November 25, 2012
Workers Self-Directed Enterprises and “Eminent Domain”

A frequent question that arises about WSDEs concerns whether and how existing laws might help to create and support them. In both economic and political terms, existing laws on eminent domain in the US (and in other countries as well) provide positive answers to that question.

Eminent domain refers to laws enabling government – at local, regional, and/or national levels – to compel the owners of specific private property to sell that property to the government. The government is usually required to (1) justify such a compelled transaction on the grounds of the benefit to or welfare of the community as a whole, and (2) provide reasonable compensation for the property to its private owner. Typical examples include land (e.g., purchased for the construction of public buildings such as schools), land plus buildings (e.g. purchased for the construction of public transportation), and entire city blocks (e.g., purchased for clearing to make room for private or public “economic development” projects).

An important example for WSDE purposes is the use of eminent domain by US cities for purposes of “economic development.” Such cities often purchased “slum,” “blighted,” or other depressed areas (land and buildings), cleared them, and then sold them to private developers who agree to build specific combinations of commercial and residential units in those areas. The community benefits cited to justify such eminent domain purchases included the elimination of dangerously under-maintained buildings, reduction of crime and costs of policing, counteracting drop in property values of surrounding properties, inducing private property developers to rebuild upon and thereby improve the purchased properties, providing jobs in demolition and construction and in viable enterprises located on the “re-developed” properties, and providing increased tax revenues to the government from such redeveloped properties.

In simplest terms, such cities purchased depressed property at relatively low prices – often lower than what any private purchaser would have had to pay –and paid to clear the property and ready it for resale to private developers. Once cleared, such property would be resold, often at below-market prices, to developers. In effect, such cities thereby subsidized the buyers of such properties seized via eminent domain. The costs to the city saved by such transactions plus the increased tax revenues when they were successful offset the costs to the city associated with the eminent domain purchase and subsequent resale.

The economics of such eminent domain transactions under the law would be similarly available in and for communities with such “depressed” properties with resale aimed at WSDEs. Thus, for example, groups of workers interested in forming a WSDE (and perhaps supported by local labor unions, churches or other organizations with some resources) would quite reasonably be entitled to the same sort of eminent-domain-based subsidy. Either on their own or included in other packaged “development projects,” WSDEs could and should be able to participate in the benefits of the subsidies involved.

The political benefits of WSDEs begun or expanded via eminent domain transactions are likewise numerous. Unlike in capitalist enterprises, all the revenues of WSDE’s are received and spent by locally resident workers. That is, WSDEs pay a smaller portion of enterprise revenues (or none of them) to distant shareholders, corporate headquarters, top executives, etc. That fact allows local politicians to justify eminent domain purchases for WSDEs by saying they maximize their net possible local employment effects. Often, WSDEs may be the only viable local employers interested in depressed areas. Politicians would then gain the same political benefits from eminent domain operations securing WSDE employment as any other kind of employment.

Another benefit of WSDEs for politicians that recommend eminent domain transactions for them is the following: WSDEs are typically much more locally based than their capitalist counterparts. That means they are more likely to know, trust, and have developed relationships with local vendors from whom to buy inputs and needed services and to whom to wholesale their outputs. The local politicians who deploy eminent domain will thus get the most local political benefit from WSDE-type enterprises: a promising political synergy for both sides. Moreover, strong local political support for eminent domain-WSDE collaborations would yield improved opportunities for local credit and other supports as well.

A possible ideological argument might also be advanced. For example, a politician who wanted to advocate for alternative enterprise organizations could use eminent domain to support WSDEs on the grounds that local citizens would thereby acquire two new freedoms of choice. First, buyers could choose between products produced in capitalist enterprises and those produced instead by the new local WSDEs. Second, local citizens could choose between employment in local capitalist enterprises and local WSDEs. To take another example, a local politician could advocate WSDEs – with or without eminent domain transactions involved – on the grounds of their inherent democracy, as institutions that should co-exist in the economy. In other words, where local politicians are otherwise committed to democracy, establishing WSDEs via eminent-domain transactions are an important new way for such politicians to advance their cause (and build local support institutions for themselves qua politicians at the same time).

Argentina is an example where eminent domain was so important and effective in local jurisdictions after the economic crisis of the early 1990s that pressure mounted for the successful passage of national legislation in 2011 to enable eminent domain to be used for worker cooperatives nationally. The remarkable success of worker cooperatives in Argentina shows the important contribution to building WSDEs that eminent domain can play if and when opportunities and pressures to do so can be mobilized.

Finally, below are two draft ordinances or laws that municipal or state legislatures could debate, revise and/or pass that would facilitate the use of eminent domain by relevant official authorities to enable and foster WSDEs within their jurisdictions. Of course, parallel or complimentary legislation could be passed at the national level. By itself or in conjunction with legislation providing technical, financial, or other supports for WSDEs, such eminent domain ordinance and laws could achieve significant steps toward economic democracy.

Draft sample ordinances/laws for a city or state legislature:

1.     Economic Development and Workers Self-directed Enterprises. All economic development or redevelopment projects initiated or engaged in by official authorities in this jurisdiction shall seek to include and include workers self-directed enterprises alongside other enterprise organizations (e.g. corporations, partnerships, self-employed, etc.). In particular, use of eminent domain will be made available as needed (and where justified as per eminent domain legislation generally) for such workers self-directed enterprises just as for other kinds of enterprise organizations.

2.     Eminent Domain and the Promotion of Workers Self-directed Enterprises. Where official authorities see community benefit from diversifying types of enterprise organization within a municipal or state economy, they may use eminent domain to enable, encourage, and support the formation of workers self-directed enterprises alongside the existing set of corporations, partnerships, self-employed and other types of enterprises.