This article is part of our weekly series—Narratives to Build Collective Economic Power—which NPQ is publishing in partnership with the national racial and economic justice nonprofit Common Future. In this series, the authors write about their economic justice work and how, in their work, they challenge conventional narratives and offer new ways of thinking about who can be owners in the economy and what community economic development means.
It has often been said that “what we give our attention to grows.” For too long, we have given our attention to the tech titans of our economy. You know who I mean. I come from California, and the amount of attention conferred upon Silicon Valley firms—such as Apple, Facebook, and Google—has reached extreme levels. We give these firms our attention—and they grow. But what if we turned our attention elsewhere? What if we built our economy around people like us who have grown up in our own communities?
A Crisis Leads to a Career Change
I wish I could say that I had this all figured out after college. I did not. A decade ago, after completing a master’s degree in urban planning, I was working in the field of economic development at a local city redevelopment agency. We did some good work, but a lot of it was funded by a system of corporate tax breaks, known as tax-increment financing. Effectively, with tax-increment financing, the increase in baseline property value that was generated by development is used to pay back bonds that financed that development—and therefore is not available for public services, such as health or education.
Statewide, this method of financing development was costing local communities billions of dollars in lost revenue. Faced with major revenue shortfalls coming out of the Great Recession, then Governor Jerry Brown persuaded state legislators to dismantle redevelopment agencies—not just my agency, but over 400 of them statewide. That meant not only I had lost my job, but so had thousands within my profession.
The result: a historically bad job market for people in my field of urban planning and economic development. I was often one of 400 applicants for jobs, and I didn’t stand a chance. The tight job market reinforced the status quo of trickle-down economic development. New ideas and perspectives were not incorporated, let alone sought out.
As Abraham Maslow famously said, when the only tool you have is a hammer, everything looks like a nail. The status quo had resulted in persistent unemployment and generational poverty in communities like South Los Angeles even though such communities are adjacent to some of the largest economic engines in the world. I was convinced there had to be a better way.
Forging a New Path
In April 2012, I had lunch with Bruce Dobb, who had previously worked at the US Small Business Administration and the National Cooperative Bank. I voiced my frustrations and my desire to find a way for people from the communities of color I grew up in to generate wealth for themselves and their children. We talked about where we saw possibilities and commiserated about the missed opportunities all around us. We agreed that there had to be a better way, one that offered real benefits for workers and created wealth at the grassroots level of business.
Dobb had been helping key managers buy the businesses where they worked since 1993. He was well versed in employee ownership and, because of his history at the National Cooperative Bank, was well connected to the co-op movement. As an urban planner, I brought a different perspective to the table, one that allowed me to develop a placed-based strategy that connected businesses to local infrastructure like transportation and schools.
Dobb knew many factory owners and manufacturers who wanted to retire, but they lacked a successor and kept their businesses going out of loyalty to their workers. I knew managerial and line workers who had dedicated decades to the same company and knew how to make the company’s products and operate the facility. We talked about viable businesses that had closed because they lacked a successor and about the terrible prospects that workers faced looking for new employment in that job market. So often these workers ended up going from full-time jobs that paid living wages to one or more minimum-wage, part-time jobs.
So, we combined forces, creating the small firm, Concerned Capital. We are a private company, but we are also a benefit corporation, governed as much by our mission as the economic bottom line. In our work, we focus on recycling and repurposing small, community-based manufacturing companies by transferring ownership to long-term employees as a strategy for saving and/or creating living wage jobs in low-to-moderate-income communities.
In particular—beginning in 2013—we launched the Transition of Ownership Program and then set about implementing it. We chose to focus on manufacturing because in Southern California manufacturing jobs are the shortest path to living-wage jobs for people from low-income communities. While there are tens of thousands of small manufacturers in our region, many of which are clearly visible from airplanes flying over the Inland Empire into Los Angeles, we focused our work on three types of manufacturing that have significant competitive advantage in Southern California and low barriers to entry for new employees—namely, garment manufacturing, food production, and precision machining.
Our focus was contrary to the prevailing status quo in economic development circles because it was low-tech, and it didn’t focus on real estate development or the marijuana industry. It was also squarely in line with our personal values and desire to help low-income families build wealth.
Employee ownership isn’t a new strategy. Rather, it’s a tried-and-true method of passing on and preserving a company and continuing a business founder’s legacy.
But it seems like that’s not how business is taught anymore. Rather than preserve and innovate with an existing company, the preference today is top-down economic development—funding “disruptive” startups with high failure rates, private equity-fueled rollups with unrealistic return expectations, and tech firms. All these approaches, which are supposed to “modernize” business, have had the same negative outcomes: the loss of jobs, reduced tax revenues, and extraction of profits from blue-collar communities to affluent communities where the “top-down” investors live and work. These outcomes are well known. But it’s easier to continue with the status quo, especially if economic development funding prioritizes such an approach.
Our approach to grassroots economic development reflects the informal economy thriving in the blue-collar communities where entrepreneurship was all around us. We saw street vendors, artists, restauranteurs, and home-based hustlers like childcare providers, mechanics, beauticians, seamstress, and builders. There is no question that people in low-income communities and communities of color can manage and own businesses.
But many more workers are employed at small businesses whose owners are preparing to retire. We know that at many small manufacturers, there must be “workplace entrepreneurs” who want to own the business they work for. These workers have the potential to run and own their own businesses, but only if they are mentored and supported and that potential is tapped.
What do I mean by “workplace entrepreneur”? Well, take my father-in-law. He worked in the same factory for more than 30 years. He had decades of insight and knowledge about production, material handling, process flow, and managing team members. He saw the company change owners three times, each one extracting as much value as he could from the company before selling it. We had many conversations about what my father-in-law would do differently to make the company operate better. His coworkers had ideas and experience too. But what they lacked was capital and access to experts that could help them learn the administrative side of the business.
As Dobb and I researched companies more, we found that the will to be a business owner is often there, but workers need funding and technical assistance from a bottom-up economic approach in order to put their ideas about how best to run a business into practice.
Telling Our Stories, Expanding the Model
Since this transitioning ownership program began in 2013, every business we have transitioned is still growing. The kind of business development I am talking about does not get you a lot of home runs, but you sure get a lot of singles.
What kind of business? Each business has a different story. Most often, we help businesses stay open by working with key employees to become business owners themselves.
One example is Ariza Cheese Manufacturing. Founded in 1970 in the Los Angeles suburb of Paramount, the firm was the first Mexican artisan cheese producer to break through and sell distinctive cheese products in mainstream grocery stores throughout Southern California. The firm led the way for widespread market acceptance of Mexican cheese. In 2009, after the founder’s sudden death, four long-term employees took over the day-to-day operations. In 2015, with Concerned Capital’s technical assistance, these employees were able to purchase the company, saving 24 employees their jobs. Within three months of conversion, sales had increased by 40 percent and three new employees were hired.
Public policy can support this approach. For example, in 2018, Concerned Capital operated a successful demonstration project with the City of Los Angeles’ Layoff Aversion program. Layoff aversion staff were taught how to proactively identify businesses in need of new owners before the businesses were closed or sold. Three Los Angeles businesses were transitioned to “workplace entrepreneurs” as part of the demonstration project, saving 25 jobs, or one job per $1,000 of the grant funds used.
By way of comparison, when Elon Musk set up a battery plant in Nevada, his firm, Tesla, received tax subsidies from the state of Nevada and other local government agencies of roughly $200,000 per job. Locally rooted economic development is a far more efficient use of public resources!
Our work has since expanded throughout the country. Concerned Capital currently has clients in 11 states. Outside of Southern California we have expanded the business sectors we work with to include industrial services, transportation, and shipping, but we’ve kept our fundamental goal: supporting living wage jobs that meet local economic needs.
Concerned Capital is also expanding our work in another way, by creating a Blue Collar Preservation Fund. The fund’s goal is to create a platform for transitioning businesses into employee ownership at scale in blue collar communities in California, Illinois, Pennsylvania, and Wisconsin. The platform targets manufacturers and commercial service businesses with annual revenues between $1 million and $7 million.
As new strategies and financial tools are developed, it is important to share what is learned with mission-aligned organizations. For us, this means partnering with advocates for co-operative ownership of businesses, employee ownership trusts, and employee stock ownership plans (ESOPs). This also means partnering with workplace democracy advocates who are working with cities to help them develop place-based, bottom-up strategies to promote employee ownership.
As a field, the work we do, sadly, remains more exceptional than it should be. There is enormous opportunity to grow wealth in blue collar communities. Changing the focus of economic development support from top-down to bottom-up has never been more important than it is today.
This article originally appeared in the Nonprofit Quarterly. See the original article here.
