EOnation: Gulf Coast reconstruction and broadening ownership

[Dan Bell <dbell@kent.edu>]

I am forwarding this for John Logue:

Friends -

Recently the OEOC was asked to brainstorm ideas for using employee
ownership in the reconstruction of the areas that were hit by Hurricane
Katrina.

I thought that this might be a useful topic of discussion for the
eosubnat group, so I have attached it here.

I'll look forward to your comments if you find this of interest.

John Logue

************

Wealth broadening measures and Gulf Coast reconstruction

Thoughts from the staff of the Ohio Employee Ownership Center
Prepared by John Logue
September 30, 2005


Recently the OEOC was asked to brainstorm ideas for using employee
ownership in the reconstruction of the areas that were hit by Hurricane
Katrina.

Our point of departure: the post-Katrina and -Rita reconstruction of the
affected Gulf Coast areas should be designed to broaden the ownership of
productive assets among employees, to broaden home ownership among
poorer families, and to create economies of scale among small,
owner-operated businesses. The general thrust of these proposals would
be to use the reconstruction effort to put more productive assets in the
hands of employees to create greater wealth for them in the future and
to create institutional structures to encourage the growth of small
business in the future.  Increasing home ownership would also encourage
asset growth for those who currently have very limited assets.

The basic problem: Practically the entire infrastructure of small
businesses in the affected areas was shut down by Katrina and Rita.  In
a majority of cases, they are under-insured.  While most will probably
be reopened by their now severely undercapitalized owners, a significant
minority will not reopen at all.  Yet all of them involve social capital
­ employees know how to work together to produce goods and services, and
many of those which otherwise would not reopen could be reopened by the
employees with some technical and financial assistance.  Reopening and
recapitalizing small businesses is crucial to long term job growth in
the area.

The secondary problem: Large and absentee-owned firms are likely to be
better insured and more likely to be able to extra reconstruction
funding from the public sector.  This would further skew income and
wealth distribution toward greater inequality in a region in which
inequality is already far too great.  Public sector aid to this sector
should be coupled with provisos that channel some of this income and
wealth (re)creation back into the broader community.

Here are the basic outcomes:

1) There are many possibilities around reopening the businesses that the
storm has shuttered.  In a number of cases the owners, especially those
near retirement, are likely to decide that the time has come to
liquidate their business by accepting the insurance settlement.  This is
not such a great thing for the employees.  It would be useful to have
mechanisms to help to capitalize employees to reopen firms that
otherwise would not reopen.

Setting up or strengthening fishing, agricultural, and small business
cooperatives would also be useful.

2) A lot of the assistance in New Orleans is going to go into physical
reconstruction.  It would be a good idea to have some provisions to
encourage construction workers to set up their own firms or to set up
cooperatives; we know that those firms based on skilled labor tend to be
reasonably successful.  On the consumer side, it makes a lot sense to
set up housing cooperatives.  That would give folks, who otherwise lack
the funds to buy homes, the opportunity to own the roof over their head.
  It would be useful to have a specific regional credit facility to
support the development of housing cooperatives.

3) The reopened businesses under employee ownership will be more or less
the equivalent of startups and will require considerable technical
assistance if they are to survive and prosper. The same is true of
consumer and producer cooperatives.  It would make sense to set up a new
cooperative development center under the Department of Agriculture in
the region to assist in the reconstruction of farmer cooperatives and
fishing cooperatives.  It would be equally useful to have a technical
assistance organization to support the development of employee-owned
businesses.

Here are the ideas that came out of the brainstorming session.

Employee ownership

Partial employee ownership of smaller businesses through a special SBA
reconstruction loans and loan guarantee (without personal guarantees for
employees with less than $10,000 in financial assets) program.

There should be a special finance window and technical assistance window
for helping former employees restart small firms that the previous
owners have decided not to restart but to take their insurance payments
and retire.

Special construction firm/contractor program. This SBA program (or
similarlar state or local programs) should focus particularly on
restarting and recapitalizing small construction firms and contractors ­
otherwise the price pressures in this sector will raise the cost of
rehousing the displaced even more than would otherwise be the case.

The program should also focus on helping construction tradesmen start
new contracting firms.

Establish a general preference for employee-owned firms in contracts for
reconstruction.

A special effort could be made to increase the availability of
construction materials through supporting the reopening of small
brickyards, saw mills, lumberyards, cement batch plants, etc., through
partial or complete employee ownership.

There are possibly substantial business and employment opportunities in
recycling construction materials.

In rural areas, craft cooperatives may provide modest part-time
employment for folks who otherwise would have no employment.

There will also be some larger businesses that will not be reopened by
their current owners.  To the extent these are unionized, it makes sense
to work with the unions to explore how to reopen them or how to open
new, smaller firms in the shell of the former larger company and with
its unionized employees.

All of these employee-ownership measures will require significant
technical assistance and considerable financing.  For these, see below.

Consumer ownership

Housing co-ops.  About 275,000 housing units were lost to the two
hurricanes.  Reconstruction on market premises will dramatically
increase costs of housing stock, pricing homes and rental units out of
reach for many working families, including those who could previous hope
to own or could afford the rent. A special program to support housing
co-ops in poorer neighborhoods in the most affected urban areas could
create the development of home equity (and long-term reduction of
housing costs) for urban working poor.

Cooperative trailer parks.  Trailer parks were particularly hard hit.
In general manufactured housing provides a primary source of home
ownership by working people.  Coop ownership of the land under trailer
parks has become a proven way to reduce housing costs over the longer
term in the periphery of urban areas in New England and Minnesota.

The utility infrastructure in the area took a terrible hit, and will
require substantial public subsidy for reconstruction.  One good way to
create modest wealth for consumers is to allocate a portion of the
public sector cost of reconstruction to consumers, rather than treating
it all as a subsidy to investor-owned utility (IOU) shareholders.

This is particularly true of the hardest hit utilities like Entergy,
which has taken its New Orleans electric subsidiary bankrupt.  To bring
it out of bankruptcy, it should be reconstructed as a hybrid of a
consumer-owned cooperative, a partly employee-owned firm, and a partly
investor-owned firm.

All of these consumer-cooperative measures will require significant
technical assistance and considerable financing.  For these, see below.


Fair Exchange

Deb Olson's "Fair Exchange" proposal for a variety of quids pro quo for
public support of larger firms makes a lot of sense as part of a $250
billion reconstruction effort.

Reconstruction aid to other large firms, such as the casino industry,
should provide quid pro quos to the community possibly in the form of
providing shares to a community trust that would benefit all local
residents or to employees.

Another alternative would be to require the provision of employee health
insurance by employers who employ more than 500 employees and who
receive public assistance for reconstruction.


Technical assistance for broadening wealth ownership

Provide additional co-op development staff for the Department of
Agriculture regional offices in Louisiana,  Mississippi, and Texas.

Expand the scope of activities of the Dept of Agriculture co-op
development staff to support establishing consumer, housing, and
employee cooperatives as well

A particular issue is fishing cooperatives.  The Gulf Coast fishing
industry was hard hit.  Cooperative packing, freezing, and marketing
could help bring this industry back with owner-operated boats.
Employee-owned fishing boats are also an option when boat owners take
their insurance and quit, but crews want to continue fishing.

Set up special "reconstruction co-op development center" funded by the
US Department of Agriculture like the twenty or so which exist currently
to support (1) reconstruction of the agricultural co-operative
infrastructure which has been damaged and (2) creation of new, value
added agriculture and fishing cooperatives.

Establish a special "Gulf Coast reconstruction employee ownership
program" to restart existing small businesses which have been abandoned
by owners, and to provide succession planning services for business
owners who are wondering whether to restart their businesses or collect
the insurance and quit.  Having the employees as possible buyers at the
point of succession would encourage some who would not otherwise do so
to restart. This program should be designed to dissolve after several
years into employee ownership centers in Louisiana, Mississippi, and Texas.

Provide training on the use of housing and other consumer cooperatives,
employee ownership, and small business cooperatives to city, county and
state economic development professionals.

Feasibility funds for larger projects can be provided from the existing
WARN/EDWAA feasibility fund provision in the Workforce Investment Act
which, as far as I know, has never been used in any of these three
states, although it has been used in more than 20 other states.

Finance for broadening wealth ownership

Special credit facilities for co-op and employee ownership in reconstruction

Could add funds to the existing Federal programs for ag co-ops and for
rural electric coops

Could establish special CDBG program to fund reconstruction with loan
recapture going to fund asset- ownership-broadening measures

Special credit facility for employee ownership in reconstruction

Special credit facility for housing cooperatives

Loan guarantees for all of the above


Creative uses of unemployment compensation

Grant half of worker unemployment compensation in lump sums to
capitalize new employee-owned firms or recapitalize existing small
businesses as part owner and part employee owned

Permit drawing the other half of unemployment comp during the start-up
or restart of the business, essentially supporting working capital
development

Small business cooperatives

It is not reasonable to expect large businesses to be the major players
in putting unemployed Gulf Coast workers back to work.  It's going to be
small business - which, after all, are the net creators of jobs in the
US while the Fortune 500 are net liquidators of jobs.   Consequently
measures that strengthen small business, whether family-owned or
employee-owned, will have positive employment impact.

We strongly recommend establishing small business purchasing
cooperatives and, in individual industries, marketing cooperatives.

Tax holidays

It should be noted that all three of the states affected depend
disproportionally on general sales taxes for revenue that hit the poor
hardest.  A sales tax holiday on firms with less than $1 million in
sales in the affected areas for 6 months or a year would help get
smaller businesses back on their feet, bring in some outside trade, and
reduce living costs especially for the bottom 80% of families while they
get their lives back together.

Other measures

Louis Kelso used to espouse non-inflationary expansion of the money
supply and of employee ownership by putting out increased Federal
Reserve System credit through loans to employees to purchase businesses
at the Fed's discount rate rather than through putting the same funds
out through banks.  This discount window credit could also be used to
fund construction of co-op housing. This Kelsonian principle could be an
idea whose time has come in the Gulf Coast reconstruction effort.

Some "best practice" Community Development Corporations (CDCs) have a
good record of business and job creation as well as low income housing
creation.  That could be promoted in affected urban areas.

There has been a good bit of experimentation with local currencies.  My
impression in reading about these is that they have had some modest
success.  Perhaps they are worth supporting in the affected areas.

It's also probable that commuting distances will increase as energy
price increases raise commuting costs and road repairs increase
commuting time.  Support for some sort of  cooperative transportation
system ­ mini-buses? ­ and for improved public transportation may make
some sense.

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