Editorial

share this segment by right‑clicking icon to copy linkScaling Up . . . or Out?

Back in the 1960s, student activists used to warn everybody about being “co-opted” or “selling out.” I suspect it’s just as great a risk today.

When your entire organization — which you hoped could avoid lapsing into the same business practices the competition uses — begins to compromise, that’s sometimes called isomorphism, a term borrowed from sociology. You begin to look like everybody else.

Another pressure on our organizations — whether for profit or non-profit, startup or already growing — is the imperative to “go to scale.” Early on in our education we hear about economies of scale. Soon we hear people telling us things like, nice idea but it won’t scale, etc.

In 2012 anthropologist Anna Tsing published an academic article called “On Nonscalability: The Living World Is Not Amenable to Precision-Nested Scales.” The article set off some shock waves, given that scalability is an article of faith in modern development and business management. Tsing was arguing for a theory of non-scalability in order to address the ruin that world-making scalability has left behind, ignoring the vitality of life itself.

Tsing explains that scalability does not refer to our ability to use scale: it refers to projects which can expand without changing, usually through a process of excluding the biological or cultural diversity which are typically change agents.

Historically we have sought expansion in which the change in the underlying nature of the project is not allowed. Tsing calls this the “precision nesting of scales to achieve uniformity” or standardization.

Digital tech is our familiar domain for experiencing scalability: the pixels in a graphic are simply sized up or down and we take this virtual experience as a truth about physical reality.

In business, scalability has equated to expansion for growth and profits — in the name of economies of scale. Today, however, the hegemony of the latter has crumbled before the advance of global supply chains with activities spread across many firms in many places. And while inventories remain scalable, Tsing argues, today both labor (whose scalability has been a foundation of capitalism) and natural resource management are in retreat from scalability.

Example: the supply-side capitalism of Amazon or Walmart which pushes costs back on producers, eliminating labor and environmental standards in pursuit of selling us more stuff.

Then does scalability still equal progress? What if the new economy we need can be better achieved by replication than by scaling? Would those non-scaling businesses better reflect their local communities and retain more of their cultural richness? Is the B-school notion of scale almost the opposite of what we call human scale?

The recovery of human scale in different arenas of modern life has been going on for decades at this point, part of an effort to wrest control of our lives back from various technocratic authorities. City planning is one notable example.

What about human scale in economic development? Is the notion of right-sized, lifestyle businesses (i.e., they can support one or a few families) something we need to embrace? Regenerate our Main Streets? I think there’s certainly an argument to be made for it.  

share this segment by right‑clicking icon to copy linkThree Lessons from Quebec’s Social Economy

Canada, Americans like to say, is different. For anyone working for a new economy, it is downright inspirational.

The Quebec model, for example, refers to an approach to creating an economy which aims to balance three forces: the public, the private, and something they call the social economy.

The latter term refers to businesses that are collectively owned, democratically controlled, and whose surpluses (i.e., profits) are reinvested among owners and / or the community.

The social economy in Quebec represents 11,000 organizations, about one-quarter of which are co-ops, adding up to some 12–14% of Canada’s total national economy — with almost $48 billion in sales, that’s more than aerospace, mining and construction combined. In terms of jobs, 220,000 work in this sector in Quebec, representing 1 job in 20.

How did the Quebecois manage to create this degree of economic democracy? We might take away three key lessons.

The value of building upon a century-old history of cooperativism and social enterprises

Late 19th-century Quebec utilized cooperative approaches to housing, agriculture, insurance and healthcare, even before Alphonse Desjardins began founding the first North American credit unions in the early 1900s. Some of the most stable financial institutions in the world today, this credit union system is one of the province’s leading private employers.

In the 1930s, the Catholic culture of Quebec fostered a kind of third way approach to the economy, in an attempt to avoid both the capitalism of Britain and the perceived threat of Russian communism. Both parishes and Catholic schools were influential in forming this social view of the world.

While Quebec’s first cooperative act was passed in 1906, by 1964 a cooperative branch of government was created. Moreover, union participation in this province today is still as high as 39%.

The value of a long-standing collaboration between government and the social economy

The first legislation enabling investment in Quebec’s co-ops was passed in 1977, followed in 1985 by the creation of a national system of co-op developers located across Canada’s 17 provincial areas. Among other legislation, the 2013 social economy framework law recognized this sector as a pillar of the economy and treats it like other sectors. This recognition obliges the government to consider social economy organizations when designing and enacting new programs.

Another distinctive feature of cooperativism in Canada generally is the 2005 law around indivisible reserves. If a co-op decides to demutualize and sell to another company, its profits beyond the member-owners’ stakes must be invested in another co-op.

The importance of financial infrastructure

In Quebec, co-op member-owners can deduct up to 150% of any investments in co-ops from their taxable income. Over a fifteen year period, this stipulation has totalled $170 million for producer and worker cooperatives in the province.

Moreover, co-ops benefit from government loan guarantees which repay a financial institution a percentage of any net loss from a co-op investment. The guarantee has meant tens of millions of extra investment dollars going to co-op financing. By comparison with non-coop investment funds, co-op portfolios have had very low loss rates.

In fact, the 10-year survival rate for social economy businesses in Quebec have recently averaged 45%, as compared with 20% for private businesses.  

share this segment by right‑clicking icon to copy linkCo-investment as Reparations: Crossing Capital Group

It’s a familiar situation in gentrifying neighborhoods. Amidst all the renovation and new building, you notice an “island” — an older church. Often these places, many of them historic but still in good repair, are undergoing an invisible financial decline, perhaps even into foreclosure.

Moreover, many of the better-off members of the congregation may no longer live in the neighborhood: they commute in from elsewhere as a way of keeping their emotional tie to the place, perhaps going back generations.

But continued decline and / or a sale to eager developers are not always the only possible outcomes for these churches, which have served for years as anchors of the neighborhood.

They often have options their congregations are unaware of, states Dr. Sidney Williams, who draws on both his Wall Street experience and his pastor’s sense of community in his role as CEO of Crossing Capital Group (CCG), a New Jersey-based B Corp. His team specializes in developing co-investment strategies — including funding — for churches needing a loan to take out debt or to do pre-development work toward new ownership, the kind that aims to remain mission-driven rather than driven by the whims of the marketplace.

In a recent video conversation with Ownership Matters publisher Felipe Witchger, Williams explained how CCG plans to deploy their recent $5 million injection from the New Finance Fund, along with an additional $1 million commitment for first loss reserves from Trinity Wall Street.

“We are offering triple bottom line debt and equity products for established churches — places which have typically operated for 50-plus years and with assets of $5 million or more.” He adds that these urban churches possess both a high social impact and a high development potential. (That is, they’re located in gentrifying areas with favorable zoning.)

Churches are often ignored by urban planners, Williams observes, although they are the only living organization in many neighborhoods. “They were built in faith that they would give back to the communal wealth.” Which is why CCG’s strategies for reimagining these spaces include affordable housing options, as well as job creation and other social services.

What CCG is offering is not only an alternative to selling to outside investors. It also could be viewed as a kind of reparations work — but via co-investment.

One example currently under study is a church in northeast Washington D.C., a 30,000 sq ft facility with the possibility of adding 56,000 sq ft of housing. The vision is for a joint venture in a medical desert, affordable senior housing with some wraparound healthcare services.

In addition to offering pre-development services (including assessment of development potential), CCG is creating its own fund, looking for up to $1 million per investor and offering an interest rate of 6–7% over the 2–3 year term. At the end of the term, a liquidity event is anticipated with CCG in first position.

Another goal for CCG: to become a national CDFI which can work with investors who only do place-based investing with CDFIs.

Williams states that CCG is keeping their loan to valuation fairly low — ideally less than 30%. CCG is also leaving some room for concessionary debt as a buffer for the unforeseen.

He adds that it’s important for these congregations to realize that CCG is partnering with the church’s immediate community and its mission — not with the churches themselves. “Our hope is that they remain anchor institutions — but with no gates.”  

share this segment by right‑clicking icon to copy linkDaniel Fireside on Funding the Revolution (Part Two)

Namaste Solar, Organically Grown Company, and Downtown Crenshaw