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Progressive Picks
Gar Alperovitz is the Lionel R. Bauman Professor of Political Economy at the University of Maryland. He is best known for articles, books and speeches about the development of an alternative cooperative/publicly owned segment of the economy in the United States.
Alperovitz’s latest book is What Then Must We Do? Straight Talk About the Next American Revolution.
“Gar Alperovitz’s new book develops a brilliant strategy for the type of transformative change that can lead America from decline to rebirth,” writes James Gustave Speth, author of America the Possible.
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Chapter 11 of What Then Must We Do?
One more obvious step, for the moment, in connection with real-world democratization (and maybe also about what can be done if you want to start getting serious).
I assume you are aware that socialism—real socialism, not the fuzzy kind conservatives try to pin on Barack Obama—is as common as grass (well, maybe not that common, but still very common indeed) in the United States.
I’m not talking about the public programs that come to many minds when socialism is discussed in an American context. These programs often help people in need and do many other useful things, but they don’t attempt to change the underlying systemic design and the political power it confers on corporate actors.
I’m talking about the (efficient) government ownership of businesses, some set up in the past and still working very nicely, thank you, and many new efforts now also flourishing big-time.
For a start: It’s often forgotten—or simply not known—that there are more than two thousand publicly owned electric utilities now operating, day by day, week by week, throughout the United States (many in the conservative South). Indeed, 25 percent of US electricity is supplied by locally owned public utilities and co-ops.
Moreover, most of these now conventional “socialist” operations have a demonstrated capacity to provide electricity at lower cost to the consumer, not to mention cheaper and more accessible broadband. (Nationally, on average, customers of private utilities pay 14 percent more than customers of public utilities.)
One obvious reason: Public utilities and co-ops simply don’t pay the same exorbitant executive salaries common in the private sector. They get pretty much the same work done for far less. General managers of the largest class of publicly owned power companies earned an average salary of roughly $260,000 in 2011. Average compensation for CEOs of large investor-owned utilities was $6 million—almost twenty-five times as much.
Also, of course, public utilities and co-op producers don’t have to pay private shareholders any dividends. And they return a portion of their revenues to the city or county to help supplement local budgets, easing the pressure on taxpayers. A recent study found an average transfer of 5.2 percent of revenues to municipalities—compared with average tax payments by private-investor-owned utilities of 3.9 percent.
In smaller communities revenues from public utilities are often a crucial component of city budgets. In Ashland, Oregon, for instance, fully 30 percent of the general fund that pays for such services as police, fire, and street maintenance comes from public utility profits; only 16 percent comes from property taxes. Similarly, the century-old public utility in Norwich, Connecticut, is a major contributor to the city, with more than 10 percent of its total billings—more than 5 percent of the city’s total annual budget—going to the municipal general fund.
A number of public utilities also play a powerful role in building a green economy. In California the Sacramento Municipal Utility District (SMUD)—one of the ten largest public utilities in the United States—now supplies more than 24 percent of its retail energy sales from renewable sources; it expects to reach a goal of 37 percent renewable energy by 2020. SMUD is also on target to slash CO2 emissions to just 10 percent of 1990 levels by 2050.
Another leader, Austin Energy in Texas, runs the most successful utility-sponsored green energy marketing program in the country. Approximately 15 to 17 percent of its power currently comes from renewable sources—primarily wind, with landfill methane gas a distant second. The utility expects to reach 30 to 35 percent renewable energy by 2020. It also has a twenty-year agreement to purchase power from a large wood-fired power plant in East Texas, and it expects to achieve a CO2 reduction goal of 20 percent below 2005 levels by 2020.
A number of cities are now also regularly involved in the public land development business—increasingly in situations where public policies, such as those involving mass transit, create huge land value increases and other benefits that would otherwise simply go to private developers.
Boston was one of the first to realize this possibility. In 1970 the city embarked on a joint venture with the Rouse Company to develop historic eighteenth-century Faneuil Hall Marketplace (a six-and-a-half-acre downtown retail complex with forty-nine shops, eighteen restaurants and pubs, twenty-five eateries, and forty-four carts). Boston kept the property under municipal ownership and negotiated a lease agreement in which the city got a portion of the development’s profits in lieu of property taxes. By the mid-1980s Boston was collecting some $2.5 million per year from the marketplace, and by 2008 this had increased to several million a year. One expert estimate is that the approach allowed the city to take in “40 percent more [revenue] than it would have collected through conventional property tax channels.”
Some of the most interesting examples of what might be called “development socialism” occur when a city develops and leases land it owns in and around entrances to publicly funded mass transportation subways and light rail systems. Land values go up dramatically at such locations, and cities used to simply let developers grab the publicly created opportunities—and then try to tax back whatever they could. Now many cities routinely maintain public ownership of the land, directly capturing the increased values the public investment creates.
In Miami, Florida Miami-Dade Transit is involved in the ownership of multiple large transit-linked joint development ventures. Dadeland South Station, for instance, includes multiple office buildings, a luxury hotel, and ground-level retail space. Dadeland North Station comprises more than 370,000 square feet of retail space, a large residential rental building, and a luxury apartment building. Taken together the projects generate annual revenues of around $1.3 million for Miami-Dade County.
The San Francisco Bay Area Rapid Transit (BART) has eighteen transit-oriented development projects under way (and numerous others in various stages of development). In the nation’s capital, the Washington Metropolitan Area Transit Authority has established more than fifty revenue-generating joint development projects. The Valley Transportation Authority of Santa Clara County, California, has designed its Transit-Oriented Development Program to encourage mixed-use development within two thousand feet of transit stops. Not only does its Almaden Lake Village Project return revenues to the city, but 20 percent of the 250 residential units are offered at below-market cost to low-income households.
I mentioned at the outset that many utilities now help create broadband services. This is another area where public enterprise has become increasingly common, both via utility-based strategies and through other independent municipal efforts. More than 130 cities have built citywide public Internet networks. Hundreds have partial networks (connecting schools, businesses, and government buildings), and hundreds more are actively planning the construction of such networks.
Many others have made Internet provision a priority and are investing in telecommunications, including cable television, high-speed Internet services, local and long-distance telephone service, fiber leasing, and wireless data transmission. Indeed, by 2007 over seven hundred public power companies—or more than a third of them—were offering some form of advanced telecommunication services.
OptiNet, the broadband division of the city-owned utility in Bristol, Virginia (BVU), was the first utility in the nation to provide voice, video, and broadband over a fiber-to-the-user network. By early 2012 OptiNet had achieved approximately 70 percent market penetration in its primary service area (city limits of Bristol, Virginia) and had reached 53 percent of total homes and businesses in more recent expansion (counties surrounding Bristol served by BVU). In 2010 and 2012 OptiNet increased Internet speeds without raising prices and now provides connections that can be faster than those of many large cable companies.
Chattanooga, Tennessee, offers the fastest citywide fiber network in the country (up to 1 Gbps) for prices that are often eight to ten times cheaper than in neighboring locales served by Comcast and AT&T. As a result, several companies have relocated their operations and jobs to Chattanooga. The city’s network was also influential in convincing Amazon to expand its massive distribution center in the city.
Here, for the record, are a few more illustrations of conventional “socialism” in action.
Many cities are involved in hotel construction and ownership—and making profits on these efforts. City-owned hotels can be found in communities as different as Austin, Houston, Chicago, Omaha, Overland Park (Kansas), Sacramento, Marietta (Georgia), Oceanside (California), Myrtle Beach (South Carolina), Denver, Phoenix, and Vancouver, Washington (near Portland, Oregon).
To take just one example from a seemingly conservative area: In May 2008, the Dallas City Council, led by mayor Tom Leppert, voted by an 11–2 margin to pursue construction and operation of a publicly owned convention center hotel. A charter amendment that would have stopped the effort was defeated in a public referendum, and in November 2011 the city celebrated the grand opening of its convention-oriented city-owned $500 million, 1.2-million-square-foot, twenty-three-story, 1,001-room hotel.
Cities are also involved in one or another form of hospital ownership, with a recent survey (2010) finding that roughly one-fifth of hospitals in the United States are publicly owned. One of the most interesting is Denver Health. Once an insolvent city agency ($39 million in debt in 1992), Denver Health is now a competitive health care system structured as an innovative blend of democratized ownership and direct municipal accountability. As a quasi-governmental agency it now has relative autonomy over decisions, yet it is subject to the state’s open-meetings law (allowing for public involvement) and has a board that is appointed by the city’s mayor.
Denver Health operates a highly efficient system that includes eight primary care centers and thirteen school-based clinics. An award-winning leader in its field, and consistently profitable for more than two decades, it employs roughly fifty-six hundred Denver-area residents and treats more than a third of Denver’s population, including a full 37 percent of the city’s children. About 65 percent of the patients are ethnic minorities, and more than 40 percent are uninsured.
One of the most interesting developments—now to be found in nearly seven hundred local projects—involves green operations that capture methane and turn it into fuel to produce electricity (and make money for the city). Here for instance is how Riverview, Michigan, does it—using a formula to be found in one form or another in many other cities.
Riverview teamed up with Detroit Edison (the local public utility) and a private corporation, Landfill Energy Systems, to develop a landfill gas-to-energy project on its 178-acre landfill. The project captures 4.3 million cubic feet of landfill gas per day and in turn uses it to provide electricity for over five thousand homes—in the process generating more than $150,000 a year in royalty income to help fund needed public services. The carbon emissions impact is also significant: The utility estimates the conversion operation removes the equivalent of the emissions produced by almost fifty thousand passenger vehicles each year.
A variation on the same theme is a wastewater-to-energy facility at California’s Point Loma Treatment Plant, which serves a 450-square-mile area near San Diego. The methane produced through the treatment process there generates electricity for process pumps, lights, and computers. Since 2000, San Diego has saved around $3 million annually in energy costs through the operations of the facility.
You didn’t know about such things?
Most people don’t, and the decaying American press isn’t much help. Also, “the other side” doesn’t have any interest at all in letting you know what can be done. Indeed, what is being done all the time in the way of large-scale democratization throughout the country, even (if you like) “socialism,” American-style.
(That is one of the best reasons, by the way, to get serious about digging deeply. There are lots more practical precedents out there to build on if somebody does the work of finding out about—and refining and adapting—things that work for current and future use and, above all, moving the process beyond partial experiments to ever greater publicly benefitting democratization over time.)
We’ve just looked at the tip of the iceberg here. Many interesting things are also happening at the state level.
In California, CalPERS (the state pension fund, now in operation for eighty years) oversees $237 billion in investments. Even factoring in the negative effects of the financial crisis and recession, the market value of its portfolio has risen 52 percent in the past ten years. Not only is CalPERS one of the largest investors in the state of California, it has taken a lead in directing a share of its investments to community-building efforts in the state (rather than handing over all state pension asset investments to Wall Street and other financial advisers and investment firms). (We’re not talking small potatoes here: Such state investments totaled $23.5 billion as of September 2012.
In Alabama the public pension system—Retirement Systems of Alabama (RSA)—invests in numerous local Alabama industries, in many cases also helping create worker-owned firms. Investments range from aerospace to tourism development and include, among others, Navistar International—a firm that paid its engine manufacturing plant employees to work in the community rather than lay them off when the recession caused a drop in production.
In Alaska, the Alaska Permanent Fund invests oil revenues on behalf of citizens of the state. Earnings provide annual dividends to state residents as a matter of legal “right.” In 2011, a low payout year, each individual state resident received dividends of $1,174 (almost $6,000 for a couple with three children). In 2008 each resident received $2,069 (over $10,000 for a family of five).
Roughly two-fifths of the states (38 percent) also actively provide aid to worker-owned companies. Several directly support ESOPs (and/or worker cooperatives) with initiatives ranging from the linked deposit/investment programs in Indiana to education, technical assistance, and training programs in many states. Two states—Vermont and Ohio—support employee ownership centers that in turn leverage public funds to offer a variety of services to ESOPs and worker cooperatives.
By the way, almost half the states—twenty-three—in “capitalist” America also directly invest public funds in promising start-up companies. In Maryland, to take just one example, the Enterprise Investment Fund regularly invests in start-ups in exchange for equity and a guarantee from the firm that it will continue to operate in the state for at least five years. The fund has performed exceptionally well: Between 1994 and 2011 the state made total returns of $62.5 million on its investments. Successful ventures range from high-tech fluorescence and luminescence companies like Plasmonix to Advanced BioNutrition Corp., a Columbia-based company that extracts fatty acids from algae for use as nutritional ingredients in aquaculture (fish farming) and domestic animal feeds.
You get the idea: If you start getting serious about democratizing the ownership of wealth, there are many, many examples to build upon—and then extend. Most provide profits to cities and states that badly need revenues—and in turn, this obvious boon to taxpayers suggests some potentially interesting political possibilities for the future.
More to chew on in this regard shortly.
I can’t resist one last illustration, just for the record, from that rock-ribbed bastion of Adam Smith–spouting conservatism—the great state of Texas.
The Texas Permanent School Fund was established more than 150 years ago with $2 million from the state’s general fund. In 1876 roughly half of all the land (and associated mineral rights) in the state still in the public domain was added to the fund, and beginning in 1953 coastal “submerged lands” were also added after being relinquished by the federal government. The state-owned fund currently (2011) owns 626,000 acres of surface land and 12 million acres of mineral land and submerged land.
Every year a distribution is made from the profits of the publicly owned (“socialized”) fund to defray education costs for every county in the state—roughly $2 billion in the last two years. The fund also guarantees bonds for local school districts, enabling them to pay significantly lower interest rates on their debt.
If Texas can find ways to do things like this, I suspect your state can explore quite different possibilities as well (with a little help from its friends).
Copyright by Gar Alperovitz. Not to be reprinted without permission of the author or Chelsea Green Publishing.
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