The average poverty rate for American inner cities is 32 percent, which is more than double the national U.S. rate. One way forward for these struggling urban centers is to encourage collaboration among locally-operated businesses, Northeastern law professor Rashmi Dyal-Chand argues in a new book.
“The book describes a model of business success that is working and that will help more small businesses in the urban core survive,” says Dyal-Chand, author of Collaborative Capitalism in American Cities: Reforming Urban Market Regulations. “What is really important to me is the impact on the neighborhood and the workers who are involved with these businesses.”
Her book focuses on three collaborative business networks: Cooperative Home Care Associates and its sister organizations in the Bronx, New York, which includes the largest worker-owned cooperative in the U.S.; the rehabbing businesses supported by ShoreBank of Chicago, which had been thriving before it succumbed in 2010 to the Great Recession; and a social enterprise cluster that has developed in Austin, Texas, around the Southwest Key Programs.
“The thing that excites me about the collaborative business network model is that it distributes more income to the local workers who are involved in the businesses, which produces meaningful economic development at the local level,” Dyal-Chand says. “It also leads to immediate benefits for the neighborhood by providing needed products and services.”
You invested three years in this book while traveling the country and interviewing more than 50 people. What was your inspiration for taking on this project?
My students were my source of inspiration. I taught a course on local community development for several years, and my students every year said, “This is the most depressing course we take in law school. You describe so many things that have been attempted by good-hearted, well-meaning people that have failed. Can you give us some examples of success?”
I thought it was a very good and appropriate challenge.
Why has capitalism become a controversial topic on the campaign trail?
We are in a time of celebrating capitalism and its virtues, but we’re also confused by it: We see some of the more-progressive Democratic candidates pushing on the question of how valuable is capitalism for everyone in this country?
Not only does capitalism have different forms around the world, but also in this country—and we need to understand that.
On one side of the spectrum is the archetypal example of the U.S. national economy, which is a competitive or “arms-length” form of capitalism. It is the dominant system of capitalism here: As much as can be privately-owned by individual businesses and leveraged as privately-owned assets or property, the better. That’s what allows businesses to succeed and compete in the marketplace against each other.
On the other side, countries like Germany and Japan have cooperative market economies, which include practices that actually violate our antitrust laws. In those countries you see businesses in an industry working much more closely together.
They have common sources of financing. Many times the board members of each business are on the others’ boards. They have very robust trade associations. They cooperate to share key resources while also competing against each other in the marketplace.
Your book focuses on three successful urban business networks: Do they have more in common with the “sharing” model of Germany and Japan?
The answer is yes, but those urban businesses are also different by virtue of being local. I create my own term for a form of capitalism that is local, and I call it collaborative capitalism.
It is really essential, in these three examples, that there are local stakeholders involved—local businesses, employees, and sources of financing. It’s a really different kind of thing than the idea of distant shareholders controlling a business from far away. In each of these examples, one of the things that really defined their success is the ability to find and capture a market niche. The niche is also locally defined.
Could the new “gig economy” help drive this point of view?
We have this thing called the sharing economy—the gig economy—that is thriving. We could use regulation to help the next generation of sharing-economy businesses to actually share.
By sharing, I’m talking about the sharing of critical resources among a group of businesses that otherwise are not affiliated by virtue of ownership or board membership. They are independent. They’re joined by robust trade associations or by virtue of working together, sharing office space, customer information, financing sources. They are sharing resources in such a way as to reduce the costs that have to be internalized by each of these businesses.
What can lawmakers do to help renew businesses in the inner city?
In the U.S., many of our laws support a very particular type of capitalism. But it’s not the type that we’re seeing succeeding in the urban cores.
Lawmakers need to understand and think more about what is happening on the ground in these cities in terms that move beyond the broader labels of capitalism.
The biggest lesson by far is to look for examples of business development that don’t match the patterns that we see for companies that end up being successful dot-coms or Fortune 500s or Fortune 100s. Look for businesses that are actually surviving on the ground and figure out ways to support these businesses—these sharing businesses.
Then the work for lawmakers is to reform the range of laws that support our competitive form of capitalism by doing things like amending zoning laws to support sharing of space as well as resources, amending antitrust laws to allow more explicit sharing without being seen as anti-competitive, and amending banking laws to allow financial institutions to support local business networks without violating safety and soundness requirements.
It’s not hard to do this, once we recognize the patterns that are developing. It would be a dream come true for me to see just those three things happening.
But it’s also possible for lawmakers at state and local levels to mix and match what’s right for their particular context, and find the right combination of things that will really intervene in the local market in such a way as to more explicitly create space for sharing. So what lawmakers need to do is to get certain laws out of the way, clear the space, and then really just sort of provide fertile soil for letting the sharing happen.