the community gardens and provide highly affordable high-quality food to inner-city residents who regularly struggle with their grocery bills and often resort to eating far less expensive yet unhealthy foods.

     In time, and through creative and innovative thinking, various cooperatives can be established within any inner-city to meet the needs of its habitants in a just and sustainable fashion. It is not out of the realm of possibilities that as greater numbers of cooperatives are created within one or perhaps numerous cities that they may unite to charter their own bank, much like the Caja Laboral Popular that was created by the Mondragon Cooperative in Spain. Such a bank could aid in the facilitation of greater numbers of cooperatives throughout the United States, and perhaps someday throughout the world. It could also theoretically invest in the development of affordable housing and even in social programs. Therefore, we see that the possibilities are endless so long as we break from the current institutional logic of urban development and continue to respond and adapt to material conditions which will inevitably change as we move forward with a new model of development.

Conclusion

     America’s inner-cities have been in a constant state of crisis since the dawn of deindustrialization, as the captains of industry chose to relocate their factories to places where cheaper labor is abundant. Worker’s within those factories had no say as to whether or not such a move was wise, the future of the communities where these factories were located were never taken into consideration. All that mattered was the bottom line; the fulfillment of some fetish for a constant accumulation of greater and greater profits. Today, after decades of high unemployment and social decay, America’s inner-cities are once again flirting with an abusive relationship with private capital. Place entrepreneurs who see cities as growth machines which serve to thicken their wallets have set out to once again extract wealth from communities that have already suffered dearly from the ruthless business ventures of private capital and its “externalities.” In places where these growth machine activists have already sank their claws, the cost of living has skyrocketed, leading to a situation where the same residents these activists claim to be helping are no longer able to afford the cost of living, thus forcing them deeper into marginalization as they scurry for shelter in other inner-cities that have yet to be reintroduced to the wrath of private capital.

     Unfortunately, few alternatives have been offered to counter the current institutional logic of urban renewal which relies almost solely upon private capital and the growth machine model. It is for this reason that I have suggested we entertain a new paradigm of urban development which abandons any reliance upon those forces that continue to wreak havoc on our most vulnerable city inhabitants. By synthesizing the cooperative mode of production with theories of urban development, I believe that we can construct sustainable inner-cities that provide full employment at a living-salary, provide dignified housing that remains affording for low-income and working-class residents while perhaps even forging international solidarity with workers around the world who continue to suffer from the same exploitive policies of globalized capital that have bankrupt America’s inner-cities through the process of deindustrialization.

 

Notes

1. Logan, John R., and Harvey L. Molotch. Urban Fortunes: The Political Economy of Place. 20th Anniversary Edition ed. Berkeley: University of California, 2007. 22. Print.
2. Wilson, William J. Introduction. When Work Disappears: The World of the New Urban Poor. New York: Vintage, 1997. Xix. Print.
3. Wilson, William J. When Work Disappears: The World of the New Urban Poor. New York: Vintage, 1997. 5. Print.
4. Wilson, William J. When Work Disappears: The World of the New Urban Poor. New York: Vintage, 1997. 20. Print.
5. Logan, John R., and Harvey L. Molotch. Urban Fortunes: The Political Economy of Place. 20th Anniversary Edition ed. Berkeley: University of California, 2007. 2. Print.
6. Ibid. 31-32.
7. Ibid. 24.
8. Logan, John R., and Harvey L. Molotch. Urban Fortunes: The Political Economy of Place. 20th Anniversary Edition ed. Berkeley: University of California, 2007. 30. Print.
9. Ibid. 32.
10. Ibid. 24.
11. Ibid
12. Ibid. 25.
13. Ibid. 26.
14. Dahl, Robert A. A Preface to Economic Democracy. Berkeley: University of California, 1985. 157. Print.
15. "Steelworkers Form Collaboration with MONDRAGON, the World’s Largest Worker-Owned Cooperative." United Steelworkers. United Steelworkers, 27 Oct. 2009. Web. 12 May 2010. .
16. Park Slope Food Coop. Park Slope Food Coop. Web. 12 May 2010.