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The Grace of Import Replacement
The following essay is from the book What We See: Advancing the Observations of Jane Jacobs, New Village Press, 2010.
Economic life develops by grace of innovating; it expands by grace of import-replacement.
—Jane Jacobs, Cities and the Wealth of Nations: Principles of Economic Life
What I first noticed about Jane Jacobs was the power, breadth, and mobility of her intellect. Only later did I recognize the equally great warmth of spirit that informed her thinking and turned it to a force of change. She stands as one of the most visionary economic thinkers of the last part of the twentieth century.
Her intellect was breathtaking. I first heard her speak at her 1983 Annual E. F. Schumacher Lecture “The Economy of Regions.” From the podium at Mount Holyoke College she painted an image of regional economies in which myriad small industries produce for regional markets—small industries that depend on local materials, local labor, local capital, local transport systems, and appropriately scaled technology to conduct business. She pictured the fruits of this regional industry spilling over to support a rich cultural life in the city at the hub of the region. This bustling creative energy would then foster new innovation and industry, filling in the “niches” of the economy.
The products of a regional economy would be particular to it, using the woods and stones found there—cherry tables, white cedar decks, and granite steps. The choices in the marketplace would vary with the seasons—eagerly anticipated summer berries, autumn apples, the new maple syrup in February, and spring garlic and parsnips.
The diversity of products would require a diversity of workers with a diversity of skills, all part of a face-to-face economy of place with its multiple sidewalk contacts “from which a city’s wealth of public life may grow.” Citizens would have direct knowledge of working conditions in offices and factories and home industries; they would see the results of manufacturing practices on hillsides, fields, and rivers. Landowner, banker, shop keeper, entrepreneur, laborer, secretary, teacher, craftsman, and government official would sing together in the community choir, carpool one another’s children to school, and meet at the farmers’ market. They would see the complexity that shapes the regional economy, understand its various elements, remain accountable to each other in maintaining the web of connections that sustains it. Practiced conservationists, they would recognize the necessity of protecting and renewing the natural resources that form the basis of their economy.
Yes, there would be products exported to other regions—but only the excess, and in moderation. Yes, there would be imports for their variety, exoticness, their sweet breath of other cultures and places. But at the core of these robust and vital regional economies would be the capacity to meet the economic, social, and cultural needs of the people of the region from within the region, not in a spirit of isolationism but in a spirit of self-determination and with the hope that other regions could achieve similar economic independence. In such a scenario the wealth of one region would not depend on exploiting the natural and human wealth of other regions.
Jacobs believed that the best way to achieve such sustainable economies is to examine what is now imported into a region and develop the conditions to produce those goods from local resources with local labor. She referred to this process as “import replacing.”
By contrast, the typical economic development model is for a city to use tax credits and other incentives to lure the branch of a multi-national corporation into its environs. Yet without deep roots in the local economy and local community, the same corporation might suddenly leave the area, driven by moody fluctuations in the global economy, and abandon workers and families.
Building a regional economic development strategy based on import replacement will require appropriately scaled economic institutions to meet the needs of the local businesses.
The elements of any economic system are land, labor, and capital: land and other natural resources are the basis of all production; labor transforms the raw materials into products; and capital organizes the labor and facilitates distribution of the goods.
New import replacement businesses will require:
How a society shapes its institutions for land, labor, and capital will determine if it can meet these requirements. These regionally based economic institutions will not be government driven. Rather they will be undertaken by free associations of consumers and producers working cooperatively, sharing the risk of building an economy that reflects shared culture and shared values. Small in scale, transparent in structure, designed to profit the community rather than to profit from it, they can help facilitate a community's desire for safe and fair working conditions; for production practices that keep air, soil, and water clean, renew natural resources rather than deplete them; for innovation in the making and distribution of food, clothing, shelter, and energy; and for a more equitable distribution of wealth.
Many models for such new economic institutions have already been developed, and more are being pioneered.
Access to Land
Aldo Leopold, the great American ecologist and environmentalist, argued in A Sand County Almanac that “land should be a community to which we belong, not a commodity that is bought and sold.” The commodification of land and other natural resources means that those who control ownership can benefit unfairly from the universal need for land to build homes, maintain a healthy environment, and produce the goods needed by all members of a cooperative society. Land prices increase simply because it is in demand, not necessarily from the deliberate effort by the owner. The nineteenth-century political scientist Henry George referred to this increase as a speculative gain, an “unearned increment,” and noted that it distorts the economic system, placing value where no real value has been created and transferring wealth unfairly.
To address this problem, Robert Swann, the founding president of the Schumacher Center for a New Economics, was inspired by Henry George and his intellectual descendents Leo Tolstoy and spiritual leader Vinoba Bhave, to develop a new approach to land tenure for North America: the community land trust, a regional nonprofit corporation with open membership and a democratically elected board of directors. A community land trust acquires land by gift or purchase, develops a land-use plan according to local need, and then leases the sites for residential or commerical uses. Individuals own the buildings on the land but not the land itself. At resale the buildings must be offered back to the land trust at no more than the replacement value of improvements adjusted for deterioration, thus keeping the land out of the speculative market. The owner is able to reap the fruits of labor applied to natural resources but not the land value itself, which is held for the community.
An example is Indian Line Farm in South Egremont, Massachusetts—the first Community Supported Agriculture (CSA) farm in North America. In 1997 its owner and CSA pioneer, Robyn Van En, met an untimely death. In the popular vacation region of the Berkshires the farm could have easily been sold as a site of an imposing second home. But the fertile soils were good for growing quality vegetables, and the citizens of the region wanted to maintain Indian Line as a working farm.
Two farmers, Alex Thorp and Elizabeth Keen, joined the Community Land Trust in the Southern Berkshires and the Nature Conservancy in an innovative partnership. The Community Land Trust raised the money to buy the land, the Nature Conservancy acquired a conservation easement on the land, and the two farmers purchased the buildings and entered into a 99-year lease on the land. The lease and attached land-use plan stipulated organic farming methods and ecological care of abutting wetlands, and set a minimum standard for the amount of crops raised per year to ensure that the land be kept in active production. Addressing the critical connections between ecology, economy, and community, this model project is protecting habitat, preserving agricultural property, and keeping small-scale, organic farming viable, so that the farmers can practice wise stewardship without having to use unsustainable growing methods to pay off land debt. There are now over two hundred community land trusts in the United States. They stand as a vehicle for citizens to make land in their communities available for appropriate productive purposes, including renewable energy production, agriculture, sustainable timber practices, new industries, recreation, and cultural activities. They also serve as one of the major providers of affordable home ownership opportunities throughout the United States.
If a significant amount of land in a region is held by a community land trust, the economic role of land is transformed. Access to land will be by social contract rather than by market forces. Citizens of a region, working together, can determine specific priorities for land use, such as identifying a site for a cannery to extend the capacity of the region to produce its own food. The land trust can then offer favorable terms in a lease if those priorities are met. Funds once tied up in land purchase and financing are then freed and can be invested in equipment and product innovation, thus facilitating new import-replacement activity.
Capital Tailored to Regional Needs
The function of money is to serve as an abstraction for real economic exchange. This is both its almost mystical power and its flaw. If we did not have the tool of money, we would be left with direct barter, limited to what we could trade at a particular place and time—such as carrots for cordwood. Without the carrots I could not acquire the cordwood. Money stands for a value created at an earlier time, stored, and used to exchange for goods needed in the present time. Money allows values to be gathered together and applied to an entirely new type of venture in the future. This accumulation allows the entrepreneur to organize human initiative and raw materials, using them to create some previously unrealized product for healing the sick, producing energy, or transporting goods. Quite wonderful.
This property of money to serve as an abstraction for actual exchange can, however, rapidly escalate unchecked, so that ultimately money begets money through sheer movement of capital. The real living consequences of the workings of capital—the labor conditions, the manufacturing process, the effect on ecosystems of obtaining raw materials, the use of fossil fuels to transport goods, the pockets of accumulation—all tend to be obscured. Our private discussions and public debates, by consequence, become limited to the cost of goods and return on investments, resulting in a global economic system unimpeded by environmental, social, or cultural concerns.
Placing control of monetary issue in a centralized coalition of national governments and for-profit banks is to choose a system that intrinsically favors the biggest borrowers. Creating a tool appropriate for financing import replacement by regional businesses will require a democratization and decentralization of monetary issue.
In the question period following her 1983 E. F. Schumacher Lecture, Jane Jacobs was asked how best to foster the robust regional economies she called for in her talk. Her answer was, “regional currencies.” She called a regional currency one of the most elegant tools for stimulating and regulating production and trade.
Encouraged by her remarks, the Schumacher Center staff took up the challenge to launch a regional currency. In 2006 it incorporated a new nonprofit, BerkShares, Inc., serving the Berkshires of western Massachusetts. BerkShares local currency was issued that September. The notes are beautifully designed, printed on high-quality security paper, and honor the values of community, economy, ecology, and sustainability. Each of the five denominations of notes (1,5,10, 20, and 50) carries the picture of a local historic figure: the Stockbridge Mohegans, the Berkshires' first people; W.E.B. Du Bois, the great civil rights leader and author; Robyn Van En, CSA pioneer; Herman Melville, author of Moby Dick; and Norman Rockwell, who captured small town America in his paintings and illustrations.
The currency is placed in circulation when citizens exchange federal dollars for BerkShares at any of the thirteen participating branches of five regional banks. The federal dollars remain on deposit in anticipation of any future redemption. During the first three years of issue, 2.5 million BerkShares went out in circulation from the banks. In a region of 19,000 residents, over 400 businesses have formally signed on to accept BerkShares, and another 300 do so informally and on occasion.
The use of BerkShares, a paper currency, requires face-to-face economic exchange. The citizen/buyer must meet the merchant/owner and enter into conversation. In the course of multiple transactions, an understanding begins to grow of the nature of the business, how it fits in the streetscape of the town, the working conditions of its employees, the availability of locally made goods, the impact of new regulations, the necessity to respond to the changing tastes of consumers, the hurdles to prosperity, and the many roles the merchant plays in the community—as volunteer ambulance squad member, school board official, or community theater player.
When using BerkShares to purchase directly from a producer, the information shared may be even more deeply sourced in the local landscape. The conversation may turn to how to detect the first signs of a tree blight plaguing the maple syrup industry, or how the heavy spring rains kept the bees from pollinating the apples, resulting in a smaller crop.
BerkShares are a “slow money,” to borrow a term coined by author and investor Woody Tasch. It takes more time to process a transaction: time for courteousness, time for building a connection with community of place. “Inconvenient,” some will say. Yes, when compared to the hastiness and anonymity of an internet purchase; but rich with information needed for public life. A democracy thrives only when its citizens are informed and engaged by public issues.
Slow money is not sleepy money: it is awake to the flow of economic life pulsing through a region, shaping its future, providing warning signs, and creating options for public policy and private initiative. Slow money makes us conscious again of the impact of our economic transactions, not just as purchasers but as taxpayers, investors, and philanthropists.
BerkShares circulate in the Berkshire economy from tree pruner to lawyer to auto mechanic to potter; from low-powered community radio station to theater to printer to doctor to grocery store. Whenever a business cannot recirculate all of the BerkShares in its till, it returns them to one of the banks to convert to federal dollars. That return to the bank, taking the notes out of circulation, means that a merchant or craftsman or service provider cannot find products he or she needs in the local economy. There is a leak in the economy. Every leak identifies the potential for a new import replacing business to stop the leak and keep the wealth in the community.The identification of new locally sourced products to meet local demand is the first step in transforming a local currency from a simple medium of exchange to a tool for financing new manufacturing.
From its initial role as manager of the flow of the currency, a nonprofit issuer such as BerkShares, Inc. could convene a process for setting community priorities for loans made in the local currency. Loan applications should meet economic, ecological and social criteria and could be weighted according to the type of business. For instance, lending policies might favor loans to producers of basic necessities, rather than luxury goods. Through favorable financial terms, citizens of the region, working with the nonprofit issuer and local banks, could help direct the nature of economic development.
BerkShares, Inc. is planning to develop such a loan program, and ultimately to untie BerkShares from their federal dollar backing turning BerkShares into a more independent regional currency. The value of the currency could be linked to a local standard, such as a basket of agricultural goods—maple syrup and field greens and goat cheese and apples. In this way the currency would hold a constant local buying power independent of the fluctuations in the federal dollar. Rather than an abstract concept, the value of exchanges between citizens would be linked to the actual goods produced locally.
During the current period of precipitous global financial collapse, communities are quickly learning to be flexible and creative, and local currency experiments are proliferating. From Philadelphia to Ithaca, across Michigan to Wisconsin and out to Oregon, as well as in small towns in England, Germany, France, and the former Soviet Union, in Thai villages, and in Australian cities, citizens are designing their own currency systems to help shape their unique economies.
Workers who have affordable access to land through community land trusts enabling them to create import-replacement businesses, and who have access to financing opportunities through a developed local currency program, have more opportunity to become owners of the means of production rather than only dependent laborers. Such ownership means a more equitable distribution of wealth in the regional economy and a healthier, more engaged social life.
The most praised example of a region that has expanded its economic development with the creation of worker-owned and worker-managed businesses is the city of Mondragon in the Basque region of Spain. In the 1950s, inspired by the social teachings of the parish priest, FatherJosé María Arizmendi, the youth of the town organized worker cooperatives to produce industrial goods.
Ownership in each of the Mondragon cooperatives is limited to workers. Capital is borrowed, rather than raised through stock sales to outside investors. The highest paid worker/owner earns no more than seven times the income of beginning worker/owners. A 30 percent of profits is kept for reinvestment in the business, and another 10 percent is given away to support cultural and educational activities.
Because of the success of the cooperatives and their generous donations, the Mondragon region has seen a renewal of Basque language, dance, and music programs. Education is free to all age groups. The technical schools provide a steady stream of newly trained workers for the growing cooperatives.
The specific capital needs of cooperatives requiring loans, not stock investment, led to the creation of a unique bank. One arm of the bank serves as a “social entrepreneur” researching new business opportunities for future cooperatives.
When the Mondragon Cooperatives became convinced of the importance of ecologically responsible products and production practices, they placed the full force of their research and development team to the task. They are becoming leaders in Europe in wind and solar energy production. A related group of consumer cooperatives have begun their own canneries and greenhouse production to ensure quality food over extended seasons.
There are now over 125 cooperatives in the Mondragon system and another 125 related businesses (http://www.mcc.es). Together, they generate over 16 billion euros in revenue on an annual basis and employ over 100,000 people, the majority of which are worker/owners. Of these jobs, 45,000 are in the once economically depressed Mondragon region.
We can draw many lessons from Mondragon: the cooperative structure that makes owners of workers; the reinvestment in the cultural life of the region; the health-care and pension plans, also run cooperatively, providing a social safety net without depending on government programs; and the significant role of the research and development arm of the bank, which reduces risk in business startups maximizing community investment and entrepreneurial capacity. Mondragon’s social entrepreneur section has generally focused on products that fill niches in the global marketplace, leading to several successes, but also creating dependencies on the stability of the global economy. If the same capacity were turned to creating business plans for import-replacement enterprises that meet social, ecological, and cultural priorities, the combination could be a powerful additional force for generating the vital and diverse regional economies envisioned by Jane Jacobs.
Exuberant Episodes of Import Replacement
Building new regional economies is hard work: most of us rest complacently in our role as passive consumers instead of co-producers and co-shapers of our own economies. Yet the work is being done in small towns and cities around the country and around the world, sparked by the urgency of the times and motivated by affection for neighbors and neighborhoods; for the fields, forests, mountains, and rivers of specific landscapes; for the local history and culture that bind all these together; and for a common future.
Still I hear the cautionary voice of Jane Jacobs. Yes, citizens working in partnership can and should create conditions that foster regional economies, such as the ones decsribed so far. But these initiatives cannot by themselves determine the shape of new economies: “Nobody commands an economy that has vitality and potential. It springs surprise upon surprise instead of knuckling down and doing what's expected of it, or wished for it,” Jane Jacobs wrote in The Nature of Economies.
In the end, it is the diversity and spontaneity of regional economies that is the measure of their strength—an exuberance that engages entrepreneurial skills and leads to unpredictable and unplanned “repeated episodes of import replacement,” that mighty fountain of community economic regeneration.