Going Local: Strengthening Local Economies by Building from the Bottom Up

Hyderabad, India. Photo by Arihant Daga via Unsplash.

By Neva Goodwin

Decades ago, with the book Small is Beautiful, E. F. Schumacher popularized the idea of localization. 

He proposed that emphasizing local relationships in economic transactions between producers and consumers, workers and employers, can strengthen communities, creating both economic and social well-being. Over recent decades, Schumacher’s general idea has often been considered foundational for an alternative economic path. Those seeking such a path have cited trends such as the gradual increase in worker cooperatives; depositor-owned credit unions, which have more than $2 trillion in assets in the US; and the recent resurgence of labor unions, in the US and abroad. 

Other bright lights are the emergence of B-Corps (corporations explicitly licensed to include the public good in their mission); renewed attention to city and state-owned banks and the rapid spread of small, and very small, solar installations, with the related struggle between private and public models for owning and managing municipal electric utilities, as well as water and other basic utilities. Success stories include the state of Nebraska, which is entirely powered by cooperative and municipal energy, or the example of Sparkasse, a cooperation of German banks that control 30 percent of bank assets, yet do 70 percent of the country’s lending to small- and medium-sized enterprises.

While many of these possibilities have been around for decades or more, it has been a struggle to believe that they were adding up to a real sea-change. The concept of “community wealth building” has introduced a new level of possibility, drawing on the above approaches while adding some critical elements.

Using Schumacher’s idea of place-based economics, community wealth building begins by working with local government institutions, which may include fire and police as well as municipal governments, along with public and non-profit hospitals and educational institutions. These are examples of place-based organizations that can, with a good understanding of what makes for healthy development, be defined as “anchor institutions” because they are not likely to pick up and leave, as they have a stake in the well-being of the area, and are large enough to make a difference. 

It is generally recognized that money spent locally circulates significantly more, bringing more spending power and potential employment to the local area than money that goes to a firm that will take the profits and leave. Once this is understood by the anchor institutions, they are likely to support socially-oriented firms that, in turn, are often democratically-owned and -controlled by their workers or the community. 

The original model of community wealth building is the Evergreen Cooperatives in Cleveland, Ohio. Three non-profit institutions – Cleveland Clinic, Case Western Reserve University and University Hospitals – were largely dependent on public funds and favourable tax treatment, while their expenditures of around $3 billion per year were largely flowing out of the local community. The Cleveland Model took off when these organizations switched to local sourcing for essential services, such as laundry, that had previously been outsourced to multinational companies. This switch provided a market for goods and services that could be provided by local, especially worker-owned, businesses while keeping the money circulating in the community. Moreover, it became evident that when anchor institutions understand the benefits of localization, there are a variety of  ways they can use their economic power – whether by investing and hiring locally, or through their purchasing power.

Invention as well as implementation of this model took a few years. Drawing on a wide range of ideas about localization and community empowerment, Gar Alperovitz, Ted Howard, and others who then created the Next System Project, gave vibrant life to these ideas by recognizing the potentially huge role of  anchor institutions, which have both the economic power and the motivation to support businesses that provide good jobs and broad community enrichment –moving the region in which they operate toward a vision that Marjorie Kelly, of the Next System Project, describes as including “water and healthcare systems owned by the public, corporations owned in substantial part by employees and large corporations rechartered to serve the public good” (Kelly, Forthcoming 2023, Berrett-Koehler Publishers).

Experiments with the Cleveland Model and with the wider ideas of a democratic economy continue to grow, with successful implementation in various places in the UK and the US, and are spreading in other parts of the world. This trend gives power to several possibilities, anchored in the recognition that there are some large economic institutions in the public purpose sphere that have a reason to prioritize the well-being of people in their neighborhood – and, therefore, to chart a path to action away from the profit-maximizing model of business. 


Never miss an update: Sign up to receive the Economics in Context Initiative newsletter.