ShaulaBlog - clear-eyed capitalism

human development: an often externalized cost

I’ve been working on the financials for the housekeeping cooperative I’m working with, and a key question in my mind is: how can the housekeepers maximize their take-home pay? I’m evolving the model to the point where I can do a sensitivity analysis and test such variables as hours-worked, ratio of housekeepers to managers, %of time billable vs unbillable, and others. I have a gut-feel idea, but I want to run the data. As I’m working with the spreadsheet, I get the sense that a key factor in keeping costs down (and therefore profits up, and therefore take-home pay up) is turnover – bringing on new members entails additional expense in training, uniforms, possibly additional equipment. This is also why it’s worth doing the modeling to see how much benefit is achieved from growth as well.
Turnover and the associated costs of recruiting new employees are recognized as controllable business costs. Certainly every recruiting agency advertises their ability to help you save on recruitment via better targeting. There’s also the cost of lost investment in the employee who leaves and the lost productivity during the change. The total cost of just the turnover is often estimated as being equivalent to the annual salary of the position turning over.

According to the 2005 California Occupational Guide for “Maids and Housekeeping Cleaners”: “Housekeeping jobs have a high turnover rate due to the low rate pay.” This suggests that in housekeeping, as well as similar job categories, turnover might not be a controllable cost. Large corporations have responded by trying to make their jobs turnover proof – in my MBA economics class it was called “de-skilling”: the art of fragmenting and regimenting a production process so that the human roles require minimal training or decision making – often by supplementing with automation. Turnover costs are reduced by reducing investment in people.

From a cooperative perspective, this solution is unacceptable; developing people is part of the business. I don’t know how these housekeepers will decide to move forward– and in a democratic organization it will be up to them– though of course I anticipate providing them with as much fodder as possible for good decision making. But I feel confident predicting it will be a path that creates a longer career ladder supported by additional training so that members don’t have to leave. But even if they still left, we would consider it a success if they left for a better job.

It struck me that if we could measure it, how turnover occurs would be a good measure of corporate social responsibility – or perhaps better called corporate contribution to the community. How much of turnover is because people are moving up, and how much of turnover is simply churn? This is not a wholly new idea, critics before me have raised that complaint that one way risk has been transferred from organizations to individuals over the last several decades is decreasing investment in training – instead you’re expected to already have the skills for the job and it’s up to you to fund their acquisition. That shift directly decreases access to “opportunity to get ahead” and takes us further from our national ideals. But perhaps tracking turnover is an opportunity for companies who want to demonstrate their value to the community to do so.

Enter the Plumber

I didn’t manage to watch the last Presidential debate, so I was briefly mystified when one of my Facebook friends said they wanted to chat with Joe the Plumber. It didn’t take long to catch up to the news that “Joe the Plumber” is the new American Everyman. Make that “was”, as my memeorandum-addicted posse updated me on Joe’s unpaid back taxes and unlicensed business. John Oliver of the John Stewart show did an absolutely hysterical “on-location” report about how “They tell you that everyone gets their 15 minutes of fame. What they don’t tell you is that 12 of those minutes are a rectal exam.” ROTFL! It brings to mind the sage advice my father gave me when I started my Beltway Bandit job: “If you see 60 Minutes coming, run the other way!”

This whole incident serves to illustrate for me what I see as a key difference between the candidates, and indeed the party lines. Barack Obama talks in his book, The Audacity Of Hope, about how government policies can have huge impacts on citizens that the governors themselves rarely feel. Notice that it was McCain that introduced Joe into the conversation, not Obama. To me that is symbolic of how Right-Wing administrations will make decisions that work for the leaders with little attention to the impact on the rest of us. If we are negatively impacted in some way, it must be because we’re screw-ups and our failure to get the same result is our own fault; our inability to negotiate a slice of the pie reflects a lack of desert. (And dessert!).

Obama, in my mind, would never drag someone into the spotlight like that. My spouse mentioned the Keating connection and suggested that McCain likely got Joe’s permission. Maybe he did, maybe he didn’t. It’s callous at the least if he didn’t, but I found myself arguing very paternalistically that Joe could not possibly have understood the potential ramifications of agreeing to become a symbol as well as the McCain campaign should have, otherwise why would he have agreed? Why didn’t the McCain campaign give him a little helpful advice? Well, because the decision was the best one for the campaign, and if it didn’t work out for Joe, well, we all can see it’s because oops, Joe is a screw-up. So let’s leave him to burn in his own bed (hey, he agreed, let’s hope the radical righty’s can at least cover their heads with that one) and move on.

But isn’t it paternalistic to suggest the McCain campaign should have “known better” than Joe, and made a decision on his behalf to not invite him? Heck, people choose to make fools out of themselves on national TV every day, Jerry Springer built a career on it. Perhaps the existence of that show could count as evidence that Joe had ample opportunity to understand the decision he was making. I think it’s this paternalism that is particularly galling to those who would have our next Left be into a pit. Still, it’s not like he applied. He was provided with an opportunity crafted by folks who may or may not have been forthcoming about all the potential risks and rewards, and maybe, may not have even known themselves.

That’s been a big transition in my thinking during business school: I used to believe it was not ok to offer someone an opportunity you could not fully scope, to invite someone to take a risk. Now, at some level, I understand that’s what business is often about! But I still see an ethical line around disclosing what you know, a line that I believe too many businesses and community leaders fudge in the name of “well let them judge for themselves (and it’s their problem if they’re judging on different data than I am, who am I to speak for them?)”. People deserve to make informed decisions. It’s appropriate for them to decide to do something you wouldn’t do, but only when they make that decision armed with the same information. No you can’t fully download your experience and perspective and you shouldn’t, but too many people, I believe our nation’s recent leadership especially, use the fuzzyness of that line to huddle where it benefits themselves at the expense of others.

So long, Joe!

Who’s a fan of SRI now?

Wells Fargo seems to be ahead of its time in implementing sensible bank policies which are now standing them in good stead as banks try to weather the financial crises. Perhaps they should thank Socially Responsible Investment and Community Welfare advocates, who began raising the issue over four years ago and targeting Wells Fargo because of their aggressive lending practices. A historical tour of this campaign is simply fascinating given the news today.

This very worthy read, a September 2008 review of SRI Activity, notes that attention to predatory lending started in 1999: “Shareowner activists took note of this trend as early as 1999 after a keynote speech at SRI in the Rockies by Martin Eakes, founding CEO of Self-Help, a North-Carolina-based community development financial institution (CDFI.)”

April, 2004 – from a report issued by the Center for Responsible Lending on “A Review of Wells Fargo’s Subprime Lending”.

“One of the biggest drivers in Wells Fargo Bank’s steady income growth is its mortgage business, which contributes approximately one-third of the company’s earnings year after year. Des Moines-based Wells Fargo Home Mortgage (WFHM) is one of the nation’s largest mortgage originators and servicers. At the end of 2003, WFHM originations hit $470B and mortgage servicing reached a record $664B. Wells Fargo’s subprime mortgage lending totaled $16.5B in 2003. While this is modest volume compared to Wells Fargo’s prime mortgage originations, the company now ranks # 8 among B&C lenders and generally has been doubling its subprime volume each year since 2000.”

This detailed 10 page report covers the merger of Wells Fargo and Norwest and many lending practices, ending with the sad conclusion “Lulled by favorable analyst reports, Wells Fargo investors may not realize they are subsidizing a predatory lender. In addition, limited regulatory oversight and loopholes in regulations have enabled Wells Fargo Financial to hide predatory practices from federal regulators. Sadly, the people who see these problems most clearly are the unit’s customers, who too often face the loss of their home or financial ruin as a result.”

April 14, 2005 Responsible Wealth issues a press release:

On April 26, at the company’s headquarters in San Francisco, Wells Fargo shareholders will vote on a resolution that links CEO pay to the company’s progress on eliminating predatory lending practices, such as excessive fees, poor disclosure and interest rates that are higher than warranted by customers’ credit scores.
The resolution was filed by members of Responsible Wealth (RW) [with support of many other advocacy orgs], a network of affluent investors. [Who advocate for greater social opportunity, one of their top issues is preserving the estate tax!] … Since a similar resolution was put forth in 2004, Wells Fargo has met with representatives of Responsible Wealth and the Center for Responsible Lending (CRL) to discuss changes in their lending practices.
Nevertheless, the company has lagged behind other companies that have eliminated predatory practices. For instance, following a similar campaign by RW, CRL, and the Association of Community Organizations for Reform Now (ACORN), Citigroup agreed to cap fees, reduce prepayment penalties and ensure that all customers received rates appropriate to their credit history, regardless of which division of the company handles the loan application. “

Now isn’t that interesting… Citigroup. And how are they faring today?

August 31, 2005 – Wells Fargo Implements Borrower Protections, LA Times.

Wells Fargo announces a series of changed lending practices, including “include more clearly defining and limiting upfront fees, easing penalties for borrowers who refinance or pay off loans early, and eliminating mandatory arbitration of disputes”. ACORN made a grudging statement “glad that the company has finally acknowledged the damage that their practices have been causing and have agreed to change them.” However, they weren’t satisfied, and only a couple months later were out picketing Wells Fargo’s national headquarters contending that the company’s lending still discriminated against minorities: “Nationally, black Wells Fargo borrowers are nearly four times as likely to pay extraordinary loan rates as whites, according to information compiled by Responsible Wealth. Nearly 30 percent of blacks taking out first-year loans from the company pay high interest rates.”

The Minority Wealth Gap is a real issue, but the changes Wells Fargo made at the time apparently satisfied at least one investor; what’s really interesting to me as I do this research, is the discovery that around Q3 2005 is when Warren Buffet decided to buy in, according to this report: “Warren Buffett also revealed his holdings in Wells Fargo & Co. (WFC) today [Feb 4, 2006], after disclosing his holdings in H. R. Block (HRB) and Torchmark Corp. (TMK) in January. During the third quarter of 2005 Buffett kept his holdings in these companies confidential. As revealed by the amended filings of Berkshire Hathaway, Warren Buffett added his positions in Wells Fargo & Co. (WFC) by about 50%. Currently Berkshire holds 85 million shares of Wells Fargo. Wells Fargo is now the 4th largest equity holding of Berkshire Hathaway, behind Coca-Cola Co. (KO), American Express Co. (AXP) and Procter & Gamble Co. (PG).” The stock wasn’t particularly pounded and “the street” wasn’t really paying attention. I checked the stock price on Yahoo (NYSE:WFC) and it had increased mildly over 2005, fluctuating between a high of 31 and a low of 29.

By 2007, at least one traditional investment newsletter was raving about Wells Fargo. Dan Ferris, of Daily Wealth reports: “Of all the companies involved in the subprime space, the one that really leaps out at me is Wells Fargo (NYSE: WFC). Wells Fargo is without a doubt the highest-quality mortgage underwriter I’ve found in my research.” He concludes “were I in the market for a large-cap stock, I’d back up a U-Haul and fill it with Wells Fargo common stock.”

It so clearly needs to be said, so I’ll say it: Thanks SRI Community!

Political Capital

While driving to our weekend getaway along the Columbia River, we listened to Bob Mondello’s NPR story on the 1960s heyday of the financial musical, when shows were about the trials and tribulations of the sort of business folk who worked nearby on wall street. He highlights entertaining songs such as “Capital Gains” from “Subways are for Sleeping”. He also relays the plot of a show titled “The Rothschilds” about the rise of the Jewish banking family to the point where they had enough political influence to press for a declaration of rights for European Jews in the 1800s. The play’s climax comes when the family takes revenge on a German Prince who promised political support in return for a loan and then reneged. They do so by nearly bankrupting themselves undercutting the price for German Peace Bonds, successfully preventing the state from raising needed funds and getting a capitulation from the Prince which also guarantees them a piece of all future bond business.

Later that weekend we climbed Beacon Rock, the 2nd largest freestanding rock in the world after The Rock of Gibraltar. Beacon Rock was introduced into European history by Lewis and Clark in 1805. Most of the park signage noted that Beacon Rock was purchased by Henry J. Biddle in 1915 for $1 from Charles Ladd on the condition it be protected. Biddle’s children eventually got the rock turned into a state park. According to The Lewis and Clark Columbia River Water Trail, by Keith G. Hay, Charles Ladd purchased Beacon Rock in 1904 from a Philadelphia banker and investor in the Northern Pacific Railroad, Jay Cooke. Hay does not report a purchase price; however it seems likely that it was more than $1. Charles Ladd’s wife Sara was an award winning amateur photographer, and I learn from an article about her in the Oregon Historical Quarterly (Glauber, Spring 2007) that Charles Ladd was a successful Portland banker and businessman.

Both of these stories are about situations where people have enough capital that they’ve moved beyond using it for productive value or speculative value and into purely using it for political value. Interestingly they both involve losing large sums of money, or at least being able to risk doing so. The first story is a financial negotiation where being the last financier standing gives one control over a situation which could ultimately make their money back. Charles Ladd made more of an outright donation: sacrificing the difference in prices paid in return for a guarantee of preservation – a move that also reaped large future rewards but for the public rather than for himself.

For me, the key common element here is to note how excess capital trumps multi-party decision-making. Certainly easy to applaud when it’s a triumph of righteousness, but as a general principle it leads away from democratic governance. Theoretically, this kind of power comes from commercial success, which could be a kind of endorsement for the right to wield it. Unfortunately I think this “economic permission for power” is difficult to sustain in a world where businesses operate at non-local scale so that it’s impossible for customers to understand the full impact of who they choose to give their business to, or hold those at the top accountable in a social way.

The death of Sweat Equity?

Rick and Shauna have run a jewelry store for over 25 years. We got talking about how they got started on $1000 in cash and raw determination. Rick built their first display cabinets himself and they would trade jewelry work for other services they needed- like interior work on their first store. Shauna would work to get items for customers on short order when their inventory was still small and used carved waxes in their display cases to showcase their designs on the cheap. Shauna told a story about how they worked seven days a week for years until another friend was killed in a freak accident and they realized they needed to start living some of life in the moment, at which point they finally started closing Sundays and Mondays. At one point Rick used the term “sweat equity” for how they were able to get off the ground by doing work for other jewelry stores to keep themselves afloat while they built their business.

I’m preparing for a trip to Spain to visit Mondragon – a series of worker cooperatives that were started in 1956. Since then they have launched or converted over 100 separate businesses as cooperatives to do various kinds of manufacturing and distribution. I’m familiar with Mondragon because the cooperative structure is an opportunity to better align the interest of wage labor and ownership in larger organizations by making them the same, and Mondragon is an oft heralded and much-studied example. At some level they’re a fascinating open experiment in the global struggle between the rights of labor and the rights of management, and thus folks seem to like to periodically predict the death or triumph of their model as the Mondragon Experience (as they call it) copes with economic downturns, globalization and the creation of the EEC. I’ll likely be writing more about Mondragon, but I compare them to Rick and Shauna because part of their model has been to help workers launch new cooperatives by building up equity through labor and doing spin-offs.

William F. Whyte is a researcher from Cornell who has studied Mondragon since 1977. Whyte published an article in 1999 with updates about changes due to globalization. An interesting aspect of Mondragon is that they established their own credit union early on, and it has played a critical role in the growth of new businesses. I have read criticism that this bank was no longer supporting the cooperative system as well as perhaps it once did, that rather than investing in new cooperatives the bank now invests in private partnerships. According to Whyte, at this point nearly ¾ of the banks investments are in private companies outside the cooperative network. It was with some surprise that I read the system actually no longer forms new cooperatives:

“we talked to Jose Maria Ormaecbea, one of tbe five founders of Ulgor [the very first cooperative in 1956] and, as of 1990, still a key leader. As be saw it, the main reason worker cooperatives were becoming increasingly difficult to create was that technological changes were requiring far more investment than bad been necessary when the first production cooperatives were being formed in the 1950s and 1960s. In that early era, founding members of a cooperative worked for two years at bottom labor rates. What they saved by so doing was converted to capital accounts, meaning that money was loaned by members to the cooperative they were forming. That amount was then supplemented by a grant from the Basque regional government to support job creation. By 1990, the required investments could be financed only if workers put in four or five years at reduced pay—and even then, Ormaecbea said, shortfalls could occur. The MCC [leadership body of Mondragon] leaders reluctantly abandoned their program of creating cooperatives by that means.”
Industrial and Labor Relations Review, Vol. 52, No. 3 (April 1999) William F. Whyte

Economists all recognize that we’re in a period of increasing income and wealth inequality but they argue about whether or not it matters. I argue that it does –The gap between wage labor rates and the amount of capital required to launch a competitive business has widened, to the point where it may not be possible to be the next Rick and Shauna unless your social connections put you in the upper half of our hourglass economy and you have access to Friends and Family funders who can get you started. It means America is decreasingly the land of opportunity and increasingly a place where “who you know” outranks “what you know” or “how hard you work”. Because it’s a naturally reinforcing spiral, if this is not what we want America to be, we have to proactively address it.

The future is YOU…tube

About a year ago I had a bizarre experience where someone I was hoping to connect with in finance finally admitted they were avoiding me because several other folks at a conference had warned this person that I was “a blogger”. I was stunned: I have never slammed anyone or revealed confidential information and it seemed it was the mere fact of me having a blog that made this crowd suspicious and wary. That experience resulted in my post explaining why I have a blog. Last night my spouse and I watched a video that once again leaves me feeling intrigued, amazed, increasingly left behind and thinking that if people can’t deal with me having a blog, well….you’d better watch this: An Anthropological Introduction to YouTube. It’s 55 minutes and worth every second.

It’s a really thoughtful study of why people vlog (video blog, essentially) a history of major social events in the development of YouTube, and itself a pretty impressive remix by the author/presenter. I literally felt chills watching a video section of internet lawyer Larry Lessig talking about how everything people do on YouTube is at some level illegal due to copyright law (yes there’s fair use, but media companies have gotten the act of acquiring material itself by “ripping” DVDs made illegal). Larry’s voice is speaking, his key words are appearing on the screen as digital text, and this is overlaid onto dramatic music and an artistic video made from copyrighted movie content that has been beautifully re-rendered. We looked for the source and it seems Professor Wesch and his research group (as participant anthropologists) blended two videos themselves: one is a Larry Lessig’s talk, I think it’s the TED talk on how “the law is strangling creativity” .
The other is a video called “Us” by a user called “blimvisible”. On YouTube this user actually has her (Professor Wesch also excerpted some online dialog that suggested blimvisible is female) own “channel” and you can find the video there as well as see a channel view of YouTube. This video itself is a remix of lots of copyrighted movie clips placed to a copyrighted and not-re-recorded song with a chorus about how we are all living “in a den of thieves”.

Professor Wesch talks about the YouTube “community” and the dialogs that happen there, but I wonder if those communities are a little threatening for folks on the fringe. With all these “communities” if you don’t stay in the conversation, it gets away from you. Perhaps for some the thought that a conversation could be occurring about themselves or issues important to them in a forum that is overwhelming for them to monitor, is itself overwhelming. I seem to have some resignation to it, possibly because I’ve been in tech for a while. Perhaps here’s where I benefit from growing up reading the Washington Post, where the lesson I drew from its coverage of federal politics is that there are no secrets and you bet somebody is going to publicly skewer you with yours sooner or later. As a kid always wanting to minimize closed doors, I ended up a bit of a goody two-shoes. Little did most of us know we’d all be public, in this disconcerting and difficult-to-manage way where the distance between obscurity and global scrutiny can be a matter of hours and a few seconds of video.

There are tools to help. I asked Darrin what he uses to keep abreast of Picnik news and he has used blogsearch.google.com, Google alerts and Technorati over time, though now Picnik gets sufficient mainstream coverage and the company has enough employees internally sharing news that he doesn’t use those so much anymore. He also mentioned search.twitter.com, where I can see that people have “twittered” about Picnik: 44 minutes ago, an hour ago and 17 hours ago (to which Darrin responds “wow, that’s a dry spell!”, but it is also Sunday morning). Comparatively, the most recent “tweet”s about ‘Socially Responsible Investing’ were 1 day ago, 3 days ago and 11 days ago.

While there’s value in figuring out which info streams are the ones for you (Professor Wesch says that most videos are seen by 100 or fewer people) and how to stay up to date, my best suggestion comes from Pema Chodron: clear seeing, calm abiding and letting go.

Technology in my life

Having spent 10 years in tech and married a fellow programmer, my life is still pretty embedded. For the hubbie’s birthday, I bought him Rockband (http://www.rockband.com/ - and this link is NOT quiet!) for the Xbox 360 and we have been playing for the last several weeks. After some experimentation with vocals, I have ended up on drums as hubbie has focused on guitar. I have never been much of a drummer, but I’m learning fast. The interface is really amazing, I hope they’re working on making it a teaching tool, because I can’t help but learn quickly about downbeat and offbeat. I can choose my difficulty level: so far I’ve explored easy and medium. The key difference is that Easy allows me to play only one beat at a time, vs making me keep quarter-beat times with one hand and throwing in other hand and foot doing some coordinated beat on Medium, where I am playing now. It was the Pixies “Wave of Mutilation” which drove me into practice mode where you can slow the song to as much as 40% of maximum (which I mostly find more confusing to vary the speed a bunch. Hazard of not being a real musician I guess). There I discovered that there’s a little section where the drumbeats fall just ahead of the beat, I think of it like pulling punches. I was able to play just the section which troubled me over and over again until I got 100% of the beats, and then go back to the real song.

There are many clever aspects that make this really fun. First, as long as I play my assigned beats, which are clearly a subset of the real song, all the drumming plays and so the resulting sound is the full song which is enjoyable to listen to. It’s the same with the guitar and bass. They do seem to have especially recorded these songs for Rockband – we found a music book at Barnes & Noble that had the “Rockband arrangements”. Second, there’s a meter that tracks how you’re doing as a band when you play tours, and there are crowd noises. I rarely can tear my eyes off my note-track to look at the meter, but I can totally hear when the crowd is restless and booing, vs when the crowd starts cheering, or on slower songs singing along. It actually gives me chills. On some of the songs with beats that are complicated (for me) I start to feel like I’m a real drummer! It totally creates Csikszentmihalyi’s flow: challenging enough to keep me focused, but not so challenging that I’m overwhelmed (usually!). It really is amazing.

As a fun bonus, a friend forwarded this video of the famous band Rush playing one of their own songs on the videogame. What really strikes me is the look of absorption on their faces. However, playing a music videogame is not the same as playing the real music - most especially for the guitar which has 5 buttons instead of 5 strings, and the show staff started them out on “expert”, so whaddya expect?

This morning Darrin blew my mind by grabbing his iPhone and holding it up to the radio which was playing some obscure song. A new program, Shazam , recorded a 10 second sample of what happened to be playing and shortly reported back the title and artist. Dang! To be able to fingerprint an arbitrary 10 seconds of song, and match it against who knows what kind of database successfully is simply amazing to me. This wasn’t a top 40 hit. Now the fact that recorded music can be reproduced identically helps, vs a birdcall recognizer I once saw that had a pretty impressive hit rate given the challenges. Somehow the speed at which it can do the lookup, and the amount of data it must be indexing against, well, makes me lose my chuckling confidence that of course the government isn’t filtering all our email. Because if there’s the data and processing power to do this song matching stuff for free, I’m not sure I can imagine what can be done with serious dollars and determination.

The Ranger, the Author and the Business Consultant

We spent our 2007 wedding anniversary at Yosemite National Park, viewing giant sequoias and fabulous stone vistas. We had the good fortune of a tour courtesy of a park ranger which included a discussion of how Sequoias reproduce. Each tree produces hundreds of pinecones, and each pinecone produces hundreds of seeds, but over the life of the Sequoia maybe one or two will actually grow into another tree. Our friend the ranger pointed out that such wide seed distribution was very non-capitalist – a huge investment for a small result. At the same time, that investment supports an entire ecosystem – squirrels who eat pinecones, birds who eat seeds.

In our Creativity in Business class for BGI, we did some reading around how to create an atmosphere that supports innovation, and one aspect of an innovative company is that its budgeting process is “leaky” – there are opportunities for motivated individuals to cobble together resources within the company to run small demonstration projects prior to getting official approval needed for those projects to officially be part of the budget.

In March of this year I heard Phillip Palaveev of Moss Adams talk to the CFA society about the growth of the Advisory Firm industry. He noted that while there’s been growth overall, some firms have grown significantly more than others. He made the point that for a firm to be positioned for growth, people can’t be working at 95+% productivity because when opportunity knocks at their door, they’re too busy to answer it. If you want to position yourself for opportunity and growth, you have to have slack in the system.

My conclusion: Inefficiency Is Good!

Land, Capital & Gentrification

I’m back to reading a book called Manhattan For Rent, 1785-1850, by Elizabeth Blackmar. I overheard intellectual greats Peter Kinder and Joy Anderson discussing their favorite books at a conference a year ago and made notes. This book helps shed important light on gentrification. “Far from fulfilling the egalitarian potential of abundant land distributed to independent proprietors, the neutral market had carried a new class dynamic into the process of residential neighborhood formation, and it persisted throughout the rest of the century. This dynamic rested on three conditions: the artificial scarcity created by concentrated ownership of vast stretches of vacant land; the structure of the competitive housing market and particularly the purchasing power that permitted elite New Yorkers to claim particular blocks for their exclusive use; and the diminishing power of mechanic families to acquire property –in other words, the power of property to reduce the value of labor.” … “Propertied New Yorkers’ control of the land supply and ability to determine effective demand raised the price of proprietary independence for the city’s artisans.” like us still today, they “seldom directly confronted the question of what these housing issues had to do with the larger structures of social power.” And instead, over time, we’ve made poverty synonymous with immorality and thus conveniently and circularly deserved.

This first section really got me thinking about land and capital. I really don’t believe in classic supply and demand and “fair” pricing – there’s just too much friction. The first concrete example I found prior to this book was apartment pricing – when the market is overbuilt, rents don’t go down in clean response to the market, because it turns out the rent pricing is built into the financing when the building is built. Instead, owners offer “concessions” like free services or discounted move in costs. With both land and capital, there’s not the same supplier pressure to negotiate as there is with a product that can lose value like technology, fashion, food or events, all of which have a time-value. People talk about the “time value of money” and certainly inflation creates some pressure, but once you have an excess of capital (or land) beyond that which you need to live, you have a negotiating power that can alter the market rather than merely participate in it. That’s what was happening on Manhattan in around 1800, that landowners who controlled vast stretches of usable land, sat on it while prices drove up on what land was available in the marketplace, and then parceled it out at high prices. I also see a dynamic of a dysfunctional market because of capital that doesn’t “need to work” in angel investing.

I got busy with school, but I picked the book back up again recently, and hit the phrase where she refers to the shift of land being allowed to circulate as capital. It seems like this is a key to gentrification – that government became funded by property taxes and thus property owners gained greater say in government, and then amenities like water, sewer & parks became funded via property taxes, so they would only be put in if a corresponding increase in property values justified their cost. The book talks about a period of park establishment, and how landowners in low-rent neighborhoods resisted creation of a park because it would have required taking some of their property, and they didn’t think they could raise rents enough to justify it. Where they could raise rents, the poor were left with nowhere to go.

It makes me think about Hernando De Soto and his book (The Mystery of Capital) on how lack of clear land titling prevents folks in Latin America from building fortunes because they can’t effectively use land as capital. He advocates for fixing that, and many people (both right & left) think he’s a genius. But it suddenly strikes me as the perfect example of how a few will gain significantly financially – those who establish clear titles and take control, at the expense of the current proprietors & residents (who will be recategorized as squatters or forced to pay new rents). I wonder if there’s a “homelessness” problem in Peru – one of the countries Hernando De Soto talks about. Contrast that lack of clear title and people setting up shops & homes where they can, with privatized public space like 2200 Westlake (not that I have a particular issue with them, but it was recently built and is close to me). I suppose there would be (and have been) homes and small businesses in odd lots in Seattle if we were not now doing regular shakedowns of this clearly titled property in the name of its owner “The Public”.

In the first paragraph where I quote from the book, there was one more point that I’ve been chewing on, and that is the point that property owners could keep renting proprietors from making the leap to being owners themselves by keeping rents sufficiently high. Sometimes there’s market pressure to compete on rents, but the overall goal to maximize return leads most property owners to effectively work together because keeping the property market tight benefits both eventual sellers and current landlords. So as long as there’s no pressure to make land be economically productive, very wealthy owners can continue to hoard it as a resource, benefiting property owners as a class at the expense of non-property owners as a class. My next thought, is that market pressure to compete comes from a hungry rising class, which is disappearing in our hourglass economy and thus making it easier for the wealthy segments to use capital as negotiating power and not need to compete.

Participatory Democracy

The Next Form of Democracy: How Expert Rule Is Giving Way to Shared Governance — and Why Politics Will Never Be the Same by Matt Leighninger (Author)

I attended a lecture at Portland city hall, basically book tour for this book, Wed April 30th 6pm. It was great!

Matt is the executive director of the Deliberative Democracy Consortium and has been a consultant to the CDC, the Study Circles Resource Center, the National League of Cities. He also wrote: The Seven Deadly Citizens: Moving From Civic Stereotypes to Well-Rounded Citizenship
The Good Society - Volume 13, Number 2, 2004, pp. 33-38

Matt started with the quote: “an expert = someone from out of town”. He started out working for a foundation on community engagement issues, began working across communities and sharing lessons across communities. He sees the same problems over and over again. One of those problems is the relationship between citizens and their government.

• Past to current: there’s a parent-child relationship (attitude?) between government and citizens
• Future: citizens want an adult-adult relationship

He sees that government representatives experience citizens as either absent or angry. Officials want to be respected & trusted, and citizens want to be heard. Citizens are also seeking social connection. Non-profits often work to fill the gap, but are many single-issue/focus groups competing for community involvement and attention, resulting in a very fragmented effort which is overwhelming to citizens. His phrase: we need “mixed-use public involvement” (like mixed-use land development). How he sees engagement happen now:

• Temporary projects - last 6-12 months, people get engaged and then disband.
• Permanant structures - neighborhood councils etc, but these can fail to provide true recruitment/engagement [enrollment is the word I'd use - SM]

Matt believes we need to combine the two.

He identifies 4 key principles for success:

• 1) recruitment [enrollment] - reach out and engage people where they are and through what they’re already involved in.
• 2) combine small-group (dialog, action planning, real work) with large-group (inspiration, amplification, reinforcement of collaboration) work.
• 3) build relationships: folks need time to compare values & experiences, and then need to consider a range of views & options for solutions to identified issues.
• 4) combine different levels of change - immediate volunteer participation, organizational change, policy change.

He then reviewed a few Mini Cases
problem: land use - people are looking for control over their surroundings, issues are contentious and difficult
solution: “neighbors building neighborhoods” in Rochester, NY.
NBN uses NeighborLink Online to let neighbors see benchmarks & current measurements, GRUB - greater rochester urban bounty is a urban farm project. Is it successful? rochester keeps losing tax base to neighboring areas and has had to cut funding so maybe not?

problem: race & segregation
solution: “Lee County Pulling Together”
Started from a church having community dialogues. Ended up identifying a need for more services in a low income neighborhood and getting a shopping center built. Key Lesson: sharing the responsibility of governance means sharing our differences.

problem: citizens becoming anti-vaccine and not trusting government
solution: “what to do about the flu?”
study circles of citizens examine vaccination challenges in pandemic situations and make recommendations to local government for emergency planning. gets people educated about the issues.

solution: “community chat” became “village foundation”
Neighbors coming together to talk about shared issues eventually began developing ways to meet those needs from within the neighborhood: neighborhood watch, got a neighborhood school established.

The Future
-We need to update legal frameworks, open meeting laws and advisory requirements have become barriers to meaningful commmunity involvement though their goals were open-ness and transparency. In the LA area in particular things have gotten problematic
-Engagement needs to combine the social and cultural with the political to be meaningful for people.
-Need to follow the 4 key principles

the goal: community engagement that is equitable, egalitarian, efficient, deliberate and decisive

There were a number of Q&As, most specific to Portland, but one answer he gave particularly caught my attention as matching a feeling I’ve had:
Q- youth engagement?
A - Sometimes youth projects have a flavor of passing the buck: “We can’t solve racism in our generation so let’s get the next generation to do it”. Cross-generational projects are great, but you’ve got to have youth leadership if you want to have youth engagement.

I also found this answer intriguing:

Q - what about government & race issues?
A - there’s an unintended legacy of the “I have a Dream” speech which is the idea that questions of difference can be resolved and there’s a promised land where we no longer have issues and we just all live happily together. The reality is that differences are always going to be there as both an opportunity and challenge; the role of government needs to be that of continually facilitating constructive engagement around differences and helping us move forward.

and these are all very sensible advice

Q - facilitation & meeting planning
A - definitely facilitation is a needed skill, people need training. the Rochester project has a training academy that trains citizens & civic servants together, so they build relationships as well as skills. Robert’s Rules are a pain, Robert can get lost. What matters: ground rules, safe space, experience & story sharing, ranges of options to choose from.

Q- how to engage the working class?
A - you need to reach out to them, be flexible on times & locations (church basements, hair salons). emphasize content that is meaningful and relevant, ensure their participation is genuine and not token, make sure they’re heard. Shorter meetings aren’t the answer, everyone is busy, it’s about making it worthwhile, so longer might be better.

Q - Donna Beagle, local expert on poverty, says to emphasize relational connections and avoid being place-based because populations are too mobile. how to deal?
A - Focus on what people belong to, what networks or groups. Have meeting structure but don’t be rigid - facilitate & follow what they want.

Q - meeting structure advice?
A - tie back again to “must include social & cultural with political”. Meet at local schools where people can see the kids school projects hung up, catch up with their neighbors and eat. Mix up the content, so have working monthly meetings but every 6 months its a big celebration with minor report-out, to have broader appeal. attach to a social event like the weekly football tailgate party - have 30 minutes of neighborhood meeting beforehand. Small group work, large group punctuation

Q - running government as a business
A - Runs government into the ground. simply can’t make everything into a fee-for-service. need to confer legitimacy on citizen participation. this is where open meeting laws get tricky, citizens don’t feel valued, but personal process isn’t super open & transparent. Challenge!

I definately recommend his book, there’s more there. He has an interesting chapter where he talks about Saul Alinsky and how classic community organizing focuses on building a power base outside of government and holding negotiations, very much a “government is them” approach as opposed to the participatory approach he believes we are capable of today, particularly supported by technology. It’s easy to dismiss that as unfair because of a “digital divide”, but I’ve seen interesting programs for serving the disadvantaged that used technology as infrastructure to support local human beings who provided the ultimate interface, and that struck me as a smart way to combine technology and touch.