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Credit union participation in community based economic development Eberle, Margaret Patricia 1987

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CREDIT UNION PARTICIPATION IN' COMMUNITY BASED ECONOMIC DEVELOPMENT By MARGARET PATRICIA EBERLE B.A., C a r l e t o n U n i v e r s i t y , 1982 A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS in THE FACULTY OF GRADUATE STUDIES School of Community and R e g i o n a l P l a n n i n g  We accept t h i s t h e s i s as conforming to the r e q u i r e d standard  THE UNIVERSITY OF BRITISH COLUMBIA A p r i l 1987 ©Margaret  P a t r i c i a E b e r l e , 1987  In  presenting  degree at  this  the  thesis  in  University of  partial  fulfilment  of  British Columbia, I agree  » freely available for reference and study. I further copying  of  department  this or  publication of  thesis for by  his  or  her  representatives.  requirements that the  for  an advanced  Library shall make  it  agree that permission for extensive  scholarly purposes may be It  is  granted  by the  understood  that  head of copying  my or  this thesis for financial gain shall not be allowed without my written  permission.  Department The University of British Columbia 1956 Main Mall Vancouver, Canada V6T 1Y3  DE-6(3/81)  the  ABSTRACT L o c a l B.C. communities f a c i n g h a r d s h i p i n the context of g l o b a l r e s t r u c t u r i n g and reduced demand f o r primary resource commodities, have i n c r e a s i n g l y turned to community economic development These community  based  (CBED) to strengthen t h e i r l o c a l  based s t r a t e g i e s d i f f e r  economies.  from p l a c e to p l a c e but  e s s e n t i a l l y aim to expand the l o c a l economy through s o c i a l l y and c u l t u r a l l y d e s i r a b l e development, u t i l i z i n g  l o c a l r e s o u r c e s , and  under some form of l o c a l c o n t r o l . However there are numerous o b s t a c l e s to undertaking CBED, one of which i s a l a c k of f i n a n c i n g . C r e d i t unions are community  based f i n a n c i a l  i n s t i t u t i o n s which would appear to be l i k e l y p a r t i c i p a n t s i n a process of community significant  financial  based economic development. They possess r e s o u r c e s , and share with CBED a common  philosophy of economic s e l f - h e l p , and an o r i e n t a t i o n towards the local  community. The p o t e n t i a l f o r c r e d i t union p a r t i c i p a t i o n  i n community  based economic development i s the s u b j e c t of t h i s t h e s i s . A three p a r t methodology was  followed with p a r t i c u l a r r e f e r e n c e to  major a s p e c t s of the i s s u e . F i r s t , a review of the l o c a l economic development l i t e r a t u r e p o i n t e d to the importance of f i n a n c i n g , management advice and l o c a l c a p a c i t y to develop i n the CBED p r o c e s s . The experience of CBED o r g a n i z a t i o n s i n o b t a i n i n g a s s i s t a n c e from c h a r t e r e d banks and f e d e r a l  government  programs such as L o c a l Employment A s s i s t a n c e Development  (LEAD)  demonstrates that there are s i g n i f i c a n t gaps i n support. An a l t e r n a t i v e such as the c r e d i t union i s needed.  The c r e d i t union system was examined to determine i f indeed t h i s community based c o o p e r a t i v e f i n a n c i a l i n s t i t u t i o n holds some promise to a s s i s t CBED, and what f a c t o r s p r e s e n t l y a c t to constrain  such p a r t i c i p a t i o n . There are two fundamental  o b s t a c l e s to c r e d i t union p a r t i c i p a t i o n i s a lack  i n CBED. F i r s t l y , there  of w i l l on the part of c r e d i t unions t o become  i n v o l v e d i n CBED based on d e c l i n i n g  member commitment t o c r e d i t  union p h i l o s o p h y . Secondly, c r e d i t unions a r e p r e s e n t l y to r e c o n c i l e  h i g h l e v e l s of r i s k inherent  with t h e i r non-profit structure. the  potential  interest  benefits  unable  i n l e n d i n g f o r CBED  E d u c a t i n g c r e d i t unions as to  a r i s i n g from CBED may heighten t h e i r  in participating  i n CBED and there are mechanisms the  c r e d i t union can employ t o reduce r i s k . Furthermore, unions can p l a y some important n o n - f i n a n c i a l CBED, which a l o c a l o r i e n t a t i o n  roles  credit  i n support of  and c o o p e r a t i v e decision-making  framework can enhance. The e m p i r i c a l  portion  of the r e s e a r c h documented the CBED  i n i t i a t i v e s of Nanaimo D i s t r i c t C r e d i t Savings C r e d i t  Union. I t demonstrated  Union and Vancouver firstly,  that  City  there i s  i n t e r e s t among i n d i v i d u a l c r e d i t unions w i t h i n the c r e d i t union system t o p a r t i c i p a t e secondly, that  i n CBED, at l e a s t  c r e d i t unions have tended t o follow  business development  a marginal  s t r a t e g y i n support of CBED i n t h e i r  r e s p e c t i v e communities; alternative  i n an incremental way;  and t h i r d l y , there are a number of  roles, strategies  and i n s t i t u t i o n a l arrangements f o r  doing so. Based on t h i s review of the major experience of two c r e d i t unions c u r r e n t l y  i s s u e s and the  participating  i n CBED,  iv  i t appears that c r e d i t unions do h o l d some p o t e n t i a l an a l t e r n a t i v e source of community c a p i t a l and e x p e r t i s e f o r community based economic development, but at present appear t o l a c k the p h i l o s o p h i c a l b a s i s  f o r doing so, and furthermore,  some c o n s t r a i n t s to p u r s u i n g a f i n a n c i a l r o l e i n CBED.  face  V  TABLE OF CONTENTS  ABSTRACT  ii  TABLE OF CONTENTS LIST OF TABLES LIST OF FIGURES  v ix x  1. INTRODUCTION AND BACKGROUND Research Questions  2  D e f i n i n g Community Based Economic Development  4  Community Based Economic Development S t r a t e g i e s  9  The Impetus f o r Community Based Economic Development  13  De-industrialization  13  Regional Development P o l i c y  16  Community Development  18  Methodology and O r g a n i z a t i o n  21  2. LITERATURE REVIEW Introduction Definitions  24 25  L o c a l Economic Development as Community Based Economic Development Critiques  of T r a d i t i o n a l Regional Development Theory  28 29  N e o - c l a s s i c a l Theory  29  Growth Pole Theory  30  S t a p l e s Theory  31  Sources of Community Based Economic Development  32  vi  Human Resources  33  Local Control  34  Obstacles  to Community Based Economic Development  Information  and Management Advice  37 38  Financing  38  Local Capacity  39  Summary and I m p l i c a t i o n s f o r CBED  40  3. PROBLEMS FACING COMMUNITY BASED ECONOMIC DEVELOPMENT ORGANIZATIONS The Experience Chartered Regional Government  of CBED O r g a n i z a t i o n s  42  Bank Lending to CBED O r g a n i z a t i o n s I m p l i c a t i o n s of Bank Lending  45 53  Programs f o r Community Based Economic  Development L o c a l Employment  57 A s s i s t a n c e Development  (LEAD)  Explained  58  Short Term Job C r e a t i o n v s . Permanent Job C r e a t i o n  61  Assessment of the LEAD Program  63  Summary  67  4. CREDIT UNIONS The C r e d i t Union H i s t o r y and Philosophy  70 of C r e d i t Unions  70  Growth of the C r e d i t Union Movement  75  C r e d i t Unions Today  77  S i z e of the C r e d i t Union System  81  vii  Issues F a c i n g C r e d i t Credit  Unions i n the 1980s  86  Unions and Community Based Economic Development  Nature of C r e d i t Union P a r t i c i p a t i o n Rationale f o r Credit  i n CBED  Union P a r t i c i p a t i o n  C o n s t r a i n t s t o C r e d i t Union P a r t i c i p a t i o n  89 91  i n CBED i n CBED  Summary..  92 98 103  5. A REVIEW OF CREDIT UNION EXPERIENCE WITH CBED Introduction  -  Methodology Assessment  1 06 1 08  of CBED I n i t i a t i v e s  Nanaimo D i s t r i c t  112  Savings C r e d i t  Union,  112  Community Ventures Account  113  Colville  116  Vancouver  Investments C o r p o r a t i o n  C i t y Savings C r e d i t  Union  122  Seed C a p i t a l P r o j e c t  127  E t h i c a l Growth Fund  127  Some Concluding Remarks Typology of I n s t i t u t i o n a l Arrangements  131 134  6. SUMMARY AND CONCLUSIONS Summary of F i n d i n g s  136  Conclusions  1 38  F u r t h e r Research  144  Proposals  1 46  viii  BIBLIOGRAPHY  APPENDIX  . 1 49  A. Other C r e d i t Union I n i t i a t i v e s  155  B. L i s t of Persons Interviewed  161  C: Summary of F e d e r a l and B.C. Government Programs of Use i n CBED  163  ix  LIST OF TABLES  1.  Unemployment Rates by P r o v i n c e  15  2.  Source of CBED F i n a n c i n g  46  3.  Financial  I n s t i t u t i o n s Used Most f o r Small Business  Lending 4.  48  S a t i s f a c t i o n with S e r v i c e P r o v i d e d by  Financial  Institution  49  5.  C h a r t e r e d Bank S t a t i s t i c s  1973  55  6.  C r e d i t Union Growth Canada 1900-1981  76  7.  L o c a l C r e d i t Union Loans Outstanding - Canada  78  8.  C r e d i t Union Membership P r o f i l e  85  9.  CFIB Survey R e s u l t s by F i n a n c i a l  Institution  94  X  L I S T OF  1.  Structure  of T y p i c a l  2.  Credit  3.  Total  4.  Institutional  FIGURES  CBED O r g a n i z a t i o n  Union System Assets  of S e l e c t e d  7 82  Financial Institutions  Arrangements  84 134  1  CHAPTER 1  INTRODUCTION The purpose of t h i s t h e s i s i s to examine the argument  that  c r e d i t unions should p l a y an expanded r o l e i n community based economic development financial  (CBED). C r e d i t unions a r e community based  i n s t i t u t i o n s that would seem to represent a l i k e l y  source of funds f o r CBED because they possess s i g n i f i c a n t f i n a n c i a l r e s o u r c e s , share a p h i l o s o p h y of s e l f - h e l p and a r e grass-roots, l o c a l  i n s t i t u t i o n s . Past community based economic  development e f f o r t s have had d i f f i c u l t y o b t a i n i n g adequate f i n a n c i n g f o r t h e i r endeavours e i t h e r through government programs or p r i v a t e sources. Furthermore, there i s some concern w i t h i n the c r e d i t union system and among community based economic development p r a c t i t i o n e r s that c r e d i t unions a r e not fulfilling  t h e i r r e s p o n s i b i l t y towards the l o c a l community. In  f a c t , s e v e r a l c r e d i t unions i n B.C. and elsewhere have  recently  demonstrated t h e i r commitment to t h e i r r e s p e c t i v e communities by establishing  i n n o v a t i v e s o l u t i o n s t o community  financing  requirements. The remainder of t h i s chapter i s d i r e c t e d  towards  e x p l a i n i n g the research q u e s t i o n s t o which t h i s study i s addressed, d e s c r i b i n g community based economic examining the r o o t s of CBED and the context  development,  i n which i t a r i s e s ,  and f i n a l l y , o u t l i n i n g the r e s e a r c h methodology and o r g a n i z a t i o n of the t h e s i s .  2  Research Questions Three l i n e s of i n q u i r y w i l l be f o l l o w e d i n order t o determine whether there i s a b a s i s f o r c r e d i t union participation  i n community based economic  development.  1) The f i r s t q u e s t i o n asks whether community based economic development  r e q u i r e s an a l t e r n a t e source of f i n a n c i n g such as  the c r e d i t union, and uses two approaches to answer question. F i r s t l y ,  this  three common b a r r i e r s to community based  economic development are i d e n t i f i e d through a review of the l o c a l development  l i t e r a t u r e : a) a lack of f i n a n c i a l  capital,  both debt and e q u i t y ; b) a l a c k of i n f o r m a t i o n and management a d v i c e ; and c) an absence of l o c a l c a p a c i t y f o r development. The latter  r e f e r s t o an ethos of development which p r o v i d e s the  necessary w i l l and i n s t i t u t i o n a l l i n k a g e s f o r i n t e g r a t e d development. Secondly, the r e c o r d of two s i g n i f i c a n t (or p o t e n t i a l l y s i g n i f i c a n t ) sources of CBED support, the c h a r t e r e d banks and a f e d e r a l CBED program c a l l e d L o c a l Employment A s s i s t a n c e Development,  i n reducing these b a r r i e r s i s a s s e s s e d .  With r e s p e c t t o the former, two l i n e s of enquiry are f o l l o w e d : what i s the r e c o r d of the c h a r t e r e d banks i n l e n d i n g t o community based economic development groups and what a r e the i m p l i c a t i o n s of r e g i o n a l d i s c r i m i n a t i o n on a p r o v i n c i a l b a s i s by c h a r t e r e d banks f o r CBED? The extent t o which both c h a r t e r e d banks and goverment  programs a r e able to reduce the  i n f o r m a t i o n a l and c a p a c i t y b a r r i e r s t o CBED i s a l s o  examined.  2) The second r e s e a r c h q u e s t i o n asks whether c r e d i t unions are w e l l - s u i t e d s u i t e d to p a r t i c i p a t e  i n CBED and to perform  3  specific  r o l e s to reduce the b a r r i e r s to CBED. The r e l a t i o n s h i p  between CBED and c r e d i t unions w i l l be examined through a review of the h i s t o r y and nature of c r e d i t unions with p a r t i c u l a r emphasis on philosophy and t h e i r l o c a l nature. A review of B.C. c r e d i t union s t a t i s t i c s shows that f o r the most p a r t they have not p l a y e d an a c t i v e r o l e i n CBED through new e n t e r p r i s e development, as they are engaged almost e x c l u s i v e l y  i n personal  and mortgage l e n d i n g . What c o n s t r a i n t s c u r r e n t l y operate t o i n h i b i t c r e d i t union p a r t i c i p a t i o n  i n CBED and a r e these  likely  to operate i n the f u t u r e ? I f there a r e c o n s t r a i n t s t o t h e i r involvement, does the c r e d i t union's philosophy of s e l f - h e l p and c o o p e r a t i o n , t h e i r l o c a l o r i e n t a t i o n and t h e i r s t a n d i n g as a secure f i n a n c i a l  i n s t i t u t i o n p r o v i d e a good b a s i s f o r a  community based economic development approach? 3) The t h i r d r e s e a r c h q u e s t i o n asks i f there i s e m p i r i c a l support to demonstrate  that c r e d i t unions a r e capable of p l a y i n g  a r o l e i n CBED. What has been the experience of c r e d i t  unions  p u r s u i n g a community based economic- development s t r a t e g y i n the p r o v i n c e ? To answer t h i s q u e s t i o n , evidence c o n c e r n i n g two c u r r e n t B r i t i s h Columbia  c r e d i t union i n i t i a t i v e s  i s presented  and analysed with p a r t i c u l a r a t t e n t i o n to t h e i r g o a l s , strategies,  i n s t i t u t i o n a l arrangements, and r e l a t i o n s h i p s with  other community o r g a n i z a t i o n s . Furthermore, attempt  t o determine  this section  will  i f they have they been s u c c e s s f u l i n  removing any of the o b s t a c l e s t o community based development, and i n meeting  economic  t h e i r s t a t e d o b j e c t i v e s . To f u r t h e r  t e s t the m e r i t s of c r e d i t union p a r t i c i p a t i o n  i n CBED, four  4  criteria  f o r a community  development f i n a n c i a l  i n s t i t u t i o n are  developed and a p p l i e d to the two examples. A b r i e f account of other c r e d i t unions i n Quebec,  the U.S. and Spain p r o v i d e s  f u r t h e r e m p i r i c a l evidence of c r e d i t union involvement i n CBED. I t should be s t r e s s e d a t the o u t s e t that l i t t l e has been c a r r i e d out on the p o t e n t i a l r e l a t i o n s h i p c r e d i t unions and community  research  between  based economic development;  t h e r e f o r e , t h i s t h e s i s should be viewed as e x p l o r a t o r y i n nature. L i k e w i s e , the d i s p a r a t e nature of the subject area and the f a c t that numerous f i e l d s of enquiry a r e pursued, means that it  i s not always p o s s i b l e t o do j u s t i c e t o each. With t h i s i n  mind, numerous suggestions r e g a r d i n g r e l a t e d research a r e presented i n the f i n a l  chapter.  D e f i n i n g Community Based Economic  Development  Community based economic development  (CBED) i s an ambiguous  term p o s s e s s i n g numerous meanings. As such i t i s necessary to c l e a r l y d e f i n e what i s meant by the term as i t i s used here. Community based economic development r e f e r s to an i n t e g r a t e d approach to development, one which encompasses  social,  cultural  and economic concerns, and which i s pursued by an o r g a n i z a t i o n with some measure of l o c a l community CBED a r e long term economic v i a b i l i t y  c o n t r o l . Thus, the goals of through " l o c a l l y based  s o c i a l l y and c u l t u r a l l y d e s i r a b l e economic a c t i v i t y and community  control."  (Wismer and P e l l  1984) A 1985 S o c i a l  Planning and Research C o u n c i l study r e p o r t e d that the s o c i a l values t y p i c a l l y found i n CBED o r g a n i z a t i o n s i n B.C. were  5  expressed through permanent  job c r e a t i o n , e n v i r o n m e n t a l l y sound  e n t e r p r i s e s and democratic work s t r u c t u r e s . The term s o c i o economic development  i s o f t e n used to d e s c r i b e CBED; i t  "suggests that economic a c t i o n s take p l a c e w i t h i n  social  p r i o r i t i e s , p r i o r i t i e s which a r e concerned with d i g n i t y , c h o i c e s , and e q u i t y . "  (Clague 1984) The o r i g i n a l  life  i n t e n t of  socio-economic development was that income g e n e r a t i n g  activities  would support s o c i a l aims; however i t i s not c l e a r whether  this  g o a l has been a c h i e v e d s i n c e many CBED o r g a n i z a t i o n s r e l y on government  funding. L o c a l s e l f - r e l i a n c e at the community  level  i s o f t e n the intended outcome of CBED while s e l f - s u f f i c i e n c y i s the  aim of the CBED o r g a n i z a t i o n , the l a t t e r meaning  from government  funding f o r day to day o p e r a t i o n s .  freedom (Highland  Resources 1983) The term community based economic development can be b e t t e r understood be breaking i t down i n t o i t s component p a r t s . Community may be viewed i n two ways; f i r s t  as a g e o g r a p h i c a l l y  d e f i n e d area, such as a small town or urban neighbourhood; and secondly, as a community of i n t e r e s t which might c u t a c r o s s s e v e r a l g e o g r a p h i c a l boundaries, but represent people of a common background, p r o f e s s i o n , sex, or e t h n i c  group.  1  Furthermore, some form of attachment t o the community or commonality  in social action  i s u s u a l l y s p e c i f i e d . According to  'Notable examples of CBED a r i s i n g from a community of i n t e r e s t are women's p r o j e c t s such as Emma's Jambrosia i n the Kootenays, and n a t i v e development s t r a t e g i e s which might encompass both a g e o g r a p h i c a l community and a community of i n t e r e s t , such as the N i c o l a V a l l e y Indian Band.  6  Chekki  (1979) a geographic  community  is:  . . . A s o c i a l system composed of people l i v i n g in some s p a t i a l r e l a t i o n s h i p to one another, who share common f a c i l i t i e s and s e r v i c e s , develop a common p s y c h o l o g i c a l i d e n t i f i c a t i o n with the l o c a l i t y symbol and together frame a communication framework. In CBED i t  is generally  psychological be developed 'community'  understood that  identification"  some form of  i s present  at the o u t s e t or w i l l  in the course of the p r o c e s s . is  development,  The m o d i f i e r  important i n the term community based  s i n c e community c o n t r o l  "common  economic  i s an c r i t i c a l component  of  CBED. The  level  of commitment to the community and the degree of  l o c a l c o n t r o l vary enormously among CBED o r g a n i z a t i o n s enterprises. that  However, some measure of c o n t r o l i s necessary in  the n o t i o n of community input i s what  CBED from t r a d i t i o n a l economic aim  to  increase  development  economic development  no concern for the a c t o r s different  and  distinguishes efforts.  The l a t t e r  in a p a r t i c u l a r area with  i n v o l v e d or the consequences  for  segments of the p o p u l a t i o n . An umbrella o r g a n i z a t i o n ,  governed by a board of d i r e c t o r s composed of e l e c t e d or appointed community r e p r e s e n t a t i v e s community c o n t r o l in p r a c t i s e . s o c i e t y with s e v e r a l which f u l f i l l  illustrates  functions  society.  usually a non-profit some p r o f i t - m a k i n g ,  r e l a t e d to the g o a l s of  the  The diagram in F i g u r e 1  the s t r u c t u r e of a t y p i c a l umbrella o r g a n i z a t i o n  engaged in CBED which i s Development  is  the most common form of  arms or s u b s i d i a r i e s ,  different  community development  It  is  Corporation  s i m i l a r to that of the Community (CDC) employed by  7  FIGURE TYPICAL  1  CBED U M B R E L L A O R G A N I Z A T I O N  8  community o r g a n i z a t i o n s i n the U.S. making arm of the CDC may  e i t h e r own,  i n the 1960s. The  profit-  or f a c i l i t a t e the  formation o f , small b u s i n e s s e s , producer or consumer c o o p e r a t i v e s , and other  activities.  The n o t i o n of development i s p i v o t a l to an understanding of CBED. (The l i t e r a t u r e uses the terms 'development  and  1  'economic  development' i n t e r c h a n g e a b l y . ) In the context of the l e s s developed c o u n t r i e s , the term development has evolved over time, but has most commonly been a s s o c i a t e d with economic growth. A c c o r d i n g to the n e o - c l a s s i c a l framework,  the a p p r o p r i a t e  for p o l i c y  income. The b e n e f i t s  i s growth i n GNP  or per c a p i t a  of growth are expected to " t r i c k l e down" from those or f i r m s which experience r i s i n g who  incomes to those  focus  industries  individuals  e x i s t at s u b s i s t e n c e l e v e l s . However, the meaning of  development has s h i f t e d over time to e x p l i c i t l y  include  socio-  economic o b j e c t i v e s such as d i s t r i b u t i o n of income, b a s i c human needs, s e l f - r e l i a n c e and c u l t u r a l development, r e c o g n i z i n g  that  they do not simply occur as a r e s u l t of economic growth. Dudley Seers (1969; 1977) t r a c e d t h i s e v o l u t i o n of the meaning of development q u i t e s u c c i n t l y . In an e a r l y a r t i c l e on the s u b j e c t , he p o i n t s out that "economic growth may  not merely f a i l  to solve  s o c i a l and p o l i t i c a l d i f f i c u l t i e s ; c e r t a i n types of growth can a c t u a l l y cause them." T h e r e f o r e , development does not occur u n l e s s i n e q u a l i t y , unemployment and poverty d e c l i n e with economic growth, that i s , r e d i s t r i b u t i o n with growth. In 1977, Seers re-formulated the term development to i n c l u d e  self-  r e l i a n c e , both economic and c u l t u r a l , as an e s s e n t i a l element.  9  In Friedmann and Weaver's (1979) words: " a c u t t i n g or at l e a s t s e v e r i n g of the u m b i l i c a l cord that t i e d a c o u n t r y ' s f a t e to the world of the t r a n s n a t i o n a l . " Moreover, a c c o r d i n g expanded d e f i n i t i o n development  extension  this  of  s t u d i e s to a l l c o u n t r i e s , e s p e c i a l l y those s u f f e r i n g  from c h r o n i c development  implies a geographical  to Seers,  i n f l a t i o n and unemployment. Thus, the economic l i t e r a t u r e which focusses  p r i m a r i l y on development  at a n a t i o n a l s c a l e , e x h i b i t s a c o r r e s p o n d i n g tendency toward i s s u e s of c o n t r o l and s e l f - r e l i a n c e found i n the community economic development  l i t e r a t u r e . For the purposes of t h i s  t h e s i s , economic development process"  i s d e f i n e d as a  "multi-dimensional  which i n v o l v e s changing s o c i a l s t r u c t u r e s , popular  a t t i t u d e s and i n s t i t u t i o n s as w e l l as economic growth. (Todaro 1985)  Community Based Economic Development  Strategies  There are numerous s t r a t e g i e s of community based economic development c o n s i s t i n g of both formal activity  and i n f o r m a l  economic  such a s : new e n t e r p r i s e development, job t r a i n i n g and  education,  b a r t e r or exchange networks, housing and  development and o t h e r s . New  e n t e r p r i s e development  land i s o f t e n the  p r e f e r r e d CBED s t r a t e g y s i n c e i t i s b e l i e v e d to address the problem of employment generation development  b e t t e r than other  s t r a t e g i e s . In c o n t r a s t  economic  to beggar-thy-neighbour  p o l i c i e s which attempt to e n t i c e l a r g e firms to r e l o c a t e , a spate of recent  research has demonstrated that  f i r m which i s instrumental  i t i s the small  i n job c r e a t i o n . Evidence provided  by  10  Birch  (1979) and the Canadian F e d e r a t i o n of Independent  (1982) show that the b i r t h and expansion  of small  Business  independent  businesses have been r e s p o n s i b l e f o r a s i g n i f i c a n t p r o p o r t i o n of a l l new U.S.  j o b s . Using data f o r 5.6 m i l l i o n establishments i n the  over a seven year p e r i o d , B i r c h  (1979) found that  new  e s t a b l i s h m e n t s , four years of age or l e s s , c r e a t e d h a l f of employment. L i k e w i s e , the CFIB survey of approximately  new  8000  s m a l l , medium and and l a r g e businesses found that f i r m s with under 50 employees accounted from  1975-1980 and  f o r 70 percent of employment growth  100 percent  from  1975-1982. Thus, while b i g  business p r o v i d e d roughly 30 percent of new 1980,  these were l o s t  jobs between  1975-  i n the r e c e s s i o n of 1980-1982. C l e a r l y  there i s a s i g n i f i c a n t t r e n d to small business s e c t o r employment growth; however, evidence  i s mixed as to the importance  s e r v i c e s e c t o r i n t h i s growth and consequently q u a l i t y of jobs c r e a t e d . ( B i r c h 1979; the above q u a l i f i c a t i o n , new  the nature  CFIB 1982)  and  Notwithstanding  e n t e r p r i s e development i s the  p r e f e r r e d s t r a t e g y of most CBED o r g a n i z a t i o n s and of t h i s  of the  i s the focus  thesis.  CBED e n t e r p r i s e s t y p i c a l l y share a number of common c h a r a c t e r i s t i c s . An  informal l i s t  culled  from the popular CBED  l i t e r a t u r e c h a r a c t e r i z e s CBED e n t e r p r i s e s as:  - small scale - s u i t a b l e f o r the s k i l l s and residents. - use l o c a l  resources  i n t e r e s t s of  local  11  - i n v o l v e the l o c a l - use labour  community  i n t e n s i v e and e n v i r o n m e n t a l l y  sensitive  techniques - aim t o r e p l a c e goods and s e r v i c e s c u r r e n t l y or i n c r e a s e l o c a l value added of export  imported  goods. (Calder  A c t i o n Committee 1979; SPARC 1985; Wismer and P e l l 1982) The l a t t e r c h a r a c t e r i s t i c of CBED e n t e r p r i s e s d e s c r i b e s the two ways i n which a community or community e n t e r p r i s e may i n f l u e n c e the l o c a l economy. One seeks to stem the outflow of cash  from a community; the other aims to i n c r e a s e the flow of  money i n t o the community. T h i s d i s t i n c t i o n way t o d e s c r i b e and understand economy of  as o u t l i n e d by Davis  the extent  stronger l o c a l  the dynamics of a community (1986). The m u l t i p l i e r  to which a community  increase i n l o c a l  represents a useful  i s a measure  i s a b l e to respend  income. A l a r g e m u l t i p l i e r  an  represents a  economy.  Money i s "leaked" from the community  i n four ways. F i r s t ,  through government taxes, which may or may not be c h a n n e l l e d back i n t o the community i n the form of government s e r v i c e s or t r a n s f e r payments. Leakages a l s o occur by way of l o c a l for goods imported  payments  from other regions or from o u t s i d e the  country. T h i r d l y , the savings of l o c a l term d e p o s i t s , stocks, pension  residents invested i n  funds or government bonds may be  withdrawn from the l o c a l economy. Removal of p r o f i t s and d i v i d e n d s generated  by f i r m s o p e r a t i n g w i t h i n the l o c a l  but with headquarters  o u t s i d e the community are another  economy form of  12  leakage. While  the community can do l i t t l e  ( l e g a l l y ) to stem the  outflow of taxes, imports and s a v i n g s are s u b j e c t t o community a c t i o n such as import  s u b s t i t u t i o n schemes or s t r a t e g i e s to  encourage r e s i d e n t s to put t h e i r savings i n a l o c a l i n s t i t u t i o n where funds are r e c y c l e d f o r another Community  a c t i o n can reduce  financial  l o c a l borrower.  the outflow of p r o f i t s and d i v i d e n d s  through worker or p o s s i b l y community purchase  of e x t e r n a l l y  owned f i r m s . Money flows i n t o the l o c a l economy e x p o r t s , investment  through  the s a l e of  and s e n i o r government spending. Expanded  export p r o d u c t i o n , e i t h e r through  resource e x t r a c t i o n or value  added p r o c e s s i n g of raw m a t e r i a l s , i s the most l i k e l y method a community can employ to i n c r e a s e the flow of money i n t o the l o c a l economy. The former  technique  i s especially useful for  s m a l l , resource based economies. Attempts t o d i v e r s i f y a l o c a l economy away from dependence on a s i n g l e resource i s probably more s u i t a b l e f o r a l a r g e r r e g i o n a l economy. Investment, e i t h e r through  the expansion  of an e x i s t i n g  f i r m , or the i n t r o d u c t i o n  of a new business or p l a n t i n the r e g i o n , generates cash flow. D i f f e r e n t  impacts  increased  on the l o c a l economy w i l l  however, depending on where the investment  occur,  originated. Locally  based expenditures are l i k e l y t o have g r e a t e r l i n k a g e e f f e c t s than branch p l a n t investments also  f o r example. Government  spending  i n c r e a s e s the flow of money i n the l o c a l economy, but with  the e x c e p t i o n of t r a n s f e r payments f o r unemployment  insurance  and the l i k e , community e f f o r t s a r e r e s t r i c t e d to l o b b y i n g the a p p r o p r i a t e agency f o r i n c r e a s e d government expenditures  i n the  13  area. In summary, the techniques which h o l d the most promise f o r community based economic development are import s u b s t i t u t i o n , m o b i l i z a t i o n of l o c a l savings, i n c r e a s e d export p r o d u c t i o n , and local  investment. The r o l e of the c r e d i t  union i n reducing  leakages from the l o c a l economy and expanding c a p i t a l  flows  into  the community w i l l be d i s c u s s e d at l e n g t h i n Chapter 4.  The Impetus  f o r Community Based Economic  Development  The impetus f o r CBED can be t r a c e d to a number of d i f f e r e n t f a c t o r s , but the three primary ones a r e : d e - i n d u s t r i a l i z a t i o n and the corresponding r i s e i n unemployment; the inadequacies of c u r r e n t r e g i o n a l development p o l i c i e s ; and the concern f o r community empowerment expressed i n community development.  De-industrialization Mounting i n t e r e s t  i n community based economic  development  occurs a g a i n s t a background of economic r e s t r u c t u r i n g on a g l o b a l s c a l e . The p r o s p e r i t y of the post-war p e r i o d i n t e r r u p t e d i n the e a r l y  was  1970s with the o i l c r i s i s , which had  d i s a s t r o u s consequences f o r the i n d u s t r i a l i z e d world. T h i s shock also illustrated vividly  the interdependence of n a t i o n a l  economies. Other vast changes i n the g l o b a l economy have meant that f o r over a decade, the l e a d i n g i n d u s t r i a l i z e d  countries  have been plagued with high r a t e s of unemployment due to p l a n t c l o s u r e s and labour s u b s t i t u t i n g c a p i t a l i z a t i o n programs. T h i s problem i s addressed i n The D e - i n d u s t r i a l i z a t i o n of America.  14  (Bluestone and H a r r i s o n  1982)  Often the main p r o t a g o n i s t i n t h i s  drama i s viewed as the m u l t i - n a t i o n a l or t r a n s - n a t i o n a l c o r p o r a t i o n so v i v i d l y d e s c r i b e d i n the f o l l o w i n g t e x t : Enormous m u l t i n a t i o n a l c o r p o r a t i o n s appeared on the h o r i z o n and began the herculean task of g l o b a l market i n t e g r a t i o n . C a p i t a l was f r e e d from i t s t r a d i t i o n a l l o c a t i o n and a b l e to b r i n g even n a t i o n s t a t e s to t h e i r knees by the simple d e v i c e of t h r e a t e n i n g to move to some other, more benign business c l i m a t e . (Friedmann and F o r e s t 1984) T h i s economic r e s t r u c t u r i n g has r e s u l t e d i n a trend toward h i g h unemployment r a t e s a c r o s s Canada, but some regions have experienced higher unemployment r a t e s than o t h e r s ,  especially  the t r a d i t i o n a l have-not regions on the p e r i p h e r y . T h i s remains the case today, as unemployment r a t e s range from a high of percent 1986)  i n Newfoundland to 6.8  percent  in Ontario.  (November,  A resource based economy l i k e B r i t i s h Columbia  p a r t i c u l a r l y at such times. T h i s i s r e f l e c t e d r a t e of 13.4  percent  i n November 1986,  Table  suffers  i n an unemployment  compared to 9.4  f o r Canada as a whole. ( S t a t i s t i c s Canada, Catalogue December 1986)  14.0  percent  71-001,  1 p r o v i d e s d e t a i l e d i n f o r m a t i o n on  unemployment r a t e s by p r o v i n c e f o r the l a s t ten y e a r s . S t a t i s t i c s d e s c r i b i n g B.C.'s f o r e s t  i n d u s t r y are  indicative  of the employment i m p l i c a t i o n s of the c u r r e n t economic s i t u a t i o n . In 1985 reached  l o g p r o d u c t i o n i n the p r o v i n c e  the p r e - r e c e s s i o n l e v e l s of 1979.  in output  was  1986)  The  However, t h i s growth  achieved with a corresponding  in i n d u s t r y employment from 1979.  finally  26 percent d e c l i n e  (B.C. C e n t r a l C r e d i t Union  extent of the unemployment problem, e s p e c i a l l y i n  resource towns and  r u r a l areas, i s o f t e n a m o t i v a t i n g f a c t o r i n  TABLE 1 UNEMPLOYMENT RATES BY PROVINCE  1976  1977  1978  1979  1980  1981  1982  1983  1984  1985  13 .3  15 .5  16 .2  15 .1  13 .3  13..9  16 .8  18 .8  20 .5  21 .3  Prince Edward I s .  9.6  9 .8  9 .8  11 .2  10 .6  11..2  12 .9  12 .2  12 .8  13 .2  Nova S c o t i a  9 .5  10 .6  10 .5  10 .1  9.7  10..2  13 .2  13 .2  13 .1  13 .8  11 .0  13 .2  12 .5  11 .1  11 .0  11..5  14 .0  14 .8  14 .9  15 .2  Quebec  8.7  10 .3  10 .9  9 .6  9.8  10,.3  13 .8  13 .9  12 .8  11 .8  Ontario  6 .2  7.0  7.2  6 .5  6 .8  6..6  9 .8  10 .4  9 .1  8 .0  Manitoba  4 .7  5 .9  6 .5  5 .3  5 .5  5..9  8.5  9 .4  8 .3  8 .1  Saskatchewan  3 .9  4 .5  4 .9  4 .2  4 .4  4..7  6 .2  7 .4  8 .0  8 .1  Alberta  4 .0  4 .5  4 .7  3 .9  3 .7  3.,8  7.7  10 .8  11 .2  10 .1  8.6  8.5  8 .3  7 .6  6.8  6..7  12 .1  13 .8  14 .7  14 .2  7 .1  8 .1  8.3  7 .4  7 .5  7..5  11 .0  11 9  11 .3  10 .5  Newfoundland  New Brunswick  British  Canada  Source:  Columbia  ?  S t a t i s t i c s Canada, Catalogue 71-001, The Labour Force, December, 1985; Catalogue 71-529, Labour Force Annual Averages 1975-1983, 1984  16  community based economic development e f f o r t s , and not j u s t a secondary consequence. In a d d i t i o n to the problem of g e n e r a l unemployment, marginal groups l i k e the young, women, and n a t i v e people have s p e c i a l unemployment problems which r e q u i r e p a r t i c u l a r a t t e n t i o n even a t the best of times. A sense of powerlessness i s evident  i n a community when i t s  economic h e a l t h i s seen to depend on o u t s i d e f o r c e s . T h i s i s especially likely development  to occur i n s i n g l e i n d u s t r y towns. Native  i n i t i a t i v e s stand out as a good example of people  t r y i n g to take c o n t r o l of t h e i r l i v e s a f t e r being s e v e r e l y dependent on government  t r a n s f e r payments f o r many y e a r s .  However, non-native groups can e x h i b i t s i m i l a r  dependency  r e l a t i o n s h i p s with l a r g e f o r e i g n owned resource companies f o r example, and consequently look to CBED as a means of reducing this  dependency.  Regional Development  Policy  Community based economic development  i s a l s o a response to  the f a i l u r e s of c o n v e n t i o n a l , top-down, s o c i a l .and economic development  s t r a t e g i e s of v a r i o u s l e v e l s of government. Although  some f e d e r a l employment programs are s p e c i f i c a l l y  directed  towards CBED, most r e g i o n a l development spending has o c c u r r e d on i n d u s t r i a l development  s t r a t e g i e s . I t i s i n t e r e s t i n g to note  that CBED programs a r e i n s t i t u t e d through the employment m i n i s t r y r a t h e r than one t r a d i t i o n a l l y  r e s p o n s i b l e f o r economic  development p o l i c y . T h i s r e f l e c t s the r e c o g n i t i o n that CBED seeks t o c r e a t e long l a s t i n g employment through socio-economic  17  development rather In  than economic or i n d u s t r i a l development.  1969, the f e d e r a l government  strategy  implemented a c o o r d i n a t e d  f o r reducing r e g i o n a l economic d i s p a r i t i e s with the  formation of the Department of Regional Economic Expansion (DREE). Since that time, numerous programs have been implemented, the r e s u l t s of which have been l e s s than spectacular. staple  P o l i c i e s were designed t o s u b s i d i z e  declining  i n d u s t r i e s such as a g r i c u l t u r e and f o r e s t r y , to r e i n f o r c e  labour market operation through m o b i l i t y private  subsidies,  to encourage  investment with s o c i a l and economic overhead c a p i t a l and  industrial  i n c e n t i v e s ; and t o b u i l d mega-projects such as the  Northeast Coal P r o j e c t . These were the major t o o l s used by the department t o promote i n d u s t r i a l development i n the p e r i p h e r a l regions.  (Weaver and Gunton  Economic C o u n c i l  1986) D e s p i t e these e f f o r t s , the  of Canada, i n i t s 1977 study of r e g i o n a l  d i s p a r i t i e s , concluded that  " d i s p a r i t i e s i n Canada a r e  s u r p r i s i n g l y l a r g e ; c e r t a i n l y l a r g e r than many of us expected and l a r g e r than they need t o be or ought to be." More s p e c i f i c a l l y , between 32 and 61 percent of DREE'S l o c a t i o n subsidies  t o i n d u s t r i e s i n depressed regions were found to have  no e f f e c t on a firm's  l o c a t i o n d e c i s i o n ; the move would have  been made anyway. Thus p a r t l y i n response to the p e r c e i v e d f a i l u r e of previous r e g i o n a l development programs, and the f i s c a l belt tightening  i n the 1980s, many of the r e g i o n a l  i n i t i a t i v e s of the 1960s and 1970s have been abandoned. and Gunton  1986) People l i v i n g  (Weaver  i n communities i n depressed  r e g i o n s have l i k e l y r e c o g n i z e d the f a i l u r e of p o l i c i e s of t h i s  18  nature t o s u b s t a n t i a l l y a l t e r t h e i r circumstances and have subsequently turned to l o c a l  i n i t i a t i v e s l i k e CBED.  Community Development Community development can be viewed  as a d i r e c t forerunner  to community based economic development, and i t remains a fundamental problem  aspect of CBED. I t i s a s t r a t e g y of d e v e l o p i n g group  s o l v i n g s k i l l s and u l t i m a t e l y of p o l i t i c a l  empowerment.  Community development i s : a s o c i a l process by which human beings can become more competent to l i v e with and gain some c o n t r o l over l o c a l a s p e c t s of a f r u s t r a t i n g and changing world." ( B i d d l e and B i d d l e 1965) Moreover, community development r e s t s on c e r t a i n  fundamental  p r o p o s i t i o n s r e g a r d i n g human v a l u e s : ...that people are capable of both p e r c e i v i n g and judging the c o n d i t i o n of t h e i r l i v e s ; that they have the w i l l and c a p a c i t y to p l a n together i n accordance with these judgements t o change that c o n d i t i o n f o r the b e t t e r ; that they can a c t together i n accordance with these p l a n s ; and that such a process can be seen i n terms of c e r t a i n v a l u e s . (Roberts 1979) The advocated  study group approach  t o c r e d i t union  formation  by the A n t i g o n i s h movement corresponds  to the process  of community development o u t l i n e d above. According to Coady's (1939) view of a d u l t education, c r e d i t union members would l e a r n the value of c o o p e r a t i o n through the o r g a n i z a t i o n and o p e r a t i o n of a c r e d i t union. They c o u l d take p a r t i n study groups, and s i t on committees and boards concerned The  with day t o day management.  s o c i a l l e a r n i n g aspect of community development i s  emphasized i n the f o l l o w i n g . . . f o r the purposes  statement:  of community development, a  19  community has to be seen as a c o l l e c t i o n of people who have become aware of some problem or some broads g o a l , who have gone through a process of l e a r n i n g about themselves and about t h e i r environment and have formulated a group o b j e c t i v e . (Roberts 1979) In  recent years, with i n c r e a s i n g c r e d i t union s i z e and the  p r o f e s s i o n a l i z a t i o n of management, t h e r e a r e fewer o p p o r t u n i t i e s for  members to p a r t i c i p a t e i n i t s a f f a i r s .  (Thompson 1978) The  study group technique has proven l e s s s u c c e s s f u l today i n Canada than i n the 1930s and 1940s and i n f a c t the A n t i g o n i s h movement has turned a l a r g e p a r t of i t s a t t e n t i o n t o l e s s developed countries. Community development  p r i n c i p l e s and techniques were  a p p l i e d by B r i t i s h c o l o n i a l o f f i c e s i n A f r i c a and A s i a 1930s. T h e i r approach was l a r g e l y p r o j e c t o r i e n t e d s k i l l s development,  first  i n the  f o c u s s i n g on  p r o d u c t i o n of goods and s e r v i c e s , and  i n c r e a s e d t e c h n i c a l know-how. (Campfens 1983) While  initiated  o u t s i d e the community, t h i s technique was dependent  on l o c a l  a d a p t a t i o n and p a r t i c i p a t i o n . North American e f f o r t s i n the 1960s took a broader view of community development.  I t was meant t o empower disadvantaged  members of the community, p a r t i c u l a r l y  r e s i d e n t s of black urban  neighbourhoods. E a r l y American a n t i - p o v e r t y programs job  t r a i n i n g and youth r e c r e a t i o n a l a c t i v i t i e s ,  s t r e s s i n g the problems of i n d i v i d u a l s . Perry  encompassed  essentially  (1984) d e s c r i b e s  these s t r a t e g i e s as i r r e l e v a n t at b e s t . L i m i t a t i o n s of the t r a d i t i o n a l community development  model can be t r a c e d t o :  . . . i t s p y s c h o l o g i c a l rather than socio-economic approach to s o c i a l p r o b l e m s . . . i t w i l l improve the p s y c h o l o g i c a l l i v e s of the poor but i t w i l l not u s u a l l y q u e s t i o n the economic system which permits the  20  c o e x i s t e n c e of poverty and p l e n t y . (Khinduka 1984) Disenchantment with these programs l e d to a r e a l i z a t i o n s u c c e s s f u l community the  that  development would have t o encompass both  s o c i a l and economic a s p e c t s of development from w i t h i n the  community.  So, i f the " c e n t r a l credo" of community  i s t o develop the competence of a community c o n f r o n t i t s own problems, i t was f e l t  so that  development i t may  that the approach c o u l d  be expanded t o i n c l u d e both a s o c i a l and economic p e r s p e c t i v e . The f i r s t  experience with the combined s o c i a l and economic  approach t o community  development i s u s u a l l y viewed as the  experiments with "black c a p i t a l i s m " i n the U.S. i n the 1960s. A c c o r d i n g to Perry  (1984) and o t h e r s , b l a c k s " s h i f t e d  concept of the black community  from black c i v i l  social-economic concept of the black community." on the b e l i e f  their  r i g h t s t o the T h i s was based  that b l a c k s c o u l d a c h i e v e p a r i t y with whites  through c a p i t a l i s m so that  "both p a r t i e s bargain as e q u a l s . "  (Faux, quoted i n Berndt, 1977) In 1972, a f t e r s e v e r a l years of experimental programs a community  economic development program  was c r e a t e d c a l l e d T i t l e VIII of the Economic O p p o r t u n i t y A c t . It was h e l d that "through the development of community i n s t i t u t i o n s , the ownership and r e n o v a t i o n of community  physical  a s s e t s and the a c q u i s i t i o n and development of community business, the q u a l i t y of l i f e and chances of the i n d i v i d u a l would improve." (Berndt 1977) The program has s i n c e been terminated and community development c o r p o r a t i o n s  (CDCs) i n the U.S. must now r e l y on  p r i v a t e funds. What has been the e f f e c t of CDCs on the poor  21  communities they were intended to help? Evidence complete due  i n p a r t to the d i f f i c u l t y  i s f a r from  i n a s s e s s i n g endeavours  with m u l t i p l e o b j e c t i v e s . Some h o l d that while not a f o o l p r o o f cure f o r a l l e v i a t i n g urban poverty  (Cummings and G l a s e r  CDCs have n e v e r t h e l e s s c r e a t e d t a n g i b l e b e n e f i t s , in job t r a i n i n g and employment c r e a t i o n .  (Stein  1983)  particularly  1973)  A more  c r i t i c a l assessment a s s e r t s that these CDCs have f a i l e d to help the poor and  i n s t e a d have b e n e f i t t e d m i d d l e - c l a s s government  administrators.  (Berndt  1977)  Methodology and O r g a n i z a t i o n Each of the remaining chapters addresses one of the three r e s e a r c h q u e s t i o n s posed at the o u t s e t of t h i s c h a p t e r . 2 p r e s e n t s a review of the  Chapter  ' l o c a l development' l i t e r a t u r e which  i s emerging w i t h i n the r e g i o n a l development l i t e r a t u r e . Both the sources and b a r r i e r s to community based economic development are i d e n t i f i e d . The  l a t t e r are used  i n l a t e r chapters to propose  e s s e n t i a l r o l e s f o r the c r e d i t union  i n pursuing a s t r a t e g y of  CBED. In Chapter  3 the extent to which two primary  f i n a n c i a l support  sources of  f o r CBED, c h a r t e r e d banks and f e d e r a l l o n g -  term employment programs, are a b l e to overcome the p r e v i o u s l y identified barriers, f i n a n c i n g and  i s assessed. The question of small business  regional discrimination  the c h a r t e r e d banks to determine The  i s examined i n the case of  t h e i r s i g n i f i c a n c e f o r CBED.  experience of the recent f e d e r a l L o c a l Employment A s s i s t a n c e  Development  (LEAD) program i n meeting the requirements  of CBED  22  i s a l s o examined. Two approaches are used to e s t a b l i s h a common l i n k between the  c r e d i t unions and community based economic development. The  first,  i n Chapter 4, develops a r a t i o n a l e f o r c r e d i t union  participation history  i n CBED through a c o n s i d e r a t i o n of c r e d i t union  and p h i l o s o p h y , and t h e i r present o p e r a t i o n and  o r g a n i z a t i o n . An e l a b o r a t i o n of s e v e r a l c o n s t r a i n t s to c r e d i t union p a r t i c i p a t i o n  i n CBED i s then d e r i v e d to e x p l a i n an  apparent l a c k of i n t e r e s t on the p a r t of many c r e d i t unions with respect t o CBED. Chapter 5 f o l l o w s a second approach and p r e s e n t s and e m p i r i c a l study of two CBED i n i t i a t i v e s by Nanaimo D i s t r i c t Savings C r e d i t Union and Vancouver  C i t y Savings C r e d i t  Union.  Both operate small programs i n support of CBED which are assessed with a view t o determining the type of s t r a t e g y employed, how w e l l they have met t h e i r own o b j e c t i v e s , and t h e i r performance  with respect t o four proposed c r i t e r i a f o r  e v a l u a t i n g a community development performance  financial institution's  i n CBED. Three other examples of c r e d i t  i n i t i a t i v e s a r e b r i e f l y d e s c r i b e d i n Appendix  union  A: the c a i s s e s  d ' e n t r a i d e economique i n Quebec; community development  credit  unions i n the U.S.; and the Caja L a b o r a l P o p u l a i r e i n Spain. They are intended to g i v e the reader a sense of the scope of l o c a l development  a c t i v i t i e s undertaken by v a r i o u s c r e d i t  i n other p l a c e s . The v a r i o u s i n s t i t u t i o n a l arrangements the  unions  used by  c r e d i t unions i n support of CBED a r e then summarized and  d i s p l a y e d i n a framework or typology. Data  f o r t h i s chapter are  23  drawn from i n t e r v i e w s with c r e d i t listed  union  s t a f f and board  members,  i n Appendix B, and p u b l i s h e d m a t e r i a l such as annual  r e p o r t s and n e w s l e t t e r s . Chapter 6 c o n t a i n s a summary of the preceeding  chapters,  g e n e r a l c o n c l u s i o n s a r i s i n g from the r e s e a r c h , suggested for f u r t h e r research and some p r o p o s a l s concerning role  avenues  an expanded  f o r c r e d i t unions i n community based economic development.  24  CHAPTER 2  LITERATURE REVIEW  Introduction Community based economic development phenomenon, whose s p e c i a l  characteristics  is a fairly  recent  have not y e t been  s y n t h e s i z e d i n t o a coherent theory or framework. The  literature  c o n s i s t s mostly of popular accounts of s p e c i f i c CBED p r o j e c t s and some g e n e r a l i z a t i o n s a r i s i n g discern a rationale for credit i n order to i d e n t i f y  from these. In seeking to  union p a r t i c i p a t i o n  their possible roles,  to understand the sources and b a r r i e r s  i t i s f i r s t necessary  to CBED. The treatment of  these two themes i n the l o c a l economic development and t h e i r of t h i s In  implications for credit  i n CBED, and  literature  union p a r t i c i p a t i o n  i s the aim  chapter. l o o k i n g at the sources of l o c a l economic development i t  is particularly  important to determine those f a c t o r s which make  i t a l o c a l phenomenon. The predominant e x p l a n a t i o n s i n the literature  focus on human resources and l o c a l ownership.  Proceeding from the i d e n t i f i c a t i o n of the sources of l o c a l economic development, i t i s apparent there are s e v e r a l d i s t i n c t barriers  to community based economic development. The three most  important ones f o r an e n t e r p r i s e development s t r a t e g y a r e : 1) a lack of i n f o r m a t i o n , 2) d i f f i c u l t y a c c e s s i n g f i n a n c i a l  capital,  and 3) a p p r o p r i a t e i n s t i t u t i o n a l mechanisms f o r community development.  25  Use of the l o c a l economic development  l i t e r a t u r e to  e x p l i c a t e the sources and b a r r i e r s to CBED i s based on two premises. F i r s t l y , as mentioned above, community based economic development l a c k s a formal t h e o r e t i c a l p e r s p e c t i v e which can e x p l a i n the sources and b a r r i e r s to CBED. In i t s absence, i t i s p o s t u l a t e d that the growing l i t e r a t u r e on l o c a l development and t e r r i t o r i a l development, which has a r i s e n w i t h i n the broader framework of r e g i o n a l development theory, may o f f e r some i n s i g h t s . Secondly, community based economic development shares with r e g i o n a l development a concern f o r socio-economic development  i n a s p a t i a l c o n t e x t . Before proceeding w i t h an  examination of these themes, i t i s necessary to s o r t out some d e f i n i t i o n a l a m b i g u i t i e s . T h i s i s followed by a c r i t i q u e of n e o c l a s s i c a l , growth p o l e , and s t a p l e s l e d t h e o r i e s of r e g i o n a l development  from a l o c a l development  perspective.  Definitions There i s a lack of consensus regarding the d e f i n i t i o n of what I w i l l g e n e r i c a l l y c a l l distinct  l o c a l economic development. Two  s c h o o l s of thought p r e v a i l  i n the r e g i o n a l  development  l i t e r a t u r e . The p r i n c i p a l d i f f e r e n c e between the two concerns the d i s t r i b u t i o n of power i n economic and s o c i a l  relationships,  essentially a political  local  i s s u e . The f i r s t , c a l l e d  development, approaches the whole n o t i o n of development  from a  Keynesian p e r s p e c t i v e . I t p o s t u l a t e s that the mixed market, while i m p e r f e c t l y f u n c t i o n i n g , forms an adequate s t a r t i n g from which t o approach problems of r e g i o n a l imbalance.  point  26  A c c o r d i n g l y , only a few adjustments need be made from a l o c a l p e r s p e c t i v e i n order to r e d r e s s some of the i n e v i t a b l e  regional  imbalances w i t h i n the n a t i o n . T h i s concept of l o c a l development i s more that j u s t a s p a t i a l r e d u c t i o n of r e g i o n a l development; r a t h e r i t i s a process i n which the impetus f o r development i s found p r i n c i p a l l y w i t h i n the l o c a l i t y  i n q u e s t i o n , as opposed to  being p r o v i d e d from e x t e r n a l sources. A c c o r d i n g to Coffey and Polese (1984), i t s c h i e f proponents, " t h i s view of  'local'  w i t h i n the development process n e c e s s i t a t e s the e l a b o r a t i o n of a model which s p e c i f i e s the r o l e of endogenous elements and which can be a p p l i e d to l a r g e r regions as w e l l as t o m i c r o - r e g i o n s . " By t h i s d e f i n i t i o n development i s e x p l a i n e d as a l a r g e l y economic phenomenon, meaning  " s u s t a i n e d and  irreversible  economic growth" with some o b l i q u e r e f e r e n c e to s t r u c t u r a l and even s o c i a l  change.  When we speak of such o b j e c t i v e s as the emergence of e n t r e p r e n e u r s h i p , the s t i m u l a t i o n of indigenous t a l e n t s , or the awakening of r e g i o n a l s o l i d a r i t y , we are b a s i c a l l y speaking of s o c i a l changes the o r i g i n s of which we do not understand. (Coffey and Polese 1985) Thus C o f f e y and Polese h o l d the view that s o c i a l and c u l t u r a l f a c t o r s account f o r , or e x p l a i n economic development r a t h e r than serve as the o b j e c t i v e s of development. By comparison, t e r r i t o r i a l development p r o v i d e s an expanded d e f i n i t i o n of l o c a l economic development i n which the p o l i t i c a l economy p e r s p e c t i v e p l a y s a c e n t r a l r o l e . Authors using the t e r r i t o r i a l r u b r i c such as Friedmann and Weaver (1979) tend to go beyond the l o c a l development t h e o r i s t s d e s c r i b e d above and  27  have "based t h e i r approach upon the need f o r fundamental changes in the nature of the e x i s t i n g space economy." (Coffey and 1985) Unequal r e l a t i o n s h i p s between  Polese  regions are viewed as the  problem which i n t e g r a t e d development at the l o c a l l e v e l seeks to address. T e r r i t o r i a l development sufficiency, cultural  i s used to mean economic  self-  independence and p o l i t i c a l autonomy, and  as Friedmann and F o r e s t  (1984) p o i n t out, concern with the  p o l i t i c s of p l a c e . The t e r r i t o r i a l p e r s p e c t i v e has r e c e n t l y re-emerged i n the l i t e r a t u r e a f t e r l o s i n g importance to more f u n c t i o n a l d o c t r i n e s of r e g i o n a l development  i n the 1950s and 1960s. I t i s most  commonly a p p l i e d to t h i r d world development, where the b a s i c c o n d i t i o n s f o r development are p o s t u l a t e d a s : s e l e c t i v e t e r r i t o r i a l c l o s u r e , communalization of p r o d u c t i v e e q u a l i z a t i o n of access  wealth, and  to the bases f o r the accumulation of  s o c i a l power. (Friedmann and Weaver 1979) A western a p p l i c a t i o n of t h i s t e r r i t o r i a l  framework  labelled bioregionalism  focuses  on  the b i o p h y s i c a l region as the s u b j e c t of development, ownership of n a t u r a l resources perspective  at the l o c a l l e v e l , and an e c o l o g i c a l  on development. The goal of b i o r e g i o n a l i s m ,  "to l i v e  i n p l a c e " r e q u i r e s that r e s i d e n t s are "aware of the precepts ecology,  economics, p h y s i c a l s c i e n c e and p o l i t i c s . "  of  (Aberley  1985) Therefore,  two d i s t i n c t p e r s p e c t i v e s of l o c a l  economic  development are d i s c e r n i b l e w i t h i n the l i t e r a t u r e , which d i f f e r on the b a s i s of the r o l e of p o l i t i c s , and the r o l e of s o c i a l and c u l t u r a l v a r i a b l e s i n r e g i o n a l development. The  local  28  development authors h e s i t a t e to c a l l  f o r community c o n t r o l of  p r o d u c t i v e r e s o u r c e s i n a mixed market economy yet r e c o g n i z e the importance of l o c a l ownership. In c o n t r a s t ,  territorial  development e x p l i c i t l y addresses the q u e s t i o n of p o l i t i c a l c o n t r o l at the l o c a l  level.  L o c a l Economic Development  as Community Based Economic  Development Based on the f o r e g o i n g d e f i n i t i o n s then, how  w e l l does the  l o c a l economic development l i t e r a t u r e approximate what we understand t o be community based economic development? Both are concerned with development at a l o c a l l e v e l , u s i n g  local  r e s o u r c e s , i n i t i a t e d , and to some e x t e n t , c o n t r o l l e d The best way  locally.  of understanding CBED i s as a h y b r i d of the two  d e f i n i t i o n s d e s c r i b e d above. Community based economic development  i s s i m i l a r to the l o c a l development d e f i n i t i o n i n  i t s a t t i t u d e toward l o c a l ownership as c o n s i s t e n t with e x i s t i n g p a t t e r n s of s o c i a l r e l a t i o n s . I t shares with  territorial  development a s i m i l a r range of a t t i t u d e s towards s o c i a l and c u l t u r a l f a c t o r s as o b j e c t s of development as w e l l as sources of development, but i n more than an e n t r e p r e n e u r i a l sense. Consequently, both l o c a l economic development d e f i n i t i o n s share some f e a t u r e s with CBED and are u s e f u l  i n i d e n t i f y i n g the  sources and b a r r i e r s to endogenous development. Furthermore, both q u e s t i o n the adequacy of e x i s t i n g t h e o r i e s of r e g i o n a l development, which i s the subject of the next s e c t i o n .  29  C r i t i q u e s of T r a d i t i o n a l Regional Development  Theory  The inadequacy of n e o c l a s s i c a l , growth pole and t h e o r i e s of r e g i o n a l development r e g i o n a l planners;  criticism  l o c a l economic development. Councial  of Canada  have been a p p l i e d  staples  i s acknowledged by many  i s not l i m i t e d to those advocating (Weaver and Gunton  1982;  Economic  1977) To the extent that t r a d i t i o n a l concepts i n r e g i o n a l development p o l i c y the outcomes  have not been encouraging. Proponents of l o c a l development u s u a l l y p r e f a c e  economic  t h e i r work with a b r i e f c r i t i q u e of  r e g i o n a l development theory from a l o c a l development (Coffey and Polese 1984; Friedmann and F o r e s t  perspective  1984; Savoie  1986)  because: C l e a r l y there seems to be a need f o r r e t h i n k i n g the r e g i o n a l question and a l l i t e n t a i l s , from the t h e o r i e s of r e g i o n a l s c i e n c e to the r o l e of p o l i t i c s i n development. (Weaver 1984) The c r i t i q u e s of n e o c l a s s i c a l , growth pole and s t a p l e s are  summarized  theory  here.  N e o c l a s s i c a l Theory The n e o c l a s s i c a l approach to r e g i o n a l development i s r e j e c t e d by the l o c a l development assumption of labour  m o b i l i t y i s problematic and i t ignores  p o l i t i c a l considerations. c a p i t a l and labour  t h e o r i s t s because the  will  Neoclassical  theory argues that  flow to areas where the best  r e t u r n s are to be found and that e v e n t u a l l y ,  marginal  t h i s w i l l l e a d to  i n t e r - r e g i o n a l e q u a l i z a t i o n and e q u i l i b r i u m . Savoie  (1986)  a s s e r t s however, that o u t m i g r a t i o n w i l l not solve the r e g i o n a l adjustment problem because labour  w i l l not n e c e s s a r i l y possess  30  the s k i l l s  r e q u i r e d to work i n another r e g i o n . Furthermore, i t  i s o f t e n young and educated people who migrate,  and i n todays  s e r v i c e s e c t o r dominated economy, " r e g i o n a l p r o d u c t i v e i s embodied i n people."  (Coffey and Polese  capacity  1985) P r o v i n c i a l  boundaries and c u l t u r a l d i f f e r e n t i a t i o n mean p l a c e i s very important.  Savoie  (1986) a s s e r t s that the prospect  p r o v i n c i a l p o l i t i c i a n advocating disadvantaged  region  out-migration  of a  t o r e s i d e n t s of a  i s p o l i t i c a l l y unacceptable.  In Friedmann  and F o r e s t ' s  (1984) f o r m u l a t i o n  outmigration  i s not seen as the s o l u t i o n , i n f a c t a p o l i t i c a l l y  mobilized population territorial  ( a l b e i t a more r a d i c a l one)  i s viewed as the main p r o t a g o n i s t i n  development.  Growth Pole Theory Growth p o l e theory  i s a second major t h e o r e t i c a l framework  f o r a n a l y z i n g r e g i o n a l economic development which, a s i d e  from  problems of i n t e r p r e t a t i o n and implementation, has a l s o been the s u b j e c t of c r i t i c i s m by the l o c a l economic development t h e o r i s t s . I t i s p r e d i c a t e d on the n o t i o n of unbalanced growth and  the p o s s i b i l i t y that the growth c h a r a c t e r i s t i c s of l e a d i n g  regions can be strengthened,  eventually resulting in benefits  for the h i n t e r l a n d (Cameron 1970), or simulated areas with p r o p u l s i v e i n d u s t r i e s . (Myrdal  in peripheral  1957) Growth pole  p o l i c i e s are concerned with s p a t i a l c o n c e n t r a t i o n of resources so as to r e a l i z e economies of agglomeration,  i n f r a s t r u c t u r e and  maximize l i n k a g e s . P o l i c i e s to l o c a t e p r o p u l s i v e i n d u s t r i e s i n designated  growth c e n t r e s through i n f r a s t r u c t u r e s u b s i d i e s , tax  31  breaks and the l i k e ,  seek to strengthen  or mimic growth inducing  c h a r a c t e r i s t i c s of growth p o l e s . C o f f e y and Polese  (1985) are concerned t h a t the two  competing goals of t h i s approach, s p a t i a l e q u i t y and e f f i c i e n c y are incompatible  and indeed c o n f l i c t . A l s o of concern from a  l o c a l development p e r s p e c t i v e i s the f a c t that the growth pole concept does not give s u f f i c i e n t c o n s i d e r a t i o n t o the l o c a t i o n of l i n k e d investment. They p o i n t out t h a t : The extent and nature of i n t e r f i r m l i n k a g e s , i n the form of sub-contracts and i n t r a - f i r m flows, are g r e a t l y i n f l u e n c e d by the l o c a t i o n and behaviour of head o f f i c e s of multi-branch c o r p o r a t i o n s . Investments o r i g i n a t i n g o u t s i d e of the region o f t e n generate a much lower l e v e l of l i n k a g e e f f e c t s . Since the growth pole concept r e l i e s on i n t r a - r e g i o n m u l t i p l i e r and  i n t e r - i n d u s t r y l i n k a g e e f f e c t s , t h i s i s an  important  criticism.  S t a p l e s Theory S t a p l e s theory  i s the t h i r d major framework f o r a n a l y s i n g  r e g i o n a l development. Based on Innes' (1956) a n a l y s i s of Canadian economic h i s t o r y i t holds that s u c c e s s i v e exports of s t a p l e resources  from h i n t e r l a n d regions have c h a r a c t e r i z e d  Canadian development. The e x p l o i t a t i o n of s t a p l e products i n which a region has comparative advantage leads t o an i n f l o w of labour and c a p i t a l . I f growth i s t o be s u s t a i n e d a f t e r s t a p l e exports  d e c l i n e i t i s important  that the necessary  backward,  forward  and f i n a l demand l i n k a g e s have developed to l e a d to  d i v e r s i f i c a t i o n of the region's economic base. I f the necessary l i n k a g e s do not develop,  then the region i s s a i d to be i n a  32  ' s t a p l e s t r a p ' . S t a p l e s theory does correspond with  local  economic development as i t i n c o r p o r a t e s s o c i a l , c u l t u r a l political  and  f a c t o r s i n i t s account of economic h i s t o r y . In Weaver  and Gunton's  (1982) view:  Canadian development theory, i n the hands of Innes, emphasized f a c t o r s such as d i s c r e p e n c i e s i n power between m e t r o p o l i s and h i n t e r l a n d , the consequences of e x t e r n a l c o n t r o l , the problem of leakages of c a p i t a l , i n s t i t u t i o n a l blockages to economic d i v e r s i f i c a t i o n , and the frequent occurrence of d i s e q u i l i b r i u m and crisis... One of the p o l i c y  i m p l i c a t i o n s of s t a p l e s theory i s to reduce  e x t e r n a l ownership of s t a p l e s i n d u s t r i e s i n order to reduce capital  leakages from the r e g i o n .  L o c a l development t h e o r i s t s would d i s a g r e e with the assumption i m p l i e d by s t a p l e s theory that the source of economic development depends p r i m a r i l y upon the a v a i l a b i l i t y and m a r k e t a b i l i t y of a region's n a t u r a l r e s o u r c e s . I t i s a p a r t i a l e x p l a n a t i o n , but a c c o r d i n g to Coffey and Polese and o t h e r s , comparative advantage can a l s o be based on indigenous e n t e r p r i s e , e n t r e p r e n e u r i a l a b i l i t y and so on. In f a c t ,  as we  move to an examination of the predominant sources of community based economic development, one of which i s human r e s o u r c e s , the b a s i s f o r the l a s t a s s e r t i o n w i l l become c l e a r e r .  Sources of Community Based Economic  Development  T h e o r i e s of l o c a l development d i f f e r from the three preceding t h e o r i e s of r e g i o n a l development  i n the emphasis  p l a c e d on two f a c t o r s ; human resources and l o c a l ownership as sources of community based economic development. While they are  33  not they  the only  factors  responsible for local  a r e what d i s t i n g u i s h e s i t f r o m o t h e r  t h e o r i e s . As we s h a l l understanding  economic  r e g i o n a l development  s e e , each has p a r t i c u l a r  the b a r r i e r s  t o economic  development,  implications for  development.  Human R e s o u r c e s Human r e s o u r c e s , meaning entrepreneurial are c r i t i c a l  spirit  entrepreneurship  classical  are at least  may be a t t r i b u t e d e l e m e n t . The l o c a l  inhibit type  of the l o c a l  o f community  a n d a c c u m u l a t e d knowledge  economic  like  know-how,  t o C o f f e y and P o l e s e  as important  f a c t o r s of labour  explaining  places  and i n i t i a t i v e  t o an u n d e r s t a n d i n g  development. A c c o r d i n g  population"  the s k i l l s ,  growth  to this  i n support  economic "the stock of  embodied  Classical  of c u l t u r a l  in its  models factor  i n c l u d e s both  argument.  form o f e v i d e n c e .  and o t h e r  territorialists  go beyond c o n s i d e r a t i o n s o f  and t e c h n i c a l  ability  and a n t h r o p o l o g i c a l f a c t o r s . A c c o r d i n g Anderson's Indian  (1984)  to stress  to reinforce  cultural  t o B o o t h r o y d and  c u l t u r e would be s e e n a s a s o u r c e  Acting  F r i e d m a n n a n d Weaver  reading of the t e r r i t o r i a l i s t  t o b a s e an i n t e g r a t e d d e v e l o p m e n t  this  h i g h wage a n d low wage  i s not the best  spirit  d i d not  However,  countries  entrepreneurial  which  t h e development of  p h y s i c a l resources  of t h e i r  a s t h e more  or s o c i o l o g i c a l  theorists cite  T a i w a n , where l i m i t e d  of comparison which  (1985)  leave a large r e s i d u a l  development  development,  based  t o development  and c a p i t a l .  type  population,  view, n a t i v e  o f s t r e n g t h upon  which  strategy.  the contention  t h a t human r e s o u r c e s a r e  34  a significant  f a c t o r i n development  Western economies c l a s s i f i e d  i s the i n c r e a s i n g share of  i n the s e r v i c e s e c t o r . Compared t o  the s e m i - s k i l l e d labour r e q u i r e d f o r b l u e - c o l l a r occupations i n the manufacturing s e c t o r , the knowledge  based i n d u s t r i e s of the  s e r v i c e s e c t o r r e q u i r e a s u f f i c i e n t l y t r a i n e d workforce: I t w i l l be necessary t o t r e a t these investments [ i n human c a p i t a l ] as comparable t o the purchase of machinery i f we are to p r o v i d e the s k i l l s necessary f o r c o n t i n u e d growth w i t h i n the s e r v i c e i n d u s t r i e s . (Vaughan 1980) Furthermore, investment i n human c a p i t a l or education i s viewed as g e n e r a l l y s u p p o r t i v e of both the economic and s o c i a l aims of development. From t h i s p e r s p e c t i v e , p o l i c i e s which attempt to counter the " b r a i n d r a i n " e f f e c t s of o u t - m i g r a t i o n , skill  increase  l e v e l s , s t i m u l a t e l o c a l e n t r e p r e n e u r s h i p and c u l t u r a l  independence would appear to be the instruments of community based economic development. However, i n c o r p o r a t i n g investments in  ' s o f t ' o b j e c t i v e s such as human resources have not been  dominant  i n r e g i o n a l development work and consequently a r e "the  b a s i s of many of the c h a l l e n g e s f a c i n g a l o c a l  development  approach." (Coffey and Polese 1985)  Local Control A range of terminology i s used i n the l i t e r a t u r e t o d e s c r i b e what v a r i e s from l o c a l p r i v a t e ownership of small businesses, t o community owned b u s i n e s s e s , to community development c o r p o r a t i o n s , t o worker c o o p e r a t i v e s , to s e l f r e l i a n c e , to s e l e c t i v e t e r r i t o r i a l c l o s u r e . F r e q u e n t l y however, l o c a l c o n t r o l i s taken to mean small business development, which  35  i s l o c a l l y owned, and i n i t i a t e d or supported by a community c o n t r o l l e d development o r g a n i z a t i o n local  l i k e a CDC. The concern f o r  " c o n t r o l " as a source of development has three dimensions:  decentralization,  p a r t i c i p a t i o n i n economic p l a n n i n g and  decision-making, and the l i n k a g e s controlled  associated  with  locally  industry.  The c e n t r a l i z a t i o n - d e c e n t r a l i z a t i o n debate i s a theme i n r e g i o n a l  recurring  development p l a n n i n g . I t a r i s e s i n p o l i c y  f o r m u l a t i o n and implementation i n the Canadian f e d e r a l system because "any agency d e a l i n g context w i l l  with problems designed i n a s p a t i a l  i n v a r i a b l y c l a s h with an o r g a n i z a t i o n a l  which most other departments are concerned with issues..."  (Lithwick  1986) S e c t o r a l  system i n  sectoral  i s s u e s are most commonly  d e a l t with on a c e n t r a l i z e d b a s i s . In r e g i o n a l  development  theory, the predomimant paradigm has been a f u n c t i o n a l focussing  on p a r t i c u l a r i n d u s t r i e s or s e c t o r s  economy. E a r l i e r more d e c e n t r a l i z e d strategies  "territorialist"  l i k e the TVA were r e p l a c e d  planning doctrines  of the  by f u n c t i o n a l  i n the 1950s. Subsequent r e g i o n a l  one,  regional development regional development  e f f o r t s have tended to adopt t h i s n o t i o n of f u n c t i o n a l  planning.  Community based economic development corresponds to a theory of development where d e c i s i o n s  concerning the l o c a l  economy are made at the l o c a l l e v e l wherever decentralizaton  possible;  i n the context of CBED means development from  below or g r a s s - r o o t s development. The r o l e a s s i g n e d to government i n CBED i s l i m i t e d , i n f a c t Friedmann and  Forest  (1984) r e j e c t c e n t r a l resource a l l o c a t i o n by the s t a t e  in their  36  c o n c e p t i o n of t e r r i t o r i a l  development.  Even economists and p u b l i c p o l i c y s p e c i a l i s t s who have long favoured government i n t e r v e n t i o n f o r promoting r e g i o n a l economic development are r e j e c t i n g c e n t r a l l y planned and implemented programs. The r o l e of government  i n a d e c e n t r a l i z e d CBED s t r a t e g y i s one  of funding l o c a l groups t o pursue t h e i r own i n i t i a t i v e s w i t h i n a broader economic development p o l i c y  framework.  D e c e n t r a l i z a t i o n may or may not r e q u i r e a b s o l u t e  political  c o n t r o l over r e g i o n a l r e s o u r c e s , c u l t u r a l and economic space. At a minimum, i t i m p l i e s some l e v e l of p a r t i c i p a t i o n by the l o c a l community  i n economic, s o c i a l and c u l t u r a l a f f a i r s . T h i s i s not  j u s t t o a v o i d c o r p o r a t i s t tendencies i n p u b l i c  sector  i n t e r v e n t i o n , but a l s o to b u i l d a p o l i t i c a l base or popular support f o r new developmental i n i t i a t i v e s . the r i s e of p u b l i c p a r t i c i p a t i o n  I t can be r e l a t e d t o  i n urban p l a n n i n g which arose  in the 1960s and 1970s. The most common approach u t i l i z e d by community  based economic development e f f o r t s i s l o c a l ownership  of small business, f r e q u e n t l y a i d e d by some form of community based o r g a n i z a t i o n c a l l e d a community (CDC). The l a t t e r  development c o r p o r a t i o n  r e p r e s e n t s the community  through a board of  d i r e c t o r s and commonly has a mandate t o p l a n f o r or i n i t i a t e l o c a l economic development or t o a c t "as c a t a l y s t s f o r l o c a l p r o j e c t s and i n i t i a t i v e s . "  (Coffey and Polese 1985)  The q u e s t i o n of ownership and c o n t r o l has s i g n i f i c a n t e f f e c t s on the nature and extent of i n t e r f i r m l i n k a g e s .  Backward  l i n k a g e s , which r e f e r t o inputs i n t o the p r o d u c t i o n p r o c e s s , and forward l i n k a g e s , which a r i s e from the p r o c e s s i n g of l o c a l resources, provide another argument  f o r l o c a l development, since  37  they are more l i k e l y to occur with l o c a l l y , externally controlled firms. Polese  (1982) shows that  (Gunton 1982)  intrafirm service  l a r g e l y p o l a r i z e d by head o f f i c e s , control  functions  Furthermore,  net  A recent  who b e l i e v e  study by  transactions  making those regions  importers of business  the l o c a l development  staples theorists  r a t h e r than  theorists  are lacking  services. would agree  with  that e x t e r n a l ownership decreases  the l i k e l i h o o d that p r o f i t s and rents w i l l be r e i n v e s t e d r e g i o n and dampens the development  of  indigenous  i n the  entrepreneurial  talent.  O b s t a c l e s to Community Based Economic Development What are the o b s t a c l e s to community based development  economic  i m p l i e d by the c e n t r a l r o l e of human resources  and  l o c a l c o n t r o l ? Given the emphasis p l a c e d on the promotion of l o c a l e n t r e p r e n e u r s h i p as a s t r a t e g y literature,  it  of CBED i n much of  i s a p p r o p r i a t e to focus  the  on the b a r r i e r s to  local  e n t r e p r e n e u r s h i p as they apply to the c r e d i t u n i o n . These are c o n s i d e r e d under the headings: advice,  i n f o r m a t i o n and management  f i n a n c i n g , and l o c a l c a p a c i t y .  Other handicaps face  the  small business firm such as those a r i s i n g from t e c h n i c a l , i n s t i t u t i o n a l and other economies of i s s u e with respect it  scale.  T h i s i s an important  to community based economic development,  i s beyond the scope of t h i s  thesis.  but  38  Information  and Management  Residents  Advice  of r u r a l and  remote communities o f t e n do not have  the same easy access to i n f o r m a t i o n as do t h e i r c o u n t e r p a r t s  in  urban a r e a s . Costs of o b t a i n i n g i n f o r m a t i o n , both i n terms of time and money are s i g n i f i c a n t l y higher and  thus a c t  as  p o t e n t i a l b a r r i e r s to l o c a l economic development. Quite simply, i n h a b i t a n t s of a l a g g i n g region r a r e l y possess the necessary i n f o r m a t i o n on how the 'system' works, on how to get a s s i s t a n c e from e x i s t i n g programs and p o l i c i e s . The c i v i l servants and bankers are f a r away i n the l a r g e c i t i e s and moreover, do not speak the same 'language'. (Coffey and Polese 1985) T h i s i s where the community development o r g a n i z a t i o n r e f e r r e d to i n the p r e v i o u s broker  section f i t s  to provide  i n . I t can a c t as an  t e c h n i c a l and  financial  i n f o r m a t i o n as w e l l as  advice on good management p r a c t i s e s . Information r e q u i r e d f o r the l o c a l entrepreneur of f i n a n c i n g such that the two  information  i s frequently  to access a v a i l a b l e sources  are o f t e n  inseparable.  Financing The necessary shortage  l o c a l development l i t e r a t u r e  i d e n t i f i e s c a p i t a l as a  element f o r the development p r o c e s s . The of c a p i t a l  i s long-term e q u i t y or venture  most  captital,  debt f i n a n c i n g i s a l s o a problem. In the case of debt it  i s access  severe  to f i n a n c i a l c a p i t a l which i s problematic  but  capital, f o r the  small f i r m , rather than the c o s t of borrowing. T h i s stems from the f a c t that c a p i t a l of doing business, ( D a n i e l s 1979)  i s g e n e r a l l y only a small part of the c o s t  l e s s than ten percent  f o r most small f i r m s .  These small f i r m s face s p e c i a l b a r r i e r s in  39  g a i n i n g access to f i n a n c i a l c a p i t a l , both debt and e q u i t y , p r i m a r i l y because t h e i r requirements are r e l a t i v e l y According to D a n i e l s and K i e s c h n i c k  small.  (1978) i t i s "a d i f f i c u l t y  that appears remarkably u n j u s t i f i e d by d i f f e r e n c e s i n the r a t e of r e t u r n and r i s k . " These b a r r i e r s are a t t r i b u t e d to c a p i t a l market i m p e r f e c t i o n s and a c o n c e n t r a t i o n of a s s e t s i n a small number of l a r g e f i n a n c i a l  i n s t i t u t i o n s which are very powerful  in debt and e q u i t y markets. Consequently, most small ventures are f i n a n c e d with p e r s o n a l s a v i n g s , loans from f r i e n d s and r e l a t i v e s , and short term commercial debt. Thus we have major n a t i o n a l problems i n d e v e l o p i n g new i n d u s t r y , new products and s m a l l i n d u s t r y i n any l o c a t i o n l e t alone i n those communities of g r e a t e s t concern to us... The problems i n r a i s i n g c a p i t a l f o r p r o f i t a b l e m i n o r i t y businesses and commercial e n t e r p r i s e s e s p e c i a l l y i n d e c l i n i n g neighbourhoods, are even more extreme. ( D a n i e l s 1979)  Local Capacity Recognizing that an abundance capital  of i n f o r m a t i o n and  i s not n e c e s s a r i l y a s u f f i c i e n t  financial  stimulus to community  based economic development, the l o c a l development  literature  turns to the l e s s t a n g i b l e , but e q u a l l y important r o l e of l o c a l c a p a c i t y . C a p a c i t y r e f e r s to the a s p i r a t i o n s , s k i l l s ,  networks  and systems which i n d i v i d u a l s and groups use to make changes in t h e i r environment. "Capacity i s a q u i n t e s s e n t i a l development concept, demanding a long-run p e r s p e c t i v e . " (Bearse 1982) I f human resources are to be accorded a c e n t r a l r o l e  i n community  based economic development as the l i t e r a t u r e suggests, then the b u i l d i n g of l o c a l c a p a c i t y i s a necessary c o r o l l a r y to  40  development. The c h i e f shortcoming of the l o c a l economic development literature  i s i t s f a i l u r e to e x p l a i n t h i s process and  correspondingly, In some cases,  to suggest a p o s s i b l e s t r a t e g y to deal with i t . the r o l e of c a p a c i t y b u i l d i n g i s l i m i t e d to that  of c r e a t i n g p o t e n t i a l entreprenuers (Coffey and Polese 1985); but community developers r e f e r to the more general  notion of  b u i l d i n g group c a p a c i t y and a sense of power over economic and s o c i a l resources.  (Roberts 1979) The best  guide to l o c a l  c a p a c i t y b u i l d i n g i s probably the community development l i t e r a t u r e r e f e r r e d to i n Chapter 1. To the extent  that the  l o c a l economic development l i t e r a t u r e does recognize  a broader  scope f o r c a p a c i t y b u i l d i n g i t does not address the the s o c i o l o g i c a l and p o l i t i c a l  i m p l i c a t i o n s . T h i s i s a common  f a i l i n g of r e g i o n a l development t h e o r i e s determinism u s u a l l y p r e v a i l s . Coffey  i n general;  economic  and Polese (1984) lament  t h i s l i m i t a t i o n of r e g i o n a l s c i e n c e and suggest that t h e i r model of l o c a l development w i l l open" r e g i o n a l science  " f u r n i s h an o p p o r t u n i t y  to other  Summary and I m p l i c a t i o n s  t o more f u l l y  disciplines.  f o r CBED  An examination of the l o c a l economic development  literature  y i e l d s some important i n s i g h t s i n t o the process of CBED and i t s d i s t i n g u i s h i n g f e a t u r e s . F i r s t of a l l i t i s o f t e n d e s c r i b e d business development s t r a t e g y o c c u r r i n g a t the l o c a l using  l o c a l resources,  as a  level,  with some element of l o c a l c o n t r o l .  C l e a r l y CBED d i f f e r s from other  r e g i o n a l development  theories  41  due t o an emphasis on human resources  and l o c a l c o n t r o l as  sources of development. Consequently, p o l i c i e s to s t i m u l a t e should  focus on the development of human resources  CBED  and l o c a l  c o n t r o l . These s p e c i a l c h a r a c t e r i s t i c s of CBED imply a set of three  r e l a t e d b a r r i e r s to CBED: 1) l a c k of knowledge, 2 ) l i m i t e d  a c c e s s t o f i n a n c i n g and 3 ) l a c k of l o c a l c a p a c i t y contrast  to develop. In  to economic development p o l i c i e s which support  infrastructure r e q u i r e s that  investment, l o c a t i o n s u b s i d i e s and the l i k e , CBED informational,  f i n a n c i a l and c a p a c i t y b a r r i e r s be  removed. The c r e d i t union would seem t o be i d e a l l y s u i t e d t o handle the f i n a n c i a l requirements of CBED and t o some extent the p r o v i s i o n of information  and management a d v i c e ,  c a p a c i t y b u i l d i n g . The g e o g r a p h i c a l l y  and some  based c r e d i t union  operates under the c o n t r o l of i t s members who a r e r e s i d e n t s of the common bond. However, before role  t u r n i n g to the c r e d i t union's  i n a l l of t h i s , the r e c o r d of the c h a r t e r e d  banks and  f e d e r a l LEAD program i n performing these f u n c t i o n s in the next  chapter.  i s examined  42  CHAPTER 3  PROBLEMS FACING CBED ORGANIZATIONS The  preceding  chapter  f a c i n g CBED e x p l i c i t : The  made three of the p o t e n t i a l b a r r i e r s  information,  purpose of t h i s chapter  f i n a n c i n g and l o c a l  i s to document the extent  these b a r r i e r s e x i s t , and whether c h a r t e r e d  capacity. to which  banks and f e d e r a l  government employment programs are able t o c o n t r i b u t e t o reducing  these o b s t a c l e s . T h i s w i l l demonstrate the need f o r an  alternative  institution  such as the c r e d i t union t o play both a  f i n a n c i a l and a developmental r o l e i n the community. Community based economic development o r g a n i z a t i o n s and e n t e r p r i s e s r e p o r t numerous d i f f i c u l t i e s  i n i n i t i a t i n g and m a i n t a i n i n g  a process of  community based economic development. Strandberg  (1984) p l a c e s  them i n t o two c a t e g o r i e s c o n s i s t i n g of f i n a n c i a l  support and  management support.  F i n a n c i a l support  may take the form of  e q u i t y or debt f i n a n c i n g . The second category  includes  t e c h n i c a l , managerial and o r g a n i z a t i o n a l f u n c t i o n s , and t r a i n i n g . A t h i r d category development process  of b a r r i e r s to an e f f e c t i v e community  a r e those i n v o l v i n g a l a c k of l o c a l  or "a sense of power or c o n t r o l over economic events."  capacity (Jackson  1984)  The  Experience of CBED  Organizations  E x i s t i n g community based economic development have f r e q u e n t l y s t a t e d t h e i r problems with  respect  For example, a 1983 study of CBED o r g a n i z a t i o n s  organizations to f i n a n c i n g .  revealed  that  43  the m a j o r i t y  felt  t h e i r continued  funding  uncertainty  operation.  (Highland  was a major problem i n Resources 1983) In f a c t , i t  i s p o s s i b l e that a l a c k of adequate f i n a n c i n g i s the primary external obstacle 1984)  Since  t o community economic s e l f - h e l p . (Jackson  s e l f - r e l i a n c e i s a goal of the CBED  o b t a i n i n g access to c a p i t a l  process,  i s c r i t i c a l . CBED o r g a n i z a t i o n s  the unenviable p o s i t i o n of being  hold  ineligible for traditional  sources of small business f i n a n c i n g such as banks because of the i n t e g r a t i o n of s o c i a l , c u l t u r a l and o f t e n  environmental  o b j e c t i v e s ; y e t s i m i l a r l y a r e i n e l i g i b l e f o r grants and s u b s i d i e s t o s o c i a l s e r v i c e agencies and c h a r i t a b l e o r g a n i z a t i o n s . Many CBED o r g a n i z a t i o n s  are p r o f i t - m a k i n g but  n o t - f o r - p r o f i t , meaning that any s u r p l u s needs of the o r g a n i z a t i o n ' s  i s i n v e s t e d t o meet the  o b j e c t i v e s , not d i s t r i b u t e d among  the members. T h i s dilemma p o s i t i o n s CBED o r g a n i z a t i o n s  outside  t r a d i t i o n a l p u b l i c s e c t o r - p r i v a t e sector dichotomy; they a r e b e t t e r c l a s s i f i e d w i t h i n the t h i r d  of the instead  sector,  i n c o r p o r a t i n g some of the s t r a t e g i e s of each i n one h y b r i d o r g a n i z a t i o n . The d i f f i c u l t i e s a r e compounded f o r c o o p e r a t i v e s which r e l y on borrowing and government a s s i s t a n c e  to complement  membership fees and membership c a p i t a l . Often however, members cannot f i n d the e q u i t y  required  f o r t h e i r share of membership  c a p i t a l and seek to borrow t h i s as w e l l . The f i n a n c i a l d i f f i c u l t i e s of a CBED o r g a n i z a t i o n the p r o f i t - m a k i n g  a r i s e f o r two reasons; 1)  a c t i v i t i e s a r e not s u f f i c i e n t l y p r o f i t a b l e to  support the n o n - p r o f i t making a c t i v i t i e s and 2) the n o n - p r o f i t  44  a c t i v i t i e s a r e i n a b l e t o generate s u f f i c i e n t  funding  from  e x t e r n a l sources such as government or p r i v a t e foundations t o meet t h e i r  requirements.  Community based economic development groups o f t e n s u f f e r from a l a c k of both i n f o r m a t i o n  and management s k i l l s to c a r r y  out t h e i r development work. CBED s t a f f and board members r e q u i r e some knowledge of business, assist  p r e f e r a b l y community business, t o  them i n day to day a c t i v i t i e s . However, i n the f i r s t  i n s t a n c e , s i n c e many CBED o r g a n i z a t i o n s a r e i n s t i g a t e d by s o c i a l workers and community s e r v i c e o r g a n i z a t i o n s , o u t s i d e s t a f f with a business  managerial  background a r e h i r e d . T h i s i s l e s s than  s a t i s f a c t o r y s i n c e they o f t e n have l i t t l e  knowledge o f , or  commitment to the CBED approach. I f the c o o p e r a t i v e  form i s  used, s p e c i a l i z e d a s s i s t a n c e p e r t a i n i n g t o management s t y l e s and o r g a n i z a t i o n a l forms i s r e q u i r e d . F o r t u n a t e l y cooperative  various  development agencies o f f e r some support f o r  f l e d g l i n g cooperatives  such as the Cooperative  C o l l e g e of  Canada, which has o f f i c e s i n s e v e r a l regions across Canada i n c l u d i n g B.C. and the Coady I n s t i t u t e i n Nova S c o t i a . It  i s more d i f f i c u l t  to e x p l a i n the problems a s s o c i a t e d  with a l a c k of l o c a l c a p a c i t y t o undertake a community based economic development e f f o r t ; however i n many cases,  development  i s f r u s t r a t e d by a s i t u a t i o n where a community has been dependent on o u t s i d e c o r p o r a t i o n s i t s w e l f a r e . T h i s chapter  or government to provide f o r  begins by examining the record of  p r i v a t e banks and a f e d e r a l government program designed to a s s i s t CBED c a l l e d L o c a l Employment A s s i s t a n c e Development or  45  LEAD i n overcoming  the above mentioned o b s t a c l e s . I t concludes  t h a t CBED o r g a n i z a t i o n s do indeed r e q u i r e a l t e r n a t i v e sources of financial,  i n f o r m a t i o n a l and c a p a c i t y b u i l d i n g  support.  C h a r t e r e d Bank Lending t o CBED O r g a n i z a t i o n s The CBED popular l i t e r a t u r e o f t e n c i t e s the i n a c c e s s i b i l i t y of bank f i n a n c i n g f o r s m a l l businesses, whether of the t r a d i t i o n a l type or CBED i n i t i a t i v e s , and bank d i s c r i m i n a t i o n a g a i n s t remote, e c o n o m i c a l l y disadvantaged  r e g i o n s i n the West,  as a major b a r r i e r t o economic development. (Ross no date; Wismer and P e l l  1982) The nature of these a l l e g a t i o n s w i l l be  examined f o c u s s i n g on two major i s s u e s . F i r s t l y , what i s the extent and nature of c h a r t e r e d bank f i n a n c i n g of CBED and what, i f any, a r e the problems? Secondly,  s i n c e CBED o f t e n takes p l a c e  i n economically depressed r e g i o n s , what a r e the r e g i o n a l i m p l i c a t i o n s of bank f i n a n c i n g and what does t h i s mean f o r CBED? Only a small percentage  of CBED o r g a n i z a t i o n s and  e n t e r p r i s e s r e c e i v e f i n a n c i n g from c h a r t e r e d banks at t h i s and very l i t t l e has been w r i t t e n concerning t h e i r  time  experience  w i t h the banks. Even fewer c i t e c r e d i t unions as a source of funds.  (Highland Resources  1983) Table 2 shows the source of  f i n a n c i n g used by 53 CBED o r g a n i z a t i o n s surveyed on the matter in  1982, r e v e a l i n g a heavy r e l i a n c e on government funding. The  respondants were not asked however, to i n d i c a t e the amount or p r o p o r t i o n of t o t a l  f i n a n c i n g r e c e i v e d from each source, and i t  i s l i k e l y that numerous sources were used.  46  TABLE 2 Sources of CBED F i n a n c i n g Number  Source Banks Loans C r e d i t Union Loans F e d e r a l Government P r o v i n c i a l Government M u n i c i p a l Government Fee f o r S e r v i c e Revenue from Business Church, Foundation G i f t Personal G i f t Corporate Sale of Stock Membership Fees Rents Others Source: Highland Canada 1983.  13 5 42 34 13 18 19 6 10 6 2 17 13 12  Resources. Community Based Development i n  Does the present  lack of support  are an i n a p p r o p r i a t e source  by banks suggest t h a t  they  of f i n a n c i n g f o r CBED or i s there  some p o t e n t i a l ? The p r e v i o u s d i s c u s s i o n regarding the m u l t i p l e o b j e c t i v e s of CBED o r g a n i s a t i o n s and the d i s t i n c t i o n  between  p r o f i t and n o n - p r o f i t making a c t i v i t i e s suggests there may be a role  f o r banks i n f i n a n c i n g small businesses  which represent the  p r o f i t making arm of community development c o r p o r a t i o n s .  Since  CBED e n t e r p r i s e s o f t e n take the form of a small business, the experience  of the t r a d i t i o n a l small business  to bank f i n a n c i n g i s r e l e v a n t . The  distinction  in gaining  access  1  between small business  development and  'Small business commonly r e f e r s t o any business with annual s a l e s of l e s s than $2 m i l l i o n . However, CBED e n t e r p r i s e s are o f t e n a t the very low end of t h i s s c a l e .  47  e n t e r p r i s e development s t r a t e g y of CBED can be a d i f f i c u l t one to draw and can be approached i n the f o l l o w i n g manner. The latter  i m p l i e s a broader set of o b j e c t i v e s than that of small  b u s i n e s s development per se. The small businessperson wants a r a t e of r e t u r n on h i s or her investment, as does the banker or investor supplying  c a p i t a l t o the business person. Neither  i s concerned that the e n t e r p r i s e c r e a t e i n p u t s , provide  job t r a i n i n g  party  jobs, purchase l o c a l  to marginal employees or provide a  needed community s e r v i c e . These concerns do however d e f i n e the community's p e r c e p t i o n  of socio-economic development so that  CBED possesses m u l t i p l e o b j e c t i v e s , only one of which i s a r a t e of r e t u r n . Each community, through a community o r g a n i z a t i o n  such  as a CDC determines the o b j e c t i v e s i t wishes to pursue and the s t r a t e g y to be f o l l o w e d . However, a c h i e v i n g  a r a t e of r e t u r n may  predominate i n the sense that i t i s a p r e - c o n d i t i o n other  f o r the  o b j e c t i v e s which comprise socio-economic development.  Choice of the small business c r e a t i o n s t r a t e g y of CBED r e q u i r e s that only those small businesses which enable community o b j e c t i v e s to be met should  be encouraged. Therefore,  small  business development i s not the end, i t i s the means. Chartered  banks are the major f i n a n c i n g source of small  business i n Canada a c c o r d i n g  to a 1985 Canadian F e d e r a t i o n of  Independent Business (CFIB) survey. E i g h t y - s i x percent 64,000 small and medium-sized businesses reported t h e i r banking with a c h a r t e r e d  of i t s  doing most of  bank as i l l u s t r a t e d i n Table 3.  48  TABLE 3 F i n a n c i a l I n s t i t u t i o n s Used Most f o r Small Business  Financial Institutions  1982  B i g F i v e Chartered Banks C r e d i t Unions and Coops Other C h a r t e r e d Banks Other T r u s t and Finance Cos.  Percent  Lending  1985  85.4 10.0 6.0 3.0 0.4  78.1 10.5* 8.1 2.3 1.0  * The c r e d i t union f i g u r e i s skewed by the l a r g e share of business l e n d i n g c a r r i e d out by c a i s s e s p o p u l a i r e i n Quebec. Source: Canadian F e d e r a t i o n of Independent B u s i n e s s . Banking Survey 1985.  S i m i l a r l y , banks c l a i m that small business i s an of t h e i r l e n d i n g p o r t f o l i o , accounting f o r almost  1985  important p a r t 25 percent of  the Canadian d o l l a r volume of the banks t o t a l business l e n d i n g portfolio  i n 1985.  (Grant  1986)  D e s p i t e h i g h l e v e l s of use however, the business community has a l s o r e p e a t e d l y c r i t i c i s e d the c h a r t e r e d banks charging t h a t small business loans are inadequate, of i n t e r e s t are higher than  t h e i r terms are bad,  rates  f o r l a r g e r b u s i n e s s e s , and that  small business owners are faced with e x c e s s i v e s e c u r i t y demands. A l a c k of bank c o m p e t i t i o n , i n a p p r o p r i a t e bank procedures  and  the s p e c i f i c a t t i t u d e s and c a p a b i l i t i e s of the bankers themselves (Hatch  are h e l d r e s p o n s i b l e f o r t h i s poor performance.  1982)  In f a c t , the CFIB (1982; 1985)  monitoring the r e c o r d of f i n a n c i a l  has made a p o i n t of  i n s t i t u t i o n s i n r e l a t i o n to  the s m a l l business s e c t o r , undertaking  frequent surveys of the  small business community i t r e p r e s e n t s . Table 4 i s a sample of  49  the f i n d i n g s from the 1985  Banking Survey r e g a r d i n g the l e v e l of  s a t i s f a c t i o n by small and medium s i z e d business with l e n d i n g by f i n a n c i a l  i n s t i t u t i o n s . I t should be noted  h i g h e s t l e v e l s of d i s s a t i s f a c t i o n were recorded Western most p r o v i n c e s ; surveyed  business  i n B.C.  were d i s s a t i s f i e d ,  40.3  that the  i n the  percent of small  two businesses  f o l l o w e d by A l b e r t a with  34.1  percent. TABLE 4 S a t i s f a c t i o n with S e r v i c e s P r o v i d e d by F i n a n c i a l  Percent Reasonably Somewhat Strongly Satisfied Dissatisfied  Highly Satisfied National Results Royal Bank * Bank of Montreal * Other Chartered Banks T r u s t and Finance Cos. C r e d i t Unions, Coops * The h i g h e s t and lowest banks r e s p e c t i v e l y . Source: CFIB. 1985  Institution  54.7 55.2 50.9 50.3 49.7 61.9  17.0 17.2 10.5 23.5 34.2 23.3 ranked of the  Banking Survey.  18.4 18.2 18.2 15.5 7.5 10.4  9.8 9.4 9.4 10.6 8.5 4.3  'Big F i v e ' c h a r t e r e d  1985  Compounding the above mentioned s i t u a t i o n  i s the f a c t that small  business has v i r t u a l l y no other source of c a p i t a l as do l a r g e r f i r m s . There are few  firms a c t i v e l y  i n v o l v e d i n small  e q u i t y f i n a n c i n g because the amounts r e q u i r e d by businesses  are t y p i c a l l y lower than  floor  business  small  investment  levels.  Debt f i n a n c i n g i s o f t e n the only a l t e r n a t i v e . Do c h a r t e r e d banks r e s t r i c t  t h e i r small business  the above mentioned ways? A study which s p e c i f i c a l l y  lending in undertook  50  to i n v e s t i g a t e these charges found t h a t :  a) banks tend to charge higher small business loans  and  b) banks i n s i s t on p e r s o n a l collateral  r a t e s of i n t e r e s t on  guarantees and  from the p r i n c i p a l s of small  than with l a r g e f i r m s . (Hatch  personal  f i r m s , more so  1982)  While these f i n d i n g s appear to support the  inaccessibility  hypothesis of the small business community, the study goes on s t a t e that the above mentioned banking p r a c t i c e s are The  to  reasonable.  authors: f e e l t h a t the higher loan r a t e s are j u s t i f i e d by the a d d i t i o n a l r i s k s and a d m i n i s t r a t i v e c o s t s i n l e n d i n g to small f i r m s . The c o l l a t e r a l d i f f e r e n c e seems to r e s u l t from the c h a r a c t e r i s t i c that bankers would a t t r i b u t e as being most unique to small business, namely, the fundamental importance of the owneroperater i n shaping the company's success. (Hatch 1982)  The  presence of a high r i s k element i n small business loans  not proven c o n c l u s i v e l y ; i n f a c t a c c o r d i n g a specific  r i s k c l a s s , small firms pay  t h e i r operating  and  term c r e d i t s . "  to the study,  was  "within  more than l a r g e firms f o r  (Hatch 1982)  I t d i d determine  that bankers appear to b e l i e v e that small businesses are more r i s k y . At any not  r a t e , the study goes on to s t a t e that  the c u l p r i t ,  r e q u i r e d that  i t i s the a d d i t i o n a l a d m i n i s t r a t i v e  i f risk is effort  i s to blame.  However, the study d i d not possess adequate information loans  that were turned  on  down by the branch manager as  "unbankable" before  a formal  a p p l i c a t i o n was  made. In f a i l i n g  capture i n f o r m a t i o n  on the l a r g e number of loan turn downs at  to  51  the i n i t i a l  stage of c o n s u l t a t i o n between the business  and banker, the study minimizes  person  the extent of b i a s e s a g a i n s t  small b u s i n e s s . There have however, been some attempts  to even  the d i s t r i b u t i o n of business loans by s i z e with the Small Business Loans Act and the c r e a t i o n of s p e c i a l s m a l l business (or independent  business) d i v i s i o n s at c h a r t e r e d banks.  In r e c o g n i t i o n of the s p e c i a l problems faced by small b u s i n e s s i n o b t a i n i n g access to. c r e d i t , the f e d e r a l government c r e a t e d the Small Business Loans Act  (SBLA) i n 1961.  banks and other i n s t i t u t i o n a l l e n d e r s may  Chartered  use the Act to p r o v i d e  term loans to small business f o r the purchase  of s p e c i f i e d  fixed  a s s e t s with the a d d i t i o n a l backing of a government loan guarantee.  The Act i s meant to p r o v i d e loans up to a maximum of  $100,000 to small businesses which l i k e l y would not  otherwise  q u a l i f y f o r a loan. However, SBLA loans represent o n l y a f r a c t i o n of a l l business l e n d i n g by volume, about one  percent,  f o r reasons which are e x p l a i n e d below. The c h a r t e r e d banks accounted 1982  and  f o r the l a r g e s t share, approximately 1983.  l o a n s . (Hatch  C r e d i t unions 1982)  represented only 4 percent of SBLA  F i g u r e s show t h a t a l a r g e p r o p o r t i o n of  l e n d i n g under the Act i s f o r new explicitly  90 percent i n  business although t h i s i s not  intended.  The program does not appear to be e n t i r e l y s u c c e s s f u l a c c o r d i n g to a recent study c a r r i e d out by the U n i v e r s i t y of Western O n t a r i o . (Hatch, Wynant and Grant  1985)  Roughly  50  percent of SBLA loans would have been made i n the absence of the program, and SBLA loans made by the c h a r t e r e d banks are only  52  modestly r i s k i e r than c o n v e n t i o n a l bank l o a n s . The found evidence  study  that the program i s not w e l l understood  also  by  the  l e n d i n g community or small business owners. (Hatch, Wynant Grant,  1985)  ten percent  Furthermore, one  c h a r t e r e d banker s t a t e d that only  of h i s bank's loans were made under the Act because  a) i t i s too r e s t r i c t i v e terms and  i n terms of s e c u r i t y  amount borrowed, b) the i n t e r e s t  term loan and c) the bank had c o l l e c t i n g on bad  experienced  r a t e i s too low  for a  d i f f i c u l t y in  Bank, December 1986)  of the SBLA r e v e a l s i t i s problematic  fulfilling  requirements,  loans from the government. ( B r i a n Hann,  Manager Independent Business, Royal review  and  This  and p o t e n t i a l l y  i t s o b j e c t i v e s with respect to small  not  business  lending. Most of the d i s c u s s i o n here has bank as a f i n a n c i a l resource,  focussed on the c h a r t e r e d  i t s most l i k e l y r o l e . However,  there are some instances where banks have recognized the of combining management a d v i c e and  other  value  i n f o r m a t i o n to the  client  i n order to complete the l o a n . Rather than viewing  excess  time and  effort  r e q u i r e d as a b a r r i e r to small  l e n d i n g and c i t i n g the t r a d i t i o n a l  the  business  'high t r a n s a c t i o n s c o s t '  argument, some have i n s t i t u t i o n a l i z e d t h i s a s s i s t a n c e with formation The  of separate d i v i s i o n s to handle small business  need f o r management a d v i c e a r i s e s because small  often lack s k i l l s  the  loans.  business  i n key management areas and do not have  adequate experience  i n s m a l l business management. These  s p e c i a l i z e d small business  loan departments may  be viewed as:  a d e c e n t r a l i z a t i o n of loan a u t h o r i z a t i o n a u t h o r i t y , and  b)  an  a)  53  attempt to p r o v i d e  f u r t h e r s e c u r i t y f o r small business  the absence of c o n t r a r y evidence, have l i t t l e  interest  loans. In  the c h a r t e r e d banks appear to  i n the development of l o c a l c a p a c i t y f o r  long term development; t h e i r c o n t r i b u t i o n i s p r i m a r i l y f i n a n c i a l and  to a l e s s e r degree i n p r o v i d i n g management a d v i c e . Chartered  banks have not a c t i v e l y pursued l e n d i n g f o r CBED,  but do have a somewhat b e t t e r r e c o r d with respect to small b u s i n e s s . Banks look f o r an a c c e p t a b l e loans and do not  r a t e of r e t u r n on  i n c l u d e broader o b j e c t i v e s such as  their  increased  l o c a l employment among t h e i r goals thus l i m i t i n g t h e i r p o t e n t i a l as a source  Regional  of support  f o r CBED.  I m p l i c a t i o n s of Bank Lending  Apart  from the i s s u e s r e l a t e d to bank f i n a n c i n g of  business, a p e r c e p t i o n  small  that c h a r t e r e d banks d i s c r i m i n a t e a g a i n s t  the West i n t h e i r l e n d i n g a c t i v i t i e s a l s o motivates  the  search  f o r a l t e r n a t i v e f i n a n c i n g by CBED o r g a n i z a t i o n s . In r e f e r r i n g a B.C.  NDP  government proposal  i n 1975  to e s t a b l i s h B.C.  and T r u s t , a p r o v i n c i a l l y owned f i n a n c i a l (1978) d e s c r i b e d the proposal not as an r a t h e r as an  "expression  disaffection  for existing f i n a n c i a l  sentiment i n the particularly difficult of data.  isolated and  i n c i d e n t but widespread  i n s t i t u t i o n s . . . " In  c r e a t e d out of  1960s. T h i s long-standing  Savings  i n s t i t u t i o n , Benson  of a long-standing  the Bank of B r i t i s h Columbia was  to  fact,  similar  disaffection,  f o r c h a r t e r e d banks head-quartered i n the East, i s  to s u b s t a n t i a t e i n a u s e f u l way (Benson 1978;  owing mainly to a l a c k  F e d e r a l Government 1973)  Hence, only a  54  review of the l e a d i n g will  i s s u e s and t h e i r s i g n i f i c a n c e f o r CBED  be undertaken here. The  c l a i m that banks " d r a i n " c a p i t a l from the West f o r use  in the f u r t h e r the East  i n d u s t r i a l i z a t i o n and economic d i v e r s i f i c a t i o n of  i s i l l u s t r a t e d by the f o l l o w i n g  statement.  The c h a r t e r e d banks s t i m u l a t i o n of development of C e n t r a l Canada appears t o have been done a t the expense of the other regions of Canada. By m o b i l i z i n g Western Canada savings and t r a n s f e r r i n g them t o C e n t r a l Canada, the banks, i n e f f e c t , have reduced the development p o t e n t i a l of the West. (Western Economic O p p o r t u n i t i e s Conference 1973) An a d d i t i o n a l c r i t i c i s m , which i s i n some r e s p e c t s  l i n k e d to  t h i s a l l e g a t i o n , holds that a lack of bank competition  exists i s  Canada which r e s u l t s i n higher i n t e r e s t r a t e s than a r e j u s t i f i e d and  less f l e x i b i l i t y  i n l e n d i n g p o l i c y which may be r e f l e c t e d i n  regional discrimination.  ( F e d e r a l Government 1973) However, an  examination of the i s s u e s surrounding the competition  debate a r e  beyond the scope of t h i s paper. The provided  Western Economic O p p o r t u n i t i e s  Conference i n 1973  a forum f o r the d i s c r i m i n a t i o n debate. However, much of  the debate then was based on l i m i t e d and inadequate data as i t i s today. In f a c t , i t was only a f t e r t h i s conference that the banks began to supply f i g u r e s f o r a s s e t s and l i a b i l i t i e s  of the  system on a p r o v i n c i a l b a s i s . The f e d e r a l government's p o s i t i o n was a moderate one, s t r e s s i n g the e f f i c i e n c y of the branch banking system, while r e c o g n i z i n g  the "lack of responsiveness"  r e s u l t i n g from the l o c a t i o n of c o r p o r a t e head o f f i c e s i n Toronto and  M o n t r e a l . (Federal Government 1973) The Canadian Bankers  Association  produced s t a t i s t i c s p u r p o r t i n g  to document the  55  c o n t r i b u t i o n made to the West i n terms of employees, number of branches, and  loans;  ' d r a i n i n g resources'  evidence that would "show that f a r from from the West, the c h a r t e r e d  support Western Canada d i s p r o p o r t i o n a t e l y . . . " Association  1973)  With the exception  proportions  were g r e a t e r  illustrated  i n Table  banks i n f a c t  (Canadian Bankers  of d i r e c t o r s ,  the above  than the West's share of p o p u l a t i o n  as  5. TABLE 5  Chartered  Bank S t a t i s t i c s  British number Population Bank Branches Bank Employees Bank D i r e c t o r s  2,291,000 744 13,068 36  1973  Columbia  Western  Canada  percent of Canada  number  percent of Canada  5,865,000 1 ,974 28,500 69  10.4 11.3 12.2 12.9  26.6 30.4 27.2 24.7  Source: Canadian Bankers A s s o c i a t i o n . The Banks and the West. S p e c i a l e d i t i o n of the CBA B u l l e t i n . V o l 16 No 2 J u l y 1973.  T h i s data addresses the c o n t e n t i o n discriminate against o f f i c e s are  that c h a r t e r e d  p e r i p h e r a l regions  because t h e i r  l o c a t e d i n the E a s t . By extension,  s i g i f i c a n t aspect  banks tend to  of t h i s argument i m p l i e s that  head  the most lending  d e c i s i o n s are made at head o f f i c e . I f however, l e n d i n g are made at the  l o c a l l e v e l , e i t h e r at the branch or  decisions  regional  o f f i c e , then t h i s argument i s rendered meaningless. Again, evidence on t h i s question Chartered validity  i s sparse and  Bankers A s s o c i a t i o n  often contradictory.  (1973) v i r t u a l l y admitted some  to t h i s a s s e r t i o n i n a b r i e f  to the above-noted  The  56  conference:  "a continuous  process of d e c e n t r a l i z a t i o n of  a u t h o r i t y has been going on f o r some y e a r s . . . " However, i t does appear that small loan amounts a r e approved at the branch  level.  (Brian Hann, Royal Bank i n t e r v i e w December 15, 1986; Benson 1978) In a d d i t i o n , the Bankers A s s o c i a t i o n prepared a study a l l o c a t i n g t o t a l domestic  a s s e t s and l i a b i l i t i e s  banks on a p r o v i n c i a l b a s i s f o r the f i r s t  time. These f i g u r e s  showed that a d j u s t e d a s s e t s exceeded l i a b i l i t i e s Western p r o v i n c e s  of Canadian  i n each of the  (or loans exceeded d e p o s i t s ) i n every Canadian  p r o v i n c e except O n t a r i o . John Benson (1978) argues that for  testing  d i s c r i m i n a t i o n i n the manner f o l l o w e d by the Canadian  Bankers A s s o c i a t i o n i s problematic because, "the p r o v i n c i a l d i s t r i b u t i o n of bank d e p o s i t s i s l a r g e l y o u t s i d e the a b i l i t y of the banks to c o n t r o l . " Instead, banks, as both payments i n s t i t u t i o n s and f i n a n c i a l of  i n t e r m e d i a r i e s , r e f l e c t the s t r u c t u r e  the economy and the nature of i t s balance of payments with  other p r o v i n c e s and c o u n t r i e s . Thus, B r i t i s h Columbia which i s demonstrated t o have a c u r r e n t account  deficit,  receives less  from o u t s i d e the p r o v i n c e than r e s i d e n t s pay out of p r o v i n c e f o r goods and s e r v i c e s . The  c o n t r o v e r s y surrounding  exacerbated  the d i s c r i m i n a t i o n debate i s  by d e f i n i t i o n a l d i f f e r e n c e s . Does d i s c r i m i n a t i o n  occur when bank customers i n d i f f e r e n t regions r e c e i v e d i f f e r e n t treatment  by bank a c t i v i t i e s or p o l i c i e s ? Or does i t occur when  n a t i o n a l p r a c t i s e s f o l l o w e d by banks r e s u l t i n c i d e n t a l g e o g r a p h i c a l impact?"  i n " f o r t u i t o u s or  (Benson 1978)  57  The i s s u e has not been r e s o l v e d . In f a c t ,  i t was  recently  r e s u r r e c t e d with the s a l e of the Bank of B.C. Nevertheless, perception  of r e g i o n a l d i s c r i m i n a t i o n by the c h a r t e r e d  towards the West p e r s i s t s . Even a Royal Bank e x e c u t i v e that i f he were not a banker who  "knows f o r a f a c t "  the  banks admits  that  d i s c r i m i n a t i o n does not occur, he would assume the e x i s t e n c e of discrimination are  j u s t by v i r t u e of the f a c t that the head o f f i c e s  l o c a t e d i n the East.  (Brian Hann, Royal Bank, December 15,  1986) From t h i s review of the major i s s u e s i n the d i s c r i m i n a t i o n debate i t i s c l e a r that analyses information,  are hindered  by a l a c k of  but while the evidence i s not c o n c l u s i v e ,  a widely h e l d p e r c e p t i o n  regarding  the e x i s t e n c e of  d i s c r i m i n a t i o n w i t h i n the banking system. When t h i s i s coupled with the c h a r t e r e d  likely  perception  bank's apparent l a c k of i n t e r e s t  i n CBED i t i s c l e a r that CBED o r g a n i z a t i o n s resources  there i s  they r e q u i r e elsewhere. Government  must seek the programs are more  to respond to the mix of s o c i a l and economic o b j e c t i v e s  inherent  i n CBED.  Government  Programs For Community Based Economic Development  The Highland Resources (1983) survey found that the most f r e q u e n t l y c i t e d source of funds among CBED groups surveyed were f e d e r a l and p r o v i n c i a l government programs as demonstrated i n Table 2. Use of f e d e r a l government programs outnumbered p r o v i n c i a l government programs and Canada Employment  and  Immigration Commission programs were most f r e q u e n t l y used. A s t r i n g of CEIC employment  programs have been d i r e c t e d at CBED  58  s i n c e the e a r l y  1970s beginning with the L o c a l  Employment  A s s i s t a n c e Program (LEAP). While these programs were commonly used, the survey a l s o found that 57 percent of those who r e c e i v e government a s s i s t a n c e f e l t  that f e d e r a l  do  government  programs d i d not meet t h e i r o r g a n i z a t i o n ' s main needs. Of those with access to government funds, 22 percent f e l t  that  r e s t r i c t i o n s on the use of funds were a major impediment. C l e a r l y then, government support of CBED both i n terms of g e n e r a l a p p l i c a b i l i t y and f i n a n c i n g i s p r o b l e m a t i c . L o c a l Employment  A s s i s t a n c e Development or LEAD, the most commonly  used program a c c o r d i n g to a recent study (SPARC 1984), w i l l the s u b j e c t of t h i s s e c t i o n .  1  be  The experience of CBED groups with  t h i s government program w i l l be examined to determine i f i t has been s u c c e s s f u l i n e l i m i n a t i n g b a r r i e r s to community  based  economic development and to c o n s i d e r some of the weaknesses of the program.  L o c a l Employment  A s s i s t a n c e Development  (LEAD) E x p l a i n e d  The LEAD program was e s t a b l i s h e d by Canada Employment Immigration Commission i n September,  and  1983 and was r e p l a c e d by  the Community Futures program i n 1986. I t was designed  'Numerous government programs aimed at economic development, r e g i o n a l development, job c r e a t i o n and small business development e x i s t at any p o i n t i n time, many of which prove u s e f u l to CBED groups. However, they are too numerous to be e x p l o r e d i n d e t a i l here. Appendix B p r o v i d e s a l i s t i n g of f e d e r a l and B.C. Government programs as well as a b r i e f summary of each. For more i n f o r m a t i o n , c o n s u l t N i e l s e n , C a r o l and Nancy McLeod, Community Economic Development 1986 Resource D i r e c t o r y for B r i t i s h Columbia, Vancouver: SPARC, 1986.  59  specifically  to deal  disadvantaged permanent  providing a)  regions  jobs.  communities  structural  the terms  a population  there  b) p o t e n t i a l  by  increasing  o f t h e LEAD  50,000  under  t h e number  program, were  only  of  small  eligible,  was:  an unemployment p r o b l e m i n other  unemployment i n  of the country  Under  with  that  than  c)  with  more  serious  and p e r s i s t a n t  localities, for increased  demonstrated  employment and  capacity  f o r planning  and  economic  any o r g a n i z a t i o n  representing  community  development. Furthermore, interests  was  eligible  to apply  f o r funding  under  development  t h e LEAD  program. LEAD  provided  corporations  funding  a n d LEAD  sector  businesses business  guarantees.  f o r new  and p r o v i d i n g  the provision  Thus,  t h e LEAD  two  of the three  major  The  third,  capacity  eligibility Each  local  rather  corporation  governed  by a  Separate  funding  operational  than  was  local  stage  was  former  employment c r e a t i o n  They  could  of debt  corporation  to develop, objective  incorporated  was  o f LEAD  was  local  equity  or  loan  to address  i n Chapter  a pre-condition for  board  corporations.  with  local in  structured  o f t h e LEAD  f o r both  to  identified  LEAD  i n the  invest  as a non-profit  business-oriented available  also  financing,  b a r r i e r s t o CBED  an  through  were c h a r g e d  technical consulting  and entrepreneurs.  through  i t sobjectives  p r o j e c t s . The  assessing.possibilities private  t o meet  of  corporation. society  directors.  the planning In the case  and of a  LEAD  2.  60  c o r p o r a t i o n , the p l a n n i n g stage c o u l d not exceed c o u l d be approved  12 months and  f o r o p e r a t i o n a l funding f o r an i n i t i a l p e r i o d  of up to f i v e y e a r s , s u b j e c t to annual  review.  The LEAD p r o j e c t c o n s i s t e d of three components: a p l a n n i n g p r o j e c t to analyse the community's economic p o s i t i o n ;  an  i n f r a s t r u c t u r e p r o j e c t to b u i l d p h y s i c a l c a p i t a l such as  roads  or a harbour; and an e n t e r p r i s e p r o j e c t which would support b u s i n e s s i d e a s . In each of the above components, an c o n s i d e r a t i o n of the funding process was  that the  new  important  proposed  a c t i v i t i e s would not occur without LEAD funding and t h e r e f o r e would not compete with the p r i v a t e s e c t o r or cause workers at e x i s t i n g businesses to be l a i d o f f as a r e s u l t . LEAD c o r p o r a t i o n s and p r o j e c t s were expected to h i r e unemployed people and each component was  e l i g i b l e f o r a maximum funding  p e r i o d ranging from one to f i v e y e a r s . In the 1985-86 f i s c a l year, a t o t a l of $68.3 m i l l i o n was  spent on the LEAD program and  i t s successor Community F u t u r e s . (CEIC  1986)  Community Futures i s a component of the new announced i n 1985; operative u n t i l  Job S t r a t e g y  however, Community Futures d i d not become  1986.  I t i s q u i t e s i m i l a r to i t s predecessor  LEAD, but d i f f e r s i n that i t i s only a v a i l a b l e i n communities d e s i g n a t e d by Employment and Immigration p r o v i d e c a p i t a l to purchase  Canada and does not  b u i l d i n g s and equipment, as d i d i t s  predecessor. There are f i v e programs o p t i o n s from which a s p e c i a l l y e s t a b l i s h e d Community Futures Committee may  choose:  the Self-Employment I n c e n t i v e to p r o v i d e income support while a new  business i s e s t a b l i s h e d , Business Development Centres to  61  perform  the f u n c t i o n s of LEAD c o r p o r a t i o n s , Purchase  of  I n s t i t u t i o n a l T r a i n i n g , R e l o c a t i o n A s s i s t a n c e and a Community I n i t i a t i v e s Fund f o r p r o j e c t s not covered by other Community Futures program o p t i o n s . The  i n c l u s i o n of r e l o c a t i o n a s s i s t a n c e  i s not p a r t i c u l a r l y c o n s i s t e n t with the o b j e c t i v e s of CBED. Another Job S t r a t e g y program, c a l l e d Innovations  i s a l s o used to  fund CBED. I t i s a f l e x i b l e program which p r o v i d e s a s s i s t a n c e f o r p i l o t and demonstration  financial  p r o j e c t s which t e s t  new  s o l u t i o n s to labour market problems.  Short Term Job C r e a t i o n vs Permanent Job C r e a t i o n Commitment of expenditures by the f e d e r a l government i n the past on s t r u c t u r a l employment programs such as LEAD have been small i n comparison to short term example, from the 1971  to 1979  job c r e a t i o n  f i s c a l y e a r s , almost  were spent on f e d e r a l d i r e c t job c r e a t i o n . b i l l i o n was  1  $2  Of t h a t ,  programs with e x p l i c i t  m i l l i o n was  For  billion  $1.5  used to support short term employment such as  Works and Canada Works, while only $175  1983)  initiatives.  Winter  a l l o c a t e d to  long term o b j e c t i v e s such as LEAD.  I f long term employment development expenditures  (CEIC  are  compared to a l l labour market expenditures e x c l u d i n g unemployment insurance i n 1985-86, only 4.8  percent of the  were a l l o c a t e d to the LEAD-Community Futures Program.  funds  (CEIC  1986) Short term  job c r e a t i o n has been a c o n s i s t e n t s t r a t e g y of  T h i s f i g u r e does not i n c l u d e tax expenditure programs designed to c r e a t e jobs i n the p r i v a t e s e c t o r . 1  62  the  f e d e r a l government i n the face of high unemployment  for  many y e a r s . Job c r e a t i o n was f i r s t  introduced  rates  i n the 1930s  with R e l i e f Camps and Job Corps. Then, i n the 1950s the Winter Works Program, a f e d e r a l l y - f u n d e d , seasonal  delivered  job c r e a t i o n program was i n i t i a t e d . Short  c r e a t i o n continues qualify  municipally  term j o b  to be used today to allow p a r t i c i p a n t s t o  f o r Unemployment Insurance; however, the 'UIC - welfare  - make work - UIC s h u f f l e ' i s not a long term employment development s t r a t e g y . For example, an Economic C o u n c i l study found that most of the 250,000 jobs c r e a t e d  (1976)  through the  L o c a l I n i t i a t i v e Program were indeed temporary and that p a r t i c i p a n t s returned  t o government income support. I t i s i r o n i c  that these programs a r e viewed as 'temporary' when they a r e continually re-introduced creation  under d i f f e r e n t names. Short  term job  i s e v i d e n t l y a long term employment p o l i c y of the  f e d e r a l government. LEAD was not the f i r s t  community o r i e n t e d employment  program of the f e d e r a l government. Some e a r l y government j o b c r e a t i o n programs of a c y c l i c a l and seasonal  nature such as the  L o c a l I n i t i a t i v e s Program (LIP) and O p p o r t u n i t i e s (OFY)  f o r Youth  were designed as community based s t r a t e g i e s : P a r t i c i p a n t s w i l l have o p p o r t u n i t i e s to work on nonp r o f i t p r o j e c t s of a meaningful nature, t o t e s t t h e i r a s p i r a t i o n s , to develop s k i l l s and c o n t r i b u t e t o the s o c i a l f a b r i c of t h e i r communities. (CEIC, 1984 quoted in Strandberg 1984)  However, these p r o j e c t s d i f f e r e d from CBED i n that they were again  only temporary The  jobs.  L o c a l Employment A s s i s t a n c e  Program (LEAP),  introduced  63  in  1973,  began the t r e n d towards involvement of the c h r o n i c a l l y  unemployed and concern f o r the c r e a t i o n of long term  jobs  s i t u a t e d i n small e n t r e p r e n e u r i a l s e t t i n g s . LEAP p r o j e c t s had a l a r g e t r a i n i n g component, r e c e i v e d funding h a l f years and  were not r e s t r i c t e d to small r u r a l  L o c a l Economic Development A s s i s t a n c e CEIC and DREE, was innovation  f o r up to three and a  c r e a t i o n . I t was  (LEDA) a j o i n t program of  launched i n October, 1980  i n the search  communities.  as a f u r t h e r  f o r an a l t e r n a t i v e to short-term  a departure  job  from p u b l i c s e c t o r job c r e a t i o n in  favour of employment i n small business communities. In i t s e l i g i b l i t y  enterprises in distressed  criteria  remarkably s i m i l a r to i t s forerunner,  and  o b j e c t i v e s , LEAD i s  LEDA.  Assessment of the LEAD Program What has  been the experience  of CBED o r g a n i z a t i o n s  respect to the LEAD program? A d e t a i l e d e v a l u a t i o n of  with  the  program has  not been made a v a i l a b l e to t h i s d a t e ,  information  i n t h i s s e c t i o n i s d e r i v e d from i n f o r m a l reviews of  LEAD i n the l i t e r a t u r e and p e r s o n a l i n v o l v e d i n the program. According Employment and f u l l - t i m e and  i n t e r v i e w s with to i n f o r m a t i o n  Immigration Canada to March 31, about 2000 part-time  so  1  those  from  1986,  over 5500  jobs were c r e a t e d by 73 LEAD  c o r p o r a t i o n s s i n c e the i n c e p t i o n of the program, at an average  'Maureen Casey, CEIC, Community Futures, Ottawa, p e r s o n a l communication December 1, 1986. An e v a l u a t i o n of a sample of LEAD c o r p o r a t i o n s i s underway, to be made a v a i l a b l e some time i n Spring, 1987.  64  c o s t of $3700 per guarantees and  job. T h i s i n c l u d e s c o r p o r a t i o n loans,  equity p a r t i c i p a t i o n .  (CEIC 1986)  loan  Only a s m a l l  p r o p o r t i o n of jobs c r e a t e d were f o r women, v i s i b l e m i n o r i t i e s and  the d i s a b l e d . (CEIC 1986)  operation One  i n B.C.  in  There were 13 LEAD c o r p o r a t i o n s i n  1986.  of the major c r i t i c i s m s of the LEAD program c e n t e r s  around i t s tendency to f r u s t r a t e the o b j e c t i v e of many CBED o r g a n i z a t i o n s to become s e l f - f i n a n c i n g . The  original  the LEAD c o r p o r a t i o n component of the program was  i n t e n t of  that  the  community development c o r p o r a t i o n would be able to support i t s operations  through income from commmunity investments a f t e r a  f i v e year p e r i o d . Although the program was  terminated  three years most of the LEAD c o r p o r a t i o n s have transferred  i n t o the new  d i s r u p t i o n and  Community Futures  more importantly,  the o r g a n i z a t i o n by frequent  after  subsequently  program. Even so,  the  u n c e r t a i n t y generated w i t h i n  program changes i s alarming.  S e v e r a l other weaknesses of the LEAD program are  evident.  F i r s t l y , numerous r i g i d i t i e s i n the LEAD c o r p o r a t i o n component funding  formula  acted to i n h i b i t the attainment  s e l f - s u f f i c i e n c y a c c o r d i n g to the A l b e r n i Clayquot Society  (1984). Features  of  Development  such as a pre-determined funding  level  per year and q u a r t e r l y disbursements, r e s u l t e d in d e l a y s , e x c e s s i v e paperwork and more i m p o r t a n t l y , c o n t r a d i c t e d some of the advantages of a community-based o r g a n i z a t i o n , such as approval  of a loan a p p l i c a t i o n . More s p e c i f i c a l l y , the $25,000  l i m i t per annum per business and  quick  was  felt  to be unduly  restrictive  suggests a lack of commitment to permanent job c r e a t i o n  65  through community based economic development. Greg MacLeod  holds  that the government p l a c e s more r e s t r i c t i o n s on CBED o r g a n i z a t i o n s than on p r i v a t e c o r p o r a t i o n s . Dome Petroleum and imagination." The  l e t s them use  f i n d i n g s of an  LEAD program, given One  initiative  (Forget Commission Report  and  1986)  i n t e r i m e v a l u a t i o n of the planning  of the LEDA c o r p o r a t i o n p r o v i d e  1982)  their  " I t g i v e s money to  some v a l u a b l e  the s i m i l a r i t y of the two  of the fundamental q u e s t i o n s  i n s i g h t s i n t o the programs. (CEIC  raised in t h i s  concerned the a b i l i t y of a LEDA c o r p o r a t i o n  stage  evaluation  to accommodate a  wide spectrum of community a s p i r a t i o n s , which o f t e n  include  s o c i a l and c u l t u r a l o b j e c t i v e s as w e l l as economic ones. I t concluded that the s t r u c t u r e and equipped to i n c l u d e s o c i a l and LEAD program focussed  on  budget of the program were not  c u l t u r a l o b j e c t i v e s . Rather,  f i n a n c i a l and  small p r i v a t e s e c t o r ventures,  was  the  t e c h n i c a l assistance for  p r i m a r i l y in support  of  the  l a t t e r ' s economic o b j e c t i v e s . The  LEDA e v a l u a t i o n a l s o questioned  the s t r e n g t h of  community commitment to a CBED program i n which the impetus, the l u r e of funding,  comes from above. While i t i s up  to the community to respond to the c a l l cases) the m o t i v a t i o n existence  initial  f o r CBED can  of the program i t s e l f .  for proposals  ( i n most  i n p a r t be a t t r i b u t e d to the  The  Community Futures  program  i s even worse in t h i s respect as communities are designated the M i n i s t e r i n the absence of community i n p u t . Therefore,  by one  of the e s s e n t i a l sources of community based economic development identified  i n Chapter 2, l o c a l c o n t r o l i s absent i n t h i s  initial  66  stage. The  short  corporation study  planning  (three  in light  economic  In  of the long  only  community  based  summarized  as  2.  community  community  exists  typified  do  frequently  undermine  with  process. long  reliance  a basic  aspirations; imposed  term be  on  control.  f o c u s on  from above  community  spectrum of  business development. rather  than  from  the  itself. perspective.  dilemma  development: and  local  distort  not accommodate a wide  these problems  bureaucracy  the  based  by LEAD c a n  e x a c e r b a t e d by  are persistent  t o s u p p o r t community  economic  with  employment e f f o r t s  by  years  i n a CBED  associated  Short term  efforts  five  the d i f f i c u l t i e s  and  Programs  Clearly,  insufficient  that  t o medium t e r m  regulations  Programs  5.  deemed  LEDA  resources.  priorities  4.  to the  follows:  Program  3.  also  estimated  Community dependency  outside  allocated  term n a t u r e of community  I t was  the short  general,  1.  y e a r s ) was  development.  represents  horizon  based  in various  economic  for those involved government  regulations  the o r g a n i z a t i o n ' s  development.  i n community  goal  of  such  support  There  based  support i s e s s e n t i a l ,  accompanying  basic  government  but  the  conflict  self-sufficiency.  67  Summary In examining the r o l e of the c r e d i t union CBED, p r i m a r i l y understand  i n supporting  i n f i n a n c i a l terms, i t i s important t o  the l i m i t a t i o n s and s t r e n g t h s of c u r r e n t CBED funding  s o u r c e s . An understanding requirements  of these h e l p to d e l i n e a t e the  of CBED which c r e d i t unions  should attempt to  address. To summarize, there a r e s i g n i f i c a n t  gaps i n the  r e s p e c t i v e a b i l i t i e s of c h a r t e r e d banks and government programs to overcome the three b a r r i e r s to CBED. A u s e f u l way of c h a r a c t e r i z i n g the n o n - r e l a t i o n s h i p of c h a r t e r e d banks with CBED is illustrated  i n the f o l l o w i n g manner. The f i r s t  o b j e c t i v e of  CBED i s l o c a l economic development u s i n g business techniques and tempered by s o c i a l and c u l t u r a l c o n s i d e r a t i o n s . Chartered banks do not share these concerns  and thus do not p a r t i c i p a t e i n  l e n d i n g f o r community based economic development t o any great e x t e n t . However, c h a r t e r e d banks a r e adequate small l e n d e r s who p r o v i d e  business  i n f o r m a t i o n and management advice to t h e i r  small business c l i e n t s , some of whom may e x i s t as a r e s u l t of CBED. Furthermore, t h e i r o p e r a t i o n s have l a i d them open t o c l a i m s of r e g i o n a l d i s c r i m i n a t i o n , so t h a t , a t the very  least,  the banks have no r e g i o n a l p e r s p e c t i v e c o n s i s t e n t with that of CBED. There a r e three s i g n i f i c a n t  f e a t u r e s of government  community based economic development programs which comment. F i r s t l y ,  long-term  deserve  employment c r e a t i o n programs such as  LEAD a r e c u r r e n t l y an important  funding source  f o r many CBED  o r g a n i z a t i o n s , perhaps due to the l a c k of a l t e r n a t i v e s . However,  68  f e d e r a l expenditures on long-term job c r e a t i o n regions and elsewhere are inadequate  i n disadvantaged  i n comparison  t o monies  spent on short-term job c r e a t i o n . T h i r d l y , government programs such as LEAD aim t o f i l l  the f i n a n c i a l and management advice  requirements of CBED, but s u f f e r from some s e r i o u s l i m i t a t i o n s stemming from government d e l i v e r y of a program to an o r g a n i z a t i o n which seeks s e l f - s u f f i c i e n c y . The c r e d i t union now be examined to determine CBED.  will  i t s potential for partipating in  69  CHAPTER 4  CREDIT UNIONS Having  i n v e s t i g a t e d the nature of the problems c o n f r o n t i n g  CBED groups i n t h e i r d e a l i n g s with c h a r t e r e d banks and f e d e r a l employment c r e a t i o n programs, i t i s now u s e f u l t o examine the p o t e n t i a l r o l e of the c r e d i t union i n a d d r e s s i n g these needs. C r e d i t unions a r e unique  financial  i n s t i t u t i o n s which have  undergone tremendous change i n terms of s i z e , o p e r a t i o n and philosophy s i n c e t h e i r  membership,  i n c e p t i o n a t the turn of  the c e n t u r y . The small i n f o r m a l c r e d i t union of the e a r l y days has been r e p l a c e d by the s m a l l bank with a s o c i a l c o n s c i e n c e . In f a c t , there i s a good argument f o r d i s m i s s i n g the c r e d i t as j u s t another  'near bank'.  1  union  At the same time, i t i s p o s s i b l e  to hypothesize that c r e d i t unions a r e w e l l - s u i t e d t o p a r t i c i p a t e in CBED f o r three reasons. F i r s t , as f i n a n c i a l  institutions,  they possess an a s s e t base and i n f r a s t r u c t u r e which c o u l d provide a s u b s t a n t i a l source of funds or v e h i c l e f o r c o l l e c t i n g or managing p o o l s of money i n a i d of CBED. Secondly,  credit  unions a r e c o o p e r a t i v e o r g a n i z a t i o n s with an o r g a n i z a t i o n a l s t r u c t u r e which i s responsive t o the membership,  or  'community',  and a p h i l o s o p h y of s e l f - h e l p . T h i r d l y , c r e d i t unions o f t e n  'Near banks a r e d e p o s i t t a k i n g businesses i n c o r p o r a t e d under f e d e r a l l e g i s l a t i o n other than the Bank A c t , or under p r o v i n c i a l l e g i s l a t i o n which consequently do not have the r i g h t to d e s c r i b e themselves as banks or t h e i r business as banking. They are however engaged i n o f f e r i n g many of the same s e r v i c e s as banks, and i n t h i s way, they are i n the business of banking.  70  possess a common bond based on geography such that they are likely  to take a l o c a l p e r s p e c t i v e i n t h e i r d e a l i n g s . The  purpose of t h i s chapter i s t o examine these a s s e r t i o n s to determine whether c r e d i t unions a r e w e l l - s u i t e d to p l a y a r o l e in community based economic development. The  first  part of the chapter looks at the h i s t o r y ,  philosophy, growth, the nature of c u r r e n t a c t i v i t i e s and some of the i s s u e s c r e d i t unions face i n the 1980s. The second  part  examines the c h a r a c t e r i s t i c s of c r e d i t unions which make them well-suited for participating  i n CBED and looks at the p o t e n t i a l  c o n t r i b u t i o n c r e d i t unions can make to the CBED p r o c e s s . T h i s i s accomplished by reviewing the l i k e l y s t r a t e g i e s and r o l e s f o r c r e d i t unions, as w e l l as c o n s t r a i n t s t o t h e i r  The C r e d i t  participation.  Union  H i s t o r y of the C r e d i t Union Movement i n Canada The  first  Canadian  (and North American) c r e d i t union was  developed by Alphonse D e s j a r d i n s i n L e v i s , Quebec i n 1901. C a l l e d a c a i s s e p o p u l a i r e or people's bank, i t was i n p a r t a response to charges of usury witnessed by D e s j a r d i n s as a p a r l i a m e n t a r y r e p o r t e r i n the House of Commons. In h i s words: I t was the d e p l o r a b l e r e v e l a t i o n s brought about by law s u i t s i n Montreal and elsewhere, where poor borrowers had been o b l i g e d to pay infamous usurers r a t e s of i n t e r e s t amounting to s e v e r a l hundred percent f o r most i n s i g n i f i c a n t l o a n s , that induced the w r i t e r to study c a r e f u l l y t h i s problem with a view t o f i n d i n g out the best p o s s i b l e s o l u t i o n . ( D e s j a r d i n s , 1914 quoted i n Neufeld 1972)  71  A d d i t i o n a l m o t i v a t i o n s f o r the c r e d i t union are c i t e d as a lack of c r e d i t  f o r craftsmen  (Macpherson 1979; viewpoint and  and  farmers  Melnyk 1985;  and French n a t i o n a l i s m .  Thompson 1978)  A further  a t t r i b u t e s D e s j a r d i n s ' motive to the Quebec p o l i t i c a l  r e l i g i o u s philosophy of " l a s u r v i v a n c e " which r e s t e d on  three p i l l a r s of the Church, the S o i l and the Hearth. c a i s s e p o p u l a i r e both b u t t r e s s e d and three p i l l a r s . "  (Thompson  "The  r e s t e d upon these same  1978)  D e s j a r d i n s s t u d i e d the European c o o p e r a t i v e movement e s p e c i a l l y  the  i n Germany and  banking  I t a l y , and corresponded  s e v e r a l key members i n c l u d i n g Wolff, a key B r i t i s h  with  cooperator.  Many of the p r i n c i p l e s and the o r g a n i z a t i o n a l framework f o r the c a i s s e p o p u l a i r e thus o r i g i n a t e d with these movements. The Schulze - D e l i t z c h c o o p e r a t i v e s o c i e t y which o r i g i n a t e d i n P r u s s i a i n 1850  was  a prime i n f l u e n c e . I t was  an urban loan bank  intended to serve the lower m i d d l e - c l a s s business person. Loans were made on the b a s i s of c h a r a c t e r r a t h e r than c o l l a t e r a l s e c u r i t y , an important  principle  or  i n the f u t u r e of the c r e d i t  union. While loans were a v a i l a b l e only to members, d e p o s i t s (or shares) were taken  from the g e n e r a l p u b l i c , p r i m a r i l y w e l l to do  i n v e s t o r s . (Neufeld 1972)  Today, the Schulze  i s a group of commercial banks and  - D e l i t z c h system  small c r e d i t  F r i e d r i c h R a i f f e i s e n of Germany, motivated charges  to the r u r a l poor, f i r s t  c a p i t a l underwritten effort  by usurious loan  organized a pool of loan  by wealthy patrons  i n the  f a i l e d because the c h a r i t a b l e enthusiasm  supporters waned. The  societies.  bank re-opened i n 1864  1850s. T h i s of h i s r i c h  under a new  set of  72  p r i n c i p l e s advocating  s e l f - h e l p but with a l e s s p r o g r e s s i v e  a t t i t u d e toward membership. T h i s was r e s t r i c t e d to those approved by f e l l o w members and with proof of ownership of t a n g i b l e a s s e t s . Today the R a i f f e i s e n bank r e t a i n s i t s s m a l l , r u r a l , cooperative c h a r a c t e r i s t i c s . The  p a r i s h based c r e d i t union  L u z z a t t i of I t a l y  (Neufeld 1972) system organized by L u i g i  i n 1865 p a r t i c u l a r l y  These banks o f f e r e d l i m i t e d l i a b i l i t y  interested Desjardins. t o members and e s t a b l i s h e d  a small par value f o r shares. S e v e r a l of the p r i n c i p l e s governing  e a r l y c r e d i t union o p e r a t i o n s i n Canada were  i n t r o d u c e d here as w e l l ; the n o t i o n of one member one vote, a w i l l i n g n e s s t o assess a member's r e p u t a t i o n f o r loan and establishment By  1919, the f i r s t  of a r e s e r v e fund to guarantee a g a i n s t l o s s e s . c r e d i t union  members and 735 s i m i l a r (Bergengren  security,  i n M i l a n had almost 25,000  i n s t i t u t i o n s had been s t a r t e d .  1940)  In forming a Canadian "people's  bank", D e s j a r d i n s  i n t e g r a t e d s e v e r a l of the European approaches to c o o p e r a t i v e c r e d i t . For example, from R a i f f e i s e n he took the "bond of a s s o c i a t i o n " concept,  and from I t a l y , the notion of l i m i t e d  liability,  c o n t r o l and loans based on c h a r a c t e r .  democratic  C a l l e d the C a i s s e s P o p u l a i r e s de L e v i s , i t s top p r i o r i t y i n l e n d i n g was t o provide loans to f a m i l i e s i n the order of $15 to $25.  Otherwise,  the c a i s s e p o p u l a i r e encouraged t h r i f t  c r e d i t . The c l e r g y i n Quebec wholeheartedly  supported  populaire: The  p a r i s h provided not only the t e r r i t o r i a l  over the c a i s s e  73  boundaries of the c a i s s e s p o p u l a i r e , but a l s o i t s i n s t i t u t i o n a l s u b - s t r u c t u r e . Given the tremendous power of the church in the s o c i a l l i f e of Quebec, ... the p a r i s h was the dominant bond of a s s o c i a t i o n . From i t s o r i g i n s i n 1900, the c a i s s e p o p u l a i r e movement was b l e s s e d from the p u l p i t and a c t i v e l y supported by the c l e r g y . (Thompson 1978) With the h e l p of the c l e r g y , over 150 were o p e r a t i n g  i n Quebec by  made minimal progress Desjardins  1907.  a l s o spent much e f f o r t  legislation  unincorporated.  death, but  became law  i n 1907,  Canada. The was  s i n c e e a r l y c r e d i t unions were Federal c r e d i t  the Quebec Cooperative  the f i r s t  province.  i n t r y i n g to o b t a i n  f a i l e d to pass through Parliament  Desjardins  populaires  However, the c a i s s e p o p u l a i r e  i n expanding o u t s i d e the  f e d e r a l c r e d i t union l e g i s l a t i o n , u n r e g i s t e r e d and  similar caisse  union  until after Syndicates  Act  c r e d i t union l e g i s l a t i o n i n  purpose of the c a i s s e p o p u l a i r e a c c o r d i n g  to the  to "study, p r o t e c t and defend the economic i n t e r e s t s of  Act the  labouring c l a s s e s . " While the c a i s s e p o p u l a i r e proved immensely popular Quebec, the r o l e of t r a n s f e r r i n g the concept to other  in  regions  in  Canada f e l l to the A n t i g o n i s h movement. T h i s Nova S c o t i a based l i b e r a l C a t h o l i c movement had  a significant  impact on the  spread  of c r e d i t unions because of i t s emphasis on a d u l t education means of s e l f - h e l p . Two Father  of i t s founders,  Dr. Moses Coady  as a  and  James Tompkins of S t . F r a n c i s Xavier U n i v e r s i t y , saw  the  p o t e n t i a l of the c r e d i t union to address the economic i n e q u a l i t i e s of the Maritimes.  In a chapter  entitled  "The  S i g n i f i c a n c e of the C r e d i t Union", Dr. Coady (1939), the philosopher  of the Canadian c o o p e r a t i v e  movement s t a t e d that a  74  credit  union:  . . . i s an instrument through which the common people can make t h e i r money work f o r them i n t h e i r own communities. The p r a c t i c a l aspects of c r e d i t union o p e r a t i o n d i d not Coady, r a t h e r , "... the c r e d i t union has  i n t a n g i b l e v a l u e s that  are probably more important than i t s f u n c t i o n as a i n s t i t u t i o n . " Furthermore,  interest  banking  c r e d i t unions were to p r o v i d e the  mechanism through which a f u l l " c o o p e r a t i v e program" c o u l d be carried  out.  The study group approach  employed by the A n t i g o n i s h  movement to spread c o o p e r a t i v e development operated i n the f o l l o w i n g manner. T y p i c a l l y ,  an o r g a n i z e r would enter a  community and using whatever c o n t a c t s c o u l d be found, c a l l a p u b l i c meeting  t o assess the community's s t r e n g t h s and  weaknesses. A study c l u b would be organized, and a s e r i e s meetings would occur which would u s u a l l y r e s u l t c o o p e r a t i v e s being e s t a b l i s h e d to overcome the difficulties Canada was  i d e n t i f i e d . The  formed i n  Bergengren, D e s j a r d i n s , was  of  i n a number of particular  f i r s t c r e d i t union i n A t l a n t i c  1932.  an American schooled i n c r e d i t union ways by i n v i t e d to prepare l e g i s l a t i o n governing  credit  unions which culminated i n the C r e d i t Union Act of Nova S c o t i a , 1932.  I t d e s c r i b e d the c r e d i t union a s : ...[being] organized f o r the t w o - f o l d purpose of promoting t h r i f t among i t s members and c r e a t i n g a source of c r e d i t f o r members at l e g i t i m a t e r a t e s of i n t e r e s t f o r p r o v i d e n t and p r o d u c t i v e purposes. Thus i t was  that most of the e a r l y i n f o r m a t i o n about  unions came from the Maritimes r a t h e r than Quebec. The  credit  same h e l d  75  t r u e f o r the expansion of c r e d i t  unions i n t o the West. P r a i r i e  farmers became i n t e r e s t e d i n c r e d i t  unions d u r i n g the  d e p r e s s i o n , when banks were f o r c e d to c l o s e . Lack of access to c r e d i t became a problem  and with a l o n g - s t a n d i n g t r a d i t i o n of  g r a i n h a n d l i n g and consumers c o o p e r a t i v e s , the c r e d i t p r o v i d e d the s o l u t i o n . as a way  of l i f e . . . "  l e g i s l a t i o n was  Indeed,  " P r a i r i e people view c o o p e r a t i o n  (McGuinness 1976)  enacted  union  i n 1937.  The  Saskatchewan c r e d i t  first  British  union  Columbia  c r e d i t union, c a l l e d the Common Good C o o p e r a t i v e A s s o c i a t i o n C r e d i t Union,  opened i n Burnaby i n 1936  with the h e l p of the  UBC  Extension Department.  Growth of the C r e d i t Union Movement A f t e r the Depression, many c a i s s e s p o p u l a i r e s and unions were c h a r t e r e d , as were a number of c r e d i t  credit  union  c e n t r a l s . A c c o r d i n g to McGuinness (1976) Canada began a twenty year p e r i o d of c r e d i t  union expansion  i n the  1940s unmatched by  any other country i n the world. Table 6 shows the dramatic growth p a t t e r n of c r e d i t unions  i n Canada, i n terms of  membership, number of c r e d i t unions, number of c r e d i t unions  and  branches, average membership and membership as a share of p o p u l a t i o n . U n t i l the 1960s c r e d i t unions c o u l d s t i l l  be  d e s c r i b e d as small t h r i f t and c r e d i t a s s o c i a t i o n s with about members per c r e d i t that by  1981  t h i s had  members per c r e d i t for c r e d i t  union. (CFDP 1982)  unions  The  t a b l e shows however,  i n c r e a s e d to an average  union. The  600  of over 2000  1960s proved t o be the  watershed  i n a number of ways: they began to expand  TABLE  6  CREDIT UNION GROWTH CANADA 1900 - 1981  Year  Membership  Number of  Average  Number of  Credit Unions  Membership per  Membership as  Credit Unions  and Branches  Credit Union  % Population  1900  80  1  1  80  NA  1910  3780  31  31  122  0.1  1920  31752  200  200  159  0.4  1930  45767  266  266  172  0.4  1940  201137  1167  1167  172  1,8  1950  1036175  2965  2965  349  7.5  1960  2553951  4608  4608  554  14.2  1970  5203402  4595  4824  1079  24.4  1980  9652291  3595  4449  2169  40.1  1981  9842120  3448  4321  2278  40.4  SOURCE: Statistics Canada, Catalogue 61-209, 1983.  77  through branching  of e x i s t i n g c r e d i t unions r a t h e r then  c r e a t i n g new l o c a l s ; the number of c r e d i t unions was h i g h e s t i n 1965 when c o n s o l i d a t i o n began; and c r e d i t union a s s e t s f a s t e r than t o t a l  financial  intermediary  grew  a s s e t s up t o 1967.  (Neufeld 1972)  C r e d i t Unions Today C r e d i t unions are d i s t i n c t  from banks and other  financial  i n s t i t u t i o n s i n that they a r e owned and c o n t r o l l e d by members, on a one-member, one-vote b a s i s . .Another d i s t i n g u i s h i n g f e a t u r e of the c r e d i t union  i s the common bond of a s s o c i a t i o n . T h i s bond  d e f i n e s c r e d i t union membership and may be organized  on a  geographic b a s i s , along o c c u p a t i o n a l or p r o f e s s i o n a l l i n e s , or on e t h n i c or r e l i g i o u s grounds. In Canada, with.the O n t a r i o , the g e o g r a p h i c a l  e x c e p t i o n of  common bond p r e v a i l s . However, the  e f f e c t i v e n e s s of democratic c o n t r o l and the s t r e n g t h of the common bond of a s s o c i a t i o n today i s q u e s t i o n a b l e . For example, in B.C. a c r e d i t union with a geographic common bond may admit members from o u t s i d e the bond "who i n the o p i n i o n of the d i r e c t o r s may be c o n v e n i e n t l y  served by the c r e d i t union." (B.C.  C r e d i t Union A c t , 1985) T h i s i s termed a p a r t i a l opening of the bond, as opposed t o a c l o s e d bond. Some a s s o c i a t i o n a l or p r o f e s s i o n a l common bonds a r e not e n t i r e l y c l o s e d e i t h e r . E a r l y c r e d i t unions were b a s i c a l l y savings and loans i n s t i t u t i o n s p r o v i d i n g consumer c r e d i t members. However,  i n small amounts t o  with the i n c r e a s i n g complexity  and competition  in the f i n a n c i a l marketplace, c r e d i t unions have become f u l l  78  service financial  i n s t i t u t i o n s , p r o v i d i n g a wide range of  o p t i o n s f o r the member t o the p o i n t where c r e d i t cards and automated t e l l e r  machines a r e commonplace. The i n t r o d u c t i o n of  the c r e d i t c a r d i s i n t e r e s t i n g  in itself  since early cooperative  p r i n c i p l e s promoted the use of cash over c r e d i t . C r e d i t  unions  are p r i m a r i l y mortgage and consumer l e n d e r s as shown i n Table 7; fully  53 percent of loans a r e made f o r r e s i d e n t i a l mortgages and  26 percent f o r p e r s o n a l loans i n Canada. TABLE 7 L o c a l C r e d i t Unions Loans Outstanding (thousands of d o l l a r s ) Canada Loans  T h i r d Quarter 1986  Non-mortgage Personal Farm Commercial, I n d u s t r i a l and C o o p e r a t i v e s Other Mortgage Residential Farm Commercial, I n d u s t r i a l and C o o p e r a t i v e s Other T o t a l Loans  Percent  8,809,084 1 , 127,408  25.9 3.2  2,758,443 484,077  7.8 1.4  18,809,100 1,184,212 -1 ,829,516 371,341 35,373,181  Source: S t a t i s t i c s Canada. F i n a n c i a l Quarter, 1986.  53.2 3.3 5. 1 1.0 100.0  I n s t i t u t i o n s . 61-006. T h i r d  C r e d i t unions a r e c h a r t e r e d and operate under p r o v i n c i a l l e g i s l a t i o n ; the C r e d i t Union Act governs  the types of  investments p e r m i t t e d , r a t e s of i n t e r e s t and s t a t u t o r y reserve requirements. C r e d i t unions  f u n c t i o n as autonomous o r g a n i z a t i o n s  79  owned and c o n t r o l l e d by the members, each having t h e i r own c h a r t e r and governed  by a board of d i r e c t o r s made up of  v o l u n t e e r s e l e c t e d from the membership. In the case of a small c r e d i t union, a c r e d i t committee i s formed to e v a l u a t e loan a p p l i c a t i o n s . A l a r g e - c r e d i t union on the other hand, might allow the board to appoint a c r e d i t committee, or i n c r e a s i n g l y , a p r o f e s s i o n a l loans s t a f f . Depending on the s i z e of the c r e d i t union, the board d e l e g a t e s r e s p o n s i b i l i t y  f o r day to day  o p e r a t i o n t o the manager. O b v i o u s l y , the composition of the board of d i r e c t o r s w i l l determine  the p h i l o s p h y under which the  c r e d i t union operates. L o c a l c r e d i t unions a r e p a r t of a l a r g e f e d e r a t i o n of c r e d i t unions around  the world through v a r i o u s r e g i o n a l ,  n a t i o n a l and i n t e r n a t i o n a l o r g a n i z a t i o n s . The f i r s t  level  i s the  p r o v i n c i a l c e n t r a l c r e d i t union, which i s formed by i n d i v i d u a l c r e d i t unions and i s e s s e n t i a l l y the v o l u n t a r y trade a s s o c i a t i o n of the c r e d i t unions. I t i s charged with r e s p o n s i b i l i t y f o r p r o v i d i n g s e r v i c e s to member l o c a l s and g e n e r a l l y c a r r y i n g out p l a n n i n g , a d m i n i s t r a t i o n and r e s e a r c h f o r the c r e d i t unions. A board of 15 d i r e c t o r s governs B.C. C e n t r a l C r e d i t Union, each a member of a B.C. c r e d i t union or c o o p e r a t i v e and chosen  on a  r e g i o n a l b a s i s . V o t i n g at B.C. C e n t r a l meetings i s p r o p o r t i o n a l to c r e d i t union membership, whereas p r e v i o u s l y , c o n v e n t i o n a l c o o p e r a t i v e wisdom had ensured  that each c r e d i t union had one  vote r e g a r d l e s s of s i z e . The C r e d i t Union Deposit Insurance C o r p o r a t i o n (CUDIC) i s the second  r e g u l a t o r y and a d m i n i s t r a t i v e body i n the p r o v i n c e of  80  B.C. CUDIC p r o v i d e s credit  100  percent deposit  protection to local  u n i o n s . The p r o v i s i o n s o f t h e C r e d i t U n i o n A c t p e r m i t t h e  CUDIC t o e x e r c i s e c o n t r o l s o v e r t h e o p e r a t i o n s credit  u n i o n s a n d among o t h e r  of i n d i v i d u a l  t h i n g s , t o approve a l l  i n v e s t m e n t s , major c o n t r a c t u a l commitments, changes t o r a t e s o f interest  and t h e d e c l a r a t i o n o f d i v i d e n d s .  may a c t t o p l a c e two  F u r t h e r m o r e , CUDIC  a c r e d i t u n i o n under i t s s u p e r v i s i o n  reasons. In the f i r s t case, the l o c a l c r e d i t  request supervision  i f i t foresees  suggest s u p e r v i s i o n  on t h e b a s i s o f r e g u l a r  monitoring.  The s e c o n d s c e n e r i o  union w i l l  be p l a c e d  union  may  t r o u b l e a r i s i n g , o r CUDIC may i n s p e c t i o n and  o c c u r s when t h e c r e d i t  c a n n o t meet i t s t a t u t o r y r e s e r v e credit  f o r one o f  union  account. In t h i s case the  u n d e r s u p e r v i s i o n . The f i v e members  o f CUDIC a r e a p p o i n t e d by t h e p r o v i n c i a l  C a b i n e t and o p e r a t e  u n d e r t h e a u t h o r i t y o f t h e M i n i s t r y o f Consumer a n d C o r p o r a t e Affairs. A third tier  organization  c a l l e d the Canadian  Cooperative  Credit Society  (CCCS) o p e r a t e s a t a n a t i o n a l l e v e l . I t s members  are  central credit  provincial  local credit  unions  unions are represented),  cooperatives,  (through which other  individual  financial  and p r o d u c e r , consumer and m a r k e t i n g  cooperatives.  I t was f o r m e d i n 1953 t o p r o v i d e  f i n a n c i a l s e r v i c e s t o member  organizations;  t h e c e n t r a l bank o f t h e  cooperative  i t i s essentially  movement. I t s a r e a s o f r e s p o n s i b i l i t y a r e t h e  p r o v i s i o n of l i q u i d i t y member o r g a n i z a t i o n s . centrals,  to the credit Together with  i t i s required  union system and loans t o the p r o v i n c i a l  t o meet minimum l i q u i d  credit  reserve  union  81  requirements  of the Cooperative C r e d i t A s s o c i a t i o n Act under  which the CCCS i s c h a r t e r e d . As such, the p r o v i n c i a l are e l i g i b l e  centrals  f o r l i q u i d i t y a s s i s t a n c e from the Canada Deposit  Insurance C o r p o r a t i o n . In a d d i t i o n , CCCS a l s o p r o v i d e s a d m i n i s t r a t i v e , e d u c a t i o n a l and management support to members, and r e p r e s e n t s Canada a t the i n t e r n a t i o n a l A final tier  level.  i n the c r e d i t union system  C o u n c i l of C r e d i t Unions  i s the World  (WOCCU) which i s based  i n Madison,  Wisconsin, and overseas c o o p e r a t i v e e x t e n s i o n and education around  the world. C u r r e n t l y about  38,000 c r e d i t unions i n 77  c o u n t r i e s a r e a s s o c i a t e d through WOCCU. The diagram  i n Figure 2  r e p r e s e n t s the o r g a n i z a t i o n a l s t r u c t u r e of the c r e d i t  union  system.  S i z e of the C r e d i t Union It purposes  is difficult  System  t o g e n e r a l i z e about  credit  unions f o r  of d e s c r i p t i o n f o r two reasons. F i r s t l y , c r e d i t  are d i v e r s e , independent,  local  unions  i n s t i t u t i o n s with d i s t i n c t  boards of d i r e c t o r s and memberships. Secondly, because of t h i s independence and autonomy, i n f o r m a t i o n r e g a r d i n g key c r e d i t union c h a r a c t e r i s t i c s i s o f t e n not a v a i l a b l e on an aggregate basis. There  i s an i n c r e d i b l e d i v e r s i t y of c r e d i t  unions a c r o s s  the c o u n t r y . In f a c t , there are over 3100 c r e d i t unions and c a i s s e s p o p u l a i r e s with a t o t a l membership of approximately  9.5  m i l l i o n people. These o r g a n i z a t i o n s d i f f e r q u i t e c o n s i d e r a b l y in terms of s i z e and nature of o p e r a t i o n . For example, some  82  FIGURE 2 O R G A N I Z A T I O N A L STRUCTURE C R E D I T UNION  SYSTEM  WORLD COUNCIL OF CREDIT UNIONS  OF  B.C.  83  small r u r a l c r e d i t unions s t i l l  operate on a p a r t - t i m e b a s i s  and o n l y p r o v i d e b a s i c s e r v i c e s . But these small c r e d i t account  f o r a s t e a d i l y d e c l i n i n g share of t o t a l c r e d i t  unions union  membership and a s s e t s . On the other hand, Vancouver C i t y C r e d i t Union  i s the l a r g e s t c r e d i t union in Canada and the  second l a r g e s t over $1.4  Savings  i n the world. I t has over 20 branches, a s s e t s of  billion  i n 1986  and o f f e r s an a r r a y of  financial  s e r v i c e s to i t s members. To speak of c r e d i t unions as a uniform e n t i t y i s therefore, misleading. The  s t r e n g t h of c r e d i t unions a l s o v a r i e s by p r o v i n c e . Both  Saskatchewan and Quebec have the h i g h e s t c r e d i t  union  p e n e t r a t i o n , with 30 percent of t o t a l bank and near bank a s s e t s . In  Quebec, the C o n f e d e r a t i o n des C a i s s e s P o p u l a i r e s c u r r e n t l y  has more than 4 m i l l i o n members and more l o c a t i o n s than a l l branches of the major c h a r t e r e d banks. In the A t l a n t i c p r o v i n c e s , O n t a r i o and A l b e r t a , c r e d i t 10 percent of t o t a l bank a s s e t s .  (CFDP  unions account  f o r only  1982)  However, to put the c r e d i t union i n i t s proper p e r s p e c t i v e , it  i s important to note that the combined a s s e t s of a l l Canadian  c r e d i t unions  (roughly $41  b i l l i o n ) are s t i l l  s m a l l e r than the  a s s e t s of the Toronto Dominion Bank, the s m a l l e s t of the Big F i v e c h a r t e r e d banks. Based on  1981  d a t a , Canadian  credit  unions  ranked f o u r t h i n terms of t o t a l a s s e t s a f t e r c h a r t e r e d banks, t r u s t companies and l i f e  i n s u r e r s as i l l u s t r a t e d i n F i g u r e 3.  Although Table 6 shows that over 40 percent of the  Canadian  p o p u l a t i o n are members of c r e d i t unions, a seemingly  large  share, surveys show that only a t h i r d of c r e d i t union members  84 FIGURE 3 TOTAL ASSETS OF SELECTED FINANCIAL INSTITUTIONS (Canada 1981 - b i l l i o n s of d o l l a r s )  LEGEND 310 1. 2. 3. 4. 5. 6.  300  Chartered Banks T r u s t Companies L i f e Insurers C r e d i t Unions Mortgage Loan Cos, Others  50  40  30  20  10  1  2  Source: S t a t i s t i c s  3  4  5  Canada C r e d i t Unions  6 Catalogue 61-209 1983  85  see the c r e d i t credit  union as t h e i r main f i n a n c i a l i n s t i t u t i o n . Often  unions supplement the s e r v i c e s a member r e c e i v e s at a  bank. Who  are c r e d i t union members? At the o u t s e t , c r e d i t  membership was  comprised  c h i e f l y of blue c o l l a r workers and  farmers not w e l l - s e r v e d by e x i s t i n g  f i n a n c i a l i n s t i t u t i o n s , but  t h i s has changed over the y e a r s . A nationwide which i n t e r v i e w e d 1600  study i n  1979  people evenly d i v i d e d between c r e d i t  union members and non-members, showed that c r e d i t have s l i g h t l y higher than average educated  union  than the average  union members  incomes and are b e t t e r  person. The  results  of t h i s survey are  shown i n Table 8 below. TABLE 8 C r e d i t Union Membership P r o f i l e Percent Members Non-Members ANNUAL HOUSEHOLD INCOME Under $8,000 $8,000 - 14,999 $15,000 - 29,999 Over $30,000  6 19 40 24  EDUCATION Grade School High School T e c h n i c a l School University  9 51 14 23  12 24 28 10 13 52 12 20  Source: Canadian Cooperative C r e d i t S o c i e t y . Image-AwarenessA t t i t u d e Study 1979 quoted i n CFDP 1982.  However, one must be c a r e f u l  not to g e n e r a l i z e membership even  on the b a s i s of t h i s data; c r e d i t  unions are extremely  diverse,  86  v a r y i n g q u i t e d r a m a t i c a l l y a c c o r d i n g to common bond. For  this  reason, i t i s perhaps most a p p r o p r i a t e to d e s c r i b e c r e d i t  union  membership as r e p r e s e n t a t i v e of the community as a whole. For g e o g r a p h i c a l l y d e f i n e d c r e d i t unions t h i s would mean t h a t membership most l i k e l y corresponds  to the demographics of the  area i n q u e s t i o n . In the case of i n d u s t r i a l or o c c u p a t i o n a l c r e d i t unions on the other hand, membership would probably  be  more s i m i l a r to e a r l y c r e d i t unions; middle-income blue c o l l a r families. B r i t i s h Columbia's c r e d i t union system has the  largest  c r e d i t unions and the most p r o f e s s i o n a l i z e d o p e r a t i o n s i n the country a c c o r d i n g to Thompson (1978). C r e d i t unions range i n s i z e from 26 to 160,000 members and most have a s s e t s i n the range of $5 t o $50 m i l l i o n compared t o the r e s t of Canada where the g r e a t e s t p r o p o r t i o n range between $1 and a s s e t s . ( S t a t i s t i c s Canada 61-209, 1983) c r e d i t unions  i n B.C.  with a t o t a l of 315  $25 m i l l i o n i n  In 1985  there were  134  locations.  Issues F a c i n g the C r e d i t Union i n the 1980s Based on the p r e v i o u s review of the h i s t o r y , growth and nature of the c r e d i t union, i t i s c l e a r that c r e d i t unions have changed s i g n i f i c a n t l y over the years i n a manner that i s l e s s c o n s i s t e n t with the s e l f h e l p p h i l o s o p h y , and more c o n s i s t e n t with i t s f u n c t i o n as a banking  i n s t i t u t i o n . A major r e s e a r c h  undertaking of the c o o p e r a t i v e movement under the a u s p i c e s of the Cooperative Future D i r e c t i o n s P r o j e c t was  p u b l i s h e d as  P a t t e r n s and Trends of Canadian Cooperative Development i n  1982.  87  A s i m i l a r study was c a r r i e d out by the N a t i o n a l Task Force on C o o p e r a t i v e Development i n 1984. These reviews represent d e s i r e on the part of the movement t o evaluate growth r a t e s of the past f o r the f u t u r e . According  a  the tremendous  decades and examine the i m p l i c a t i o n s t o the Cooperative Future D i r e c t i o n s  r e p o r t , the p r e v i o u s l y d e s c r i b e d  growth has had s e v e r a l  i m p l i c a t i o n s f o r c r e d i t unions. Firstly, the  f o r most members, growth has meant an extension i n  range of s e r v i c e s a v a i l a b l e . C r e d i t unions have thus been  a b l e t o compete e f f e c t i v e l y with other ensuring  financial  institutions,  the s u r v i v a l of the c r e d i t union i n the f i n a n c i a l  marketplace. Secondly, there has been a d e c l i n e i n member p a r t i c i p a t i o n . The t h i r d  i m p l i c a t i o n r e l a t e s to the second, i n  that there has been a d e c l i n e i n the meaningfulness of the bond of a s s o c i a t i o n . Both of these can be a t t r i b u t e d i n p a r t , to the l a c k i n member commitment which i s addressed l a t e r chapter.  There has a l s o been an i n c r e a s i n g  in this  differentiation  between small and l a r g e c r e d i t unions and a r e s u l t i n g lack of a shared v i s i o n . T h i s has been i n s t i t u t i o n a l i z e d  i n B.C. where  v o t i n g at B.C. C e n t r a l C r e d i t Union meetings i s now p r o p o r t i o n a l to membership, r e s u l t i n g i n a s i t u a t i o n where a few l a r g e c r e d i t unions can dominate the proceedings. T h i s move i s c o n t r a r y to the c o o p e r a t i v e  p r i n c i p l e that g i v e s one member one vote.  Another c r i t i c i s m aimed at c r e d i t unions has to do with t h e i r f a i l u r e to f u l f i l l f i r s t chartered.  the broader s o c i a l goals  For i n s t a n c e ,  c r e d i t unions to "provide  f o r which they were  the B.C. C r e d i t Union Act allows  programs and s e r v i c e s to i t s members  88  as i n the o p i n i o n of the d i r e c t o r s meet t h e i r housing.  may a s s i s t the members to  f i n a n c i a l or s o c i a l needs" with s p e c i f i c mention of  (Part 1, S e c t i o n 2 1985) C r e d i t unions do c o n t r i b u t e to  community events, provide s c h o l a r s h i p s and a host of other s e r v i c e a c t i v i t i e s ; but i t i s not c l e a r differs  to what extent  this  from the donations made by other c o r p o r a t i o n s . As p a r t  of the c o o p e r a t i v e movement c r e d i t responsibility  unions a r e supposed t o have a  f o r educating t h e i r members i n c o o p e r a t i v e  p r i n c i p l e s . A knowledgable membership i s f e l t  to be the b a s i s  f o r a c o o p e r a t i v e i n s t i t u t i o n of any k i n d . In Thompson's (1978) view, t h i s emphasis i s not r e f l e c t e d  i n c r e d i t union  legislation  or i n p r a c t i c e . F a c t o r s such as those o u t l i n e d above mean that many of the characteristics  which d i s t i n g u i s h e d c r e d i t unions  from banks i n  the past have l a r g e l y disappeared. However, some c r e d i t supporters do not view these  union  i s s u e s as problematic The continued  growth of the c r e d i t union, and i t s r o l e as an a l t e r n a t i v e to the c h a r t e r e d banks s a t i s f i e s many. T h e r e f o r e , while the above views a r e not shared by a l l w i t h i n the c r e d i t union are l a r g e l y  indicative  of the debate o c c u r r i n g i n some q u a r t e r s .  For those who b e l i e v e c r e d i t distinctiveness broader  system they  unions  should maintain  their  from other f i n a n c i a l i n s t i t u t i o n s and assume a  s o c i a l p e r s p e c t i v e i n t h e i r o p e r a t i o n s , community based  economic development p r o v i d e s a l o g i c a l framework f o r g u i d i n g the a c t i o n s of a c r e d i t union board concerned w e l l as economic i s s u e s .  with s o c i a l as  89  C r e d i t Unions and Community Based Economic Development While  l i t t l e has been w r i t t e n e x p l i c i t l y  linking  credit  unions with community based economic development, both the c r e d i t union l i t e r a t u r e and CBED popular l i t e r a t u r e have i d e n t i f i e d a p o t e n t i a l common i n t e r e s t link  i s c i t e d as a means of renewing  i n CBED. F r e q u e n t l y the  the c r e d i t union commitment  to s o c i a l change which i s seen to have d i m i n i s h e d with i n c r e a s i n g s i z e and p r o f e s s i o n a l i z a t i o n . The popular CBED l i t e r a t u r e on the other hand o f t e n r e f e r s t o the c r e d i t union i n i t s search f o r a l t e r n a t i v e means of f i n a n c i n g . Wismer and P e l l  1982)  (SPARC  1985;  As we have seen, a number of i s s u e s have  a r i s e n w i t h i n the c r e d i t union system  r e g a r d i n g the r o l e of the  c r e d i t union. Rod Glen, past p r e s i d e n t of B.C.  Central Credit  Union, p l a c e d these i s s u e s w i t h i n the context of the community: C r e d i t unions have to go beyond the simple d e p o s i t and-loan business and play t h e i r proper r o l e as a pool of c a p i t a l f o r the community, as much as a mine or a f o r e s t or people, (quoted i n Thompson 1978) If Glen b e l i e v e d that c r e d i t unions should adopt a c e n t r a l r o l e i n f i n a n c i n g c o o p e r a t i v e development, he would be d i s a p p o i n t e d . A c c o r d i n g to Melnyk (1985) each s e c t o r of the c o o p e r a t i v e movement has tended to focus on a s i n g l e economic i s s u e such as c r e d i t or consumption or housing, r a t h e r than d e v e l o p i n g a c o o p e r a t i v e commonwealth. T h i s  "pragmatic  u n i f u n c t i o n a l i s m " has r e s u l t e d i n a b u s i n e s s - l i k e a t t i t u d e to c r e d i t on the p a r t of c r e d i t unions and there has not been a t r a d i t i o n of f i n a n c i n g c o o p e r a t i v e development. (CCEC i s a notable exception.) Thus, to the extent that one of the  90  s t r a t e g i e s of CBED i s c o o p e r a t i v e  ownership of business,  unions have tended to be l e s s than Instead,  credit  supportive.  c r e d i t union s e r v i c e s are d i r e c t e d l a r g e l y to  p r i v a t e sector with l i m i t e d focus on c o o p e r a t i v e s  and  the  non-profit  o r g a n i z a t i o n s . T h i s i s c o n s i s t e n t with community based economic development but Axworthy (1981) recommends a more a c t i v e approach. He a s s e r t s that c r e d i t unions have to m a i n t a i n d i s t i n c t i v e n e s s from other  financial  their  i n s t i t u t i o n s through t h e i r  actions: To improve the commmunity r e q u i r e s b e t t e r housing and more and b e t t e r employment. T h i s e n t a i l s investment i n land, l e n d i n g money to small b u i l d e r s , to c o o p e r a t i v e home-building a s s o c i a t i o n s , and to m u n i c i p a l i t i e s , and p r o v i d i n g management and f i n a n c i a l s e r v i c e s to those who need i t . In a d d i t i o n , c r e d i t unions on t h e i r own account should be i n v o l v e d i n the b u i l d i n g and renovation of housing f o r t h e i r members and i n c r e a t i n g employment o p p o r t u n i t i e s by t h e i r investment and l e n d i n g p o l i c i e s . T h i s can be accomplished by the establishment of s u b s i d i a r y or r e l a t e d a s s o c i a t i o n s i n v o l v e d i n p r o d u c t i o n or s e r v i c e s and by investment and l e n d i n g to community-based small businesses or worker c o o p e r a t i v e s . C r e d i t unions should make management and f i n a n c i a l advice a v a i l a b l e to such o r g a n i z a t i o n s , a s s i s t i n g them through i n c o r p o r a t i o n and with any o p e r a t i o n a l d i f f i c u l t i e s they might f a c e . . . C r e d i t unions have a unique r o l e . They must s e i z e the o p p o r t u n i t y . Axworthy expands the management advice  scope of c r e d i t union a c t i v i t i e s to  as w e l l as  f i n a n c i a l s e r v i c e s . He a l s o  to the need f o r s u b s i d i a r y o r g a n i z a t i o n s the community development a c t i v i t i e s . The more c l o s e l y the q u e s t i o n  to c a r r y out  include points  some of  next s e c t i o n examines  of c r e d i t union s t r a t e g i e s and  roles  in community based economic development r a i s e d by Axworthy's statement.  91  Nature  of C r e d i t Union P a r t i c i p a t i o n  i n CBED  As p r e v i o u s l y mentioned, CBED c o n s i s t s of an approach  integrated  to development, one which emphasizes s o c i a l ,  cultural,  and economic g o a l s , and operates with some measure of community c o n t r o l . Based on the framework of a community economy presented e a r l i e r , c r e d i t unions may  take p a r t i n l o c a l economic  development i n two ways. The  first  i n v o l v e s reducing the outflow  of l o c a l savings from the community. Money i n v e s t e d i n a l o c a l c r e d i t union can then be c h a n n e l l e d i n t o the l o c a l area and r e i n v e s t e d i n mortgage or p e r s o n a l loans to another c r e d i t  union  member. Thus the s t r a t e g y i s one of m o b i l i z i n g l o c a l savings f o r l o c a l use. Money i s c i r c u l a t e d through the l o c a l economy r a t h e r than  'leaked' to a borrower  country. While  i n another  r e g i o n or p a r t of the  t h i s i s an important c r e d i t union f u n c t i o n ,  indeed one of the e a r l y m o t i v a t i o n s f o r c r e d i t it  i s the second which i s of i n t e r e s t The  second way  a c r e d i t union may  and  union formation,  here. i n f l u e n c e the amount of  economic a c t i v i t y o c c u r r i n g i n the l o c a l economy i s through i t s l e n d i n g d e c i s i o n s i n support of l o c a l b u s i n e s s , housing development and the l i k e . Loans to CBED groups, b u s i n e s s e s , or c o o p e r a t i v e s which produce  goods or s e r v i c e s f o r export or to  r e p l a c e imports, both i n c r e a s e the inflow and reduce the outflow of money from the l o c a l economy r e s p e c t i v e l y . A business development s t r a t e g y i m p l i e s three d i s t i n c t  r o l e s f o r the c r e d i t  union which c o u l d address the b a r r i e r s to CBED. They are a) l e n d i n g , b) mangement advice and c) b u i l d i n g l o c a l c a p a c i t y . These w i l l be c o n s i d e r e d a f t e r the f o l l o w i n g d i s c u s s i o n of the  92  rationale  and  c o n s t r a i n t s to c r e d i t  Rationale for Credit There are potentially credit  Union P a r t i c i p a t i o n  three c h a r a c t e r i s t i c s  make them s u i t a b l e  unions are  i n CBED.  i n CBED  of c r e d i t unions which  to p a r t i c i p a t e  i n CBED. F i r s t l y ,  n o n - p r o f i t f i n a n c i a l i n s t i t u t i o n s in  business of making loans and the  union p a r t i c i p a t i o n  the  accepting deposits, ostensibly  f i n a n c i a l r e s o u r c e s , e x p e r t i s e and  physical  with  infrastructure  to provide a s s i s t a n c e for CBED. Secondly, c r e d i t unions share a s i m i l a r p h i l o s p h y with community based economic development,  one  of  by  the  self-help  and  principles  mean the  credit  mutual a i d . T h i s philosophy i s complemented  of c o o p e r a t i o n which guide the  credit  union  union i s s u b j e c t to community c o n t r o l .  c r e d i t unions are  l o c a l l y based i n s t i t u t i o n s with the  and  Thirdly, ability  to  set  independent p o l i c i e s to s u i t the  needs of t h e i r membership.  The  following section  characteristics.  The stood at and  examines these  t o t a l loan p o r t f o l i o of the $4,949 m i l l i o n  to a l e s s e r  Union 1986)  i n 1985,  B.C.  c r e d i t union system  comprised of p e r s o n a l , mortgage  degree, business l o a n s . (B.C.  I f B.C.  c r e d i t unions d i r e c t e d  Central  Credit  j u s t 5 percent  of  t h e i r combined loan p o r t f o l i o to CBED, i t would y i e l d a fund of approximately $250 m i l l i o n , more than t r i p l e LEAD program expenditures i n Canada f o r represents a p o t e n t i a l l y  1985-86. Thus, the  large,  credit  untapped pool of  union  financial  support f o r community based economic development e f f o r t s . A c r e d i t union i s a l s o development e f f o r t s  able a i d community based economic i n other ways such as through the  use  of  its  93  savings and d e p o s i t - t a k i n g i n f r a s t r u c t u r e . Thus even i f the c r e d i t union loan p o r t f o l i o  i s not the source of funds, i t may  be h e l p f u l i n managing the funds. An example of t h i s i s p r o v i d e d in Chapter 5. Secondly, the philosophy of the A n t i g o n i s h model of economic s e l f - h e l p and c o o p e r a t i o n long a s s o c i a t e d with c r e d i t unions  i s remarkably  s i m i l a r t o that of the CBED movement.  C r e d i t unions were founded  with the express i n t e n t of f u r t h e r i n g  the economic i n t e r e s t s of the working  c l a s s through the  m o b i l i z a t i o n of member savings f o r member use. The p r o c e s s , a c c o r d i n g t o Coady, was one of economic s e l f - h e l p and mutual a i d through a d u l t education which c o u l d best be a c h i e v e d  through  c o o p e r a t i o n . S i m i l a r g o a l s have been expressed i n the popular CBED l i t e r a t u r e o u t l i n e d e a r l i e r , with i t s emphasis on broadly d e f i n e d socio-economic  development, community c o n t r o l and i t s  o r i g i n s i n community development. U l t i m a t e l y , the s i m i l a r i t y between the two can be expressed as t h e i r combined i n t e r e s t i n both s o c i a l and economic o b j e c t i v e s , implemented through a grass r o o t s , s e l f - h e l p s t r a t e g y . However, while the c r e d i t  union  p h i l o s o p h y of the 1930s was c o n s i s t e n t with that of CBED, i t i s l e s s so today. T h i s i s a c o n s t r a i n t t o c r e d i t  union  p a r t i c i p a t i o n t o CBED which w i l l be c o n s i d e r e d i n the f o l l o w i n g s e c t i o n . However, a r e v i v a l i n t r a d i t i o n a l c r e d i t  union  philosophy which i s s u p p o r t i v e of CBED i s o c c u r r i n g i n some q u a r t e r s . T h i s i s demonstrated initiatives In  by some i n n o v a t i v e c r e d i t  union  i n B.C. Which are documented i n Chapter 5.  f a c t , c r e d i t union philosophy appears  t o have s u b t l y  94  s h i f t e d from Coady's v i s i o n of an a l l embracing c o o p e r a t i v e commonwealth to one of a more p r a c t i c a l nature, that i s f i n a n c i a l s e r v i c e . The range of s e r v i c e s a v a i l a b l e has expanded as has  steadily  i t s q u a l i t y . T h i s s t r a t e g y has produced  some  b e n e f i t s f o r the c r e d i t union i n that members and non-members p e r c e i v e c r e d i t unions as f r i e n d l i e r p l a c e s to bank than the B i g Five.  ( C r e d i t Union Way  1984)  Of the few small b u s i n e s s e s that  c u r r e n t l y use a c r e d i t union, a 1985 CFIB survey shows that c r e d i t unions are more s u c c e s s f u l than banks i n meeting needs. As shown i n Table 9, entitled  their  i n the s e c t i o n of the survey  " d e t a i l s of bank s e r v i c e " ,  respondents gave c r e d i t  unions the h i g h e s t r a t i n g s on such q u e s t i o n s as - knowledge of l o c a l market, understanding of the b u s i n e s s s e c t o r , and having enough time f o r your b u s i n e s s . Thus, the r e p u t a t i o n of the c r e d i t union among the s m a l l b u s i n e s s sector would seem to p r o v i d e a b a s i s f o r f u r t h e r c r e d i t union a c t i v i t y  in t h i s area.  TABLE 9 CFIB Survey R e s u l t s by F i n a n c i a l (percent) D e t a i l s of Bank S e r v i c e  National Results  Know L o c a l Market Understands Business Sector Enough Time f o r Your Business High Enough Lending Limit Source: CFIB. 1985  Institution  Credit Unions  Trust Companies  Royal Bank  52.8  69.5  50.3  53.6  53.4  68.0  51.3  55.6  73.5  78.9  75.9  76.0  55.6  67.7  40.3  56.8  Banking Survey. Toronto:  1985.  As one m a n i f e s t a t i o n of the ' s e r v i c e ' philosophy, c r e d i t  unions  95  have been a b l e t o expand t h e range an  intensive  long  list  unions  search f o r innovative solutions  of f i n a n c i a l  and t h e n  automated  of s e r v i c e s  p r o d u c t s were f i r s t  c o p i e d by t h e f i n a n c i a l  teller  machines, d a i l y  offered  t o member n e e d s . A  i n t r o d u c e d by c r e d i t  industry,  interest  through  including  savings accounts,  o f 100 p e r c e n t o f t h e  w e e k l y payment m o r t g a g e ,  recognition  women's income  l o a n s , open m o r t g a g e s w i t h e a r l y n o n -  penalty  i n family  pre-payment  and so o n . C l e a r l y ,  credit  unions  frequently  been a t t h e f o r e f r o n t  o f c h a n g e and e x h i b i t  propensity  to innovate, at least  at the l e v e l  have a  o f day t o d a y  operations. As c o o p e r a t i v e f i n a n c i a l officially laid  s u b s c r i b e .to c e r t a i n  down by t h e R o c h d a l e  century: democratic limited  interest  continuous  cash  Credit  demonstrate  the w i l l  the c r e d i t  union  Furthermore, initiate  membership,  shares, patronage  trading,  of the fact  refunds,  a n d c o o p e r a t i o n among that  credit  unions  education, the democratic  u n i o n members c o n t r o l  and t h e r e f o r e c r e d i t  members a r e c o n s i s t e n t  a credit  still  cooperative principles  v o l u n t a r y a n d open  on i n v e s t m e n t  and c o n t i n u o u s  intact.  directors  for  unions  have i n  s t r a y e d from a d h e r e n c e t o a l l t h e s e p r i n c i p l e s ,  trading  remains  control,  In s p i t e  basic  credit  Pioneers i n the mid-nineteenth  education, cash  cooperatives. practise  institutions,  union  policy.  such as  structure  the board of I f t h e needs o f t h e  w i t h t h o s e o f CBED, and members  to participate  i n CBED, t h e n  i t i s possible  t o accommodate CBED.  community union  members have t h e o p p o r t u n i t y t o  in their  locality.  While  this  was once a  96  vital  g r a s s - r o o t s s t r a t e g y f o r a c h i e v i n g c o n t r o l of community  c a p i t a l , one c o n s i s t e n t with the philosophy of CBED, very c r e d i t unions have been formed i n recent years due s t a r t - u p c o s t s , and c o m p e t i t i o n among f i n a n c i a l the l a s t B.C.  few  to high  institutions.  In  10 to 12 years, s i x t e e n c r e d i t unions were formed i n  but only one or two  have s u r v i v e d . (G. Rubio, B.C.  C r e d i t Union, personal communication, A p r i l 2, these o b s t a c l e s to c r e a t i n g new  c r e d i t unions  1987)  f o r CBED. However, the value of  community development c r e d i t unions  Thus, with  i n mind, i t i s  more l i k e l y that e x i s t i n g c r e d i t unions w i l l be the source of support  Central  primary  specialized  should not be under-  emphasized. While c r e d i t unions are c r i t i c i s e d as being unstable f o r t h e i r r e l i a n c e on one  l o c a l market area, there are a l s o p o s i t i v e  a s p e c t s of t h i s p a r o c h i a l i s m such as: knowledge of the economy and the c r e d i t union's  local  d i r e c t r e l a t i o n s h i p to the h e a l t h  of the l o c a l economy. C r e d i t unions  know the l o c a l economy and  with t h e i r autonomous i n s t i t u t i o n a l s t r u c t u r e , c r e d i t unions i n a good p o s i t i o n to c a r r y out programs to achieve  are  local  o b j e c t i v e s . Community based economic development r e q u i r e s that each community understand  i t s l o c a l economy and  i n i t i a t e action  based on t h i s knowledge. A s m a l l , l o c a l l y c o n t r o l l e d union has s u f f i c i e n t  flexibility  credit  to accommodate v a r i o u s  strategies. C r e d i t union managers and boards of d i r e c t o r s are p e r c e i v e d by business people  to have a deeper understanding  area than o f f i c i a l s of other f i n a n c i a l  of the  local  i n s t i t u t i o n s as reported  97  in Table 9. There are s e v e r a l p o s s i b l e reasons Firstly,  for t h i s .  the board i s e l e c t e d from w i t h i n the common bond of  a s s o c i a t i o n , be that geographic  or otherwise. Secondly,  the  o f f i c e s of the c r e d i t union are l o c a t e d w i t h i n the bond of a s s o c i a t i o n so that decision-making  i s c a r r i e d out  locally.  T h i r d l y , the manager and the s t a f f of c r e d i t unions are not r e q u i r e d to move throughout  the system as f r e q u e n t l y as are  t h e i r c o u n t e r p a r t s i n banks so that they are more l i k e l y  to be  p e r s o n a l l y acquainted with t h e i r members as a t t e s t e d by the c r e d i t union study which showed that c r e d i t unions are p e r c e i v e d as more people o r i e n t e d when compared with banks and companies. ( C r e d i t Union Way  1984)  However, i t i s not known i f ,  or to what e x t e n t , these c h a r a c t e r i s t i c s of c r e d i t actually  i n f l u e n c e t h e i r behaviour  CBED. Furthermore,  trust  unions  i n a manner f a v o u r a b l e to  a r e s t r i c t i o n w i t h i n the C r e d i t Union Act i s  intended to prevent c r e d i t unions from c a r r y i n g on b u s i n e s s o u t s i d e the p r o v i n c e , but t h i s p r o v i s i o n  i s not  strictly  e n f o r c e d . ( C r e d i t Union A c t , RS Chap 79, Part 1, S e c t i o n 6  1985)  Even more than a knowledge of the l o c a l economy, the c r e d i t union might be expected to have a l a r g e stake i n the o v e r a l l h e a l t h of the l o c a l economy. P o s s e s s i n g a membership drawn only from a s p e c i f i c  region or group of people means that the c r e d i t  union, l i k e other l o c a l i n s t i t u t i o n s , has a stake i n the continued economic h e a l t h of the a r e a . I f a c r e d i t union i n f l u e n c e the l o c a l economy through  can  i t s p o l i c i e s and l e n d i n g  d e c i s i o n s then doing so i s of mutual i n t e r e s t  f o r both the  community and the c r e d i t union. A s t a b l e , h e a l t h y l o c a l economy  98  is and  l i k e l y to enhance the s e c u r i t y of the c r e d i t u n i o n ' s mortgage loan p o r t f o l i o for i n s t a n c e .  community based economic development decisions, in  the l o c a l economy. As such, the  (Thompson 1978)  economic  lending diversification  'extreme p a r o c h i a l i s m '  of the c r e d i t union may serve as an impetus and  r a t i o n a l e for i t s development.  By c o n t r i b u t i n g to  through i t s  the c r e d i t union may f o s t e r  involvement  i n community based  T h i s i s not to say that the  not operate with the same i n t e n t i o n s ,  economic  l o c a l bank branch does  but r a t h e r that  union depends on a v i a b l e l o c a l community for i t s e x i s t e n c e , whereas a bank i s not u l t i m a t e l y suggests that  personal  the m o t i v a t i o n to strengthen  the  credit  continued  so dependent.  This  the l o c a l economy  is  perhaps stronger on the part of the l o c a l c r e d i t u n i o n .  C o n s t r a i n t s to C r e d i t Union P a r t i c i p a t i o n i n £BED Despite the e x i s t e n c e of s e v e r a l a t t r i b u t e s c r e d i t unions l i k e l y candidates  which make  for CBED, to date they have not  acted to become i n v o l v e d i n CBED to any great e x t e n t . CBED groups r a r e l y use the c r e d i t union as a source of much l e s s often  than banks a c c o r d i n g to the Highland Resources  (1983) survey r e s u l t s constraints  reveals  i n Table 2. A c o n s i d e r a t i o n of  the  to c r e d i t union p a r t i c i p a t i o n w i l l c o n t r i b u t e to an  understanding of t h i s experience  financing,  situation.  An account of a  recent  at a B . C . C e n t r a l C r e d i t Union annual general  some of the problems a s s o c i a t e d  union p e r s p e c t i v e .  At t h i s meeting  meeting  with CBED from a c r e d i t  l o c a l c r e d i t unions  defeated  a motion proposing that a r e s e a r c h program be c a r r i e d out by  99  B.C.  C e n t r a l on the subject of c r e d i t  CBED. I t s defeat was a t t r i b u t e d  union p a r t i c i p a t i o n i n  not t o the concept of CBED i n  g e n e r a l , but r a t h e r , t o the notion of c e n t r a l i z e d credit  a c t i o n . Local  unions expressed the view that CBED i s by d e f i n i t i o n a  l o c a l phenomenon, which should be approached by each  credit  union, i n i t s own way. There a r e s e v e r a l good reasons beyond t h i s t e r r i t o r i a l one, why c r e d i t  unions have not expanded out of t h e i r  traditional  spheres of a c t i v i t y i n t o CBED. The f i r s t has t o do with the question  of r i s k . Can a s m a l l , n o n - p r o f i t c r e d i t  assume the added r i s k a s s o c i a t e d with  union a f f o r d t o  l e n d i n g f o r CBED? These  e n t e r p r i s e s are o f t e n marginal small businesses  employing the  hard to employ and l o c a t e d i n depressed r u r a l areas or inner c i t y neighbourhoods which a r e c h a r a c t e r i s t i c a l l y  high  risk  l e n d i n g p r o p o s i t i o n s from the point of view of the l e n d e r . Combine t h i s added r i s k dimension of CBED with the f a c t credit  unions are t r a d i t i o n a l l y h i g h l y c o n s e r v a t i v e  i n s t i t u t i o n s and the p r o s p e c t s participation  for credit  i n CBED a r e l i m i t e d .  David Ross addressed the question from the c r e d i t  financial  financial  T h i s i s true i n the absence  of a mechanism to reduce l e v e l of r i s k  CBED o r g a n i z a t i o n s  union  that  i n l e n d i n g to CBED. of r i s k  i n l e n d i n g to  union's p e r s p e c t i v e and has  proposed a u s e f u l way of d i s t i n g u i s h i n g CBED on the b a s i s of three r i s k c a t e g o r i e s :  1  1) those CBED e n t e r p r i s e s with  normal  D a v i d Ross, P r e s e n t a t i o n to Vancouver C i t y Savings C r e d i t Union Economic Conference, Annual General Meeting, Vancouver, A p r i l 5, 1986. 1  100  small b u s i n e s s r i s k c h a r a c t e r i s t i c s ; 2) those which might produce a lower r a t e of r e t u r n but which are s t i l l  f e a s i b l e from  the p o i n t of view of r i s k ; and 3) those which are n o n - p r o f i t  and  r e q u i r e an o u t r i g h t donation of some k i n d . I f c r e d i t unions were to assume added r i s k i n f i n a n c i n g CBED, should there be compensation  i n the form of higher reward which would secure  member d e p o s i t s . T h i s c o u l d be accomplished by t a k i n g an e q u i t y position  i n CBED e n t e r p r i s e s such that the c r e d i t union i s  compensated  f o r i t s r i s k - t a k i n g through a r e t u r n on e q u i t y .  Other methods of reducing r i s k are through government loan guarantee programs  and p r o v i d i n g management advice with each  l o a n . F u r t h e r r e s e a r c h regarding i n n o v a t i v e ways to reduce r i s k i n l e n d i n g f o r CBED i s r e q u i r e d . The second fundamental c o n s t r a i n t to c r e d i t union involvement i n CBED i s posed by a l a c k of p h i l o s o p h i c a l commitment to c r e d i t union i d e a l s or a sense of community o b l i g a t i o n on the part of todays c r e d i t union members which  may  prevent c r e d i t unions from t a k i n g an a c t i v e r o l e i n CBED. A c c o r d i n g to Melnyk's  (1985) typology of c o o p e r a t i v e s i n Canada,  c r e d i t unions can be c l a s s i f i e d as l i b e r a l democratic co-ops i n the 'systems' phase of development. m i s s i o n a r y z e a l of the ' U t o p i a n ' and  In t h i s phase, the 'movement' phases i s  r e p l a c e d with a more b u s i n e s s - l i k e approach. Concommitent with a b u s i n e s s - l i k e approach i s an u n f o r t u n a t e change i n the nature of commitment from an i d e o l o g i c a l commitment, which focuses on a vision  f o r the f u t u r e , to a u t i l i t a r i a n one, r e s u l t i n g from the  p r a c t i c a l b e n e f i t s of c r e d i t union membership. These are  101  Ranter's  (1972) terms t o e x p l a i n the nature of r e l a t i o n s h i p  between people and o r g a n i z a t i o n s . Thus, the w i l l to p a r t i c i p a t e in CBED i s l e s s l i k e l y to develop i n such c i r c u m s t a n c e s . Changing  member commitment can be i l l u s t r a t e d by some  f i g u r e s from a recent survey which found that o n l y 30 percent of c r e d i t union members surveyed had ever attended an annual general meeting. Moreover, when a sample of both members and non-members were asked to rank the a t t r i b u t e s of a f i n a n c i a l institution,  f a c t o r s such as convenience, c o n f i d e n t i a l i t y , and  s e c u r i t y ranked above the importance community involvement and customer ( C r e d i t Union Way January  of l o c a l l y made p o l i c i e s ,  i n f l u e n c e on management.  1984) In f a c t , one B.C. c r e d i t  union  manager estimates that only 10 percent or l e s s of t h e i r members j o i n f o r i d e o l o g i c a l reasons: "The whole p h i l o s o p h y i s b a s i c a l l y t r a n s p a r e n t f o r l o t s of members." (Richard Wilson, p e r s o n a l communication,  Richmond Savings C r e d i t Union, October  Part of the h e s i t a t i o n  i n expanding  c r e d i t union  17, 1986) activities  to i n c l u d e CBED i s due to the f a c t that c r e d i t unions a r e r e g i o n a l l e n d i n g i n s t i t u t i o n s and a r e p e r c e i v e d to be l e s s s t a b l e than n a t i o n a l i n s t i t u t i o n s because  of the former's  dependence on the l o c a l resource-based economy. In B.C. where n e a r l y one i n f i v e c r e d i t unions operates under the s u p e r v i s i o n of the C r e d i t Union Deposit Insurance C o r p o r a t i o n , t h i s i s a s i g n i f i c a n t c o n s t r a i n t . T h i s r a t i o r e p r e s e n t s an u n u s u a l l y h i g h p r o p o r t i o n of c r e d i t unions under s u p e r v i s i o n compared to p r e v i o u s p e r i o d s but i t i s expected that the number peaked i n 1986  and w i l l begin t o d e c l i n e s h o r t l y .  (Superintendent of  102  C r e d i t Unions,  M i n i s t r y of Consumer and Corporate  Conversation A p r i l  10,  1987.) The  branch  banking  Affairs, system on  the  other hand, i s able to draw on d e p o s i t s from regions a c r o s s the country and The  i s not r e l i a n t  on one  or two  s e c t o r s of the economy.  s u b j e c t of the v i a b i l i t y of r e g i o n a l banking  has  r e c e i v e d much a t t e n t i o n of l a t e with the c o l l a p s e of three western Canada r e g i o n a l banks. I t i s argued that the demise of the Northland and Canadian Commercial Banks prove that r e g i o n a l banking  i s not v i a b l e and that confidence  i n r e g i o n a l banking  has been undermined. ( A l b e r t a Report, October  14,  1985)  Contrary  o p i n i o n a s s e r t s that the Northland and Canadian Commercial Banks were badly managed and thus t h e i r  f a i l u r e does not n e c e s s a r i l y  r e f l e c t n e g a t i v e l y on the v i a b i l i t y of r e g i o n a l banking. (Richard A l l e n , p e r s o n a l communication, B.C. Union, October 20,  1986;  Central Credit  Estey Commission Report  1986)  To  the  c o n t r a r y , the l o n g e v i t y and growth of the c r e d i t union system to date  i s proof that r e g i o n a l banking  can work.  Previous r e s t r i c t i o n s on l e n d i n g p r a c t i s e s may contributing  f a c t o r to c r e d i t union  r e l a t e d business l o a n s . Before restricted  1971  inertia  be  another  i n making CBED  c r e d i t unions  i n B.C.  were  from making business loans under the terms of the  C r e d i t Union A c t . F o r t u n a t e l y new i n t r o d u c e d i n 1971  c r e d i t union  allows c r e d i t unions  legislation  freedom i n g r a n t i n g  loans up to a s p e c i f i e d amount. Beyond that amount, loans must be approved by the C r e d i t Union Deposit (CUDIC) the i n d u s t r y ' s i n s u r i n g and  Insurance  Corporation  r e g u l a t o r y agency.  Owing i n p a r t to t h e i r r e l i a n c e on p e r s o n a l and mortgage  103  l o a n s , c r e d i t union managers and loans o f f i c e r s o f t e n do not have the e x p e r t i s e r e q u i r e d to e v a l u a t e CBED p r o p o s a l s . In a d d i t i o n , because many managers r e c e i v e t h e i r t r a i n i n g  in a  c h a r t e r e d bank before moving t o the c r e d i t union, they l a c k the p h i l o s o p h i c a l grounding  important  f o r e v a l u a t i n g p r o j e c t s with  both economic and s o c i a l p e r s p e c t i v e s . Aside from c r e d i t s t a f f , the board i s o f t e n c r i t i c i z e d  union  f o r a l a c k of f i n a n c i a l  e x p e r t i s e necessary t o evaluate business p r o p o s a l s a r i s i n g through CBED o r g a n i z a t i o n s . Volunteer boards  should not be  d i s m i s s e d a l t o g e t h e r because of a l a c k of t e c h n i c a l r a t h e r t h e i r knowledge of the c r e d i t  expertise;  worthiness of i n d i v i d u a l  members can c o n t r i b u t e a great d e a l t o a loan assessment. In r e c o g n i t i o n of the t r a i n i n g  requirements of s t a f f and board  members, the C r e d i t Union Deposit Insurance Corp. and B.C. C e n t r a l C r e d i t Union have developed  t r a i n i n g programs and  e s t a b l i s h e d s m a l l business l e n d i n g p o l i c i e s which might remove some of the b a r r i e r s  to business l e n d i n g . However, there are no  CBED t r a i n i n g programs i n p l a c e .  Summary Based on t h i s c o n s i d e r a t i o n of the c r e d i t suitability  for participating  s e v e r a l problem participation. participation  union's  i n CBED, i t appears  areas which tend t o l i m i t c r e d i t Firstly,  the p r o s p e c t s f o r c r e d i t  that there are union union  i n CBED are l i m i t e d by a lack of w i l l . While  c r e d i t union philosophy was c o n s i s t e n t with CBED, todays union members a r e not committed to the c r e d i t  union f o r  early  credit  104  p h i l o s o p h i c a l reasons and do not expect the c r e d i t union to use t h e i r d e p o s i t s to develop the l o c a l economy. Consequently, the l i k e l i h o o d that the c r e d i t union w i l l a c t a l t r u i s t i c a l l y to participate demonstrated  i n CBED i s l i m i t e d . I f on the other hand, i t can be that there i s b e n e f i t to be gained by c r e d i t  union  members through community based economic development, the chances are i n c r e a s e d . T h i s may be achieved by e d u c a t i n g c r e d i t union members and d i r e c t o r s as t o the nature and p o t e n t i a l b e n e f i t s which may r e s u l t  from CBED. The democratic nature of  the c r e d i t union i s what makes i t unique financial  i n r e l a t i o n t o other  i n s t i t u t i o n s and t h e r e f o r e a t t r a c t i v e t o community  based economic development groups. A c o o p e r a t i v e d e c i s i o n making framework means the c r e d i t union i s s u b j e c t to community c o n t r o l and thus a b l e t o respond to the needs of the l o c a l community. F i n a l l y , the mutual b e n e f i t gained from a s t r o n g l o c a l economy f u r t h e r strengthens the l i n k between c r e d i t unions and CBED. F i n a n c i a l p a r t i c i p a t i o n by c r e d i t unions i n CBED i s f u r t h e r l i m i t e d by high l e v e l s of r i s k a s s o c i a t e d with l e n d i n g to CBED. There a r e a number of ways i n which r i s k can be reduced f o r c r e d i t unions l e n d i n g to CBED groups; such as loan guarantees  through government support  and insurance, i n n o v a t i v e f i n a n c i a l  mechanisms, by t a k i n g an e q u i t y p o s i t i o n  i n CBED e n t e r p r i s e s ,  and by p r o v i d i n g management advice i n c o n j u n c t i o n with l o a n s . Each of these e i t h e r reduces the r i s k element of the loan or compensates the c r e d i t union f o r i t s added r i s k . T h e r e f o r e , the c o n s t r a i n t s posed by excess r i s k are not insurmountable; further  indeed  i n v e s t i g a t i o n of a l t e r n a t i v e mechanisms f o r reducing  105  r i s k should be undertaken. The c r e d i t union can perform other r o l e s i n support of CBED, such as that of a f a c i l i t a t o r or c a t a l y s t  f o r CBED i n the  community, p r o v i d i n g management a d v i c e t o CBED o r g a n i z a t i o n s , and by making c r e d i t union f a c i l i t i e s a v a i l a b l e f o r CBED activities.  To date, the g r e a t e s t i n d i c a t o r of the c r e d i t  union's s u i t a b i l i t y  to p a r t i c i p a t e  i n CBED i s the f a c t  that  s e v e r a l c r e d i t unions are c u r r e n t l y doing so; t h i s i s the s u b j e c t of Chapter 5.  106  CHAPTER 5  A REVIEW OF CREDIT UNION EXPERIENCE IN COMMUNITY BASED ECONOMIC DEVELOPMENT  Introduction The p r e v i o u s chapter r e f e r r e d to the f a c t that c r e d i t unions  i n B r i t i s h Columbia  a c r o s s the country and  and  indeed around  i n other  several  jurisdictions  the world have taken  c o n s i d e r a b l e a c t i o n i n the name of community based economic development. The purpose  of t h i s chapter i s t o p r o v i d e some  e m p i r i c a l support f o r the argument that c r e d i t unions should p a r t i c i p a t e i n community based economic development by p r e s e n t i n g an i l l u s t r a t i v e sampling of the nature of c r e d i t union p a r t i c i p a t i o n elsewhere. Due  i n CBED both i n B r i t i s h Columbia  and  to g e o g r a p h i c a l c o n s i d e r a t i o n s , the focus of  chapter w i l l be on two B r i t i s h Columbia  this  c r e d i t unions which are  c u r r e n t l y engaged i n CBED; Nanaimo D i s t r i c t Savings C r e d i t  Union  and Vancouver C i t y Savings C r e d i t Union. However, a b r i e f d e s c r i p t i o n of c r e d i t union  i n i t i a t i v e s o p e r a t i n g i n Quebec, the  U n i t e d S t a t e s and Spain i s i n c l u d e d i n Appendix A to show the breadth of c r e d i t union a c t i v i t y The  first  B r i t i s h Columbia  i n support of CBED. case i s Nanaimo D i s t r i c t  Savings  C r e d i t Union, a medium-sized c r e d i t union with 18,000 members l o c a t e d i n Nanaimo on Vancouver I s l a n d . While  traditionally  a c t i v e i n community a f f a i r s , Nanaimo D i s t r i c t  Savings  Union  Credit  i s c u r r e n t l y t a k i n g p a r t i n two CBED i n i t i a t i v e s ,  the  107  Community Ventures Account  and C o l v i l l e Investments,  both of  which w i l l be examined i n some d e t a i l l a t e r i n the c h a p t e r . Vancouver C i t y Savings C r e d i t Union  (VanCity) on the other hand,  i s a l a r g e urban based c r e d i t union with 21 branches a c r o s s the Lower Mainland. The programs of i n t e r e s t a t VanCity a r e the Seed Capital  P r o j e c t and E t h i c a l Growth Fund, both i n t r o d u c e d w i t h i n  the l a s t two y e a r s . The  r a t i o n a l e f o r choosing these c r e d i t unions  F i r s t l y , a s i d e from Community Congress  i s twofold.  f o r Economic Change or  CCEC, they a r e the only two B.C. c r e d i t unions with  specialized  programs i n p l a c e f o r community based economic development.  1  That i s not to say however, that other c r e d i t unions a r e not p u r s u i n g the same or s i m i l a r o b j e c t i v e s i n the course of t h e i r everyday o p e r a t i o n s without u s i n g the term CBED. Secondly, Nanaimo and VanCity both draw t h e i r membership from a geographic common bond, the most p r e v a l e n t common bond i n B.C. and i n most provinces (at least  i n terms of membership.) The d i f f e r e n c e i n  s i z e between the two c r e d i t unions a l l o w s f o r an a p p r e c i a t i o n of the s c a l e of a c t i v i t y p o s s i b l e i n each case. The purpose chapter i s t o determine  of t h i s  i f the examples d e s c r i b e d h e r e i n  i n d i c a t e that e x i s t i n g c r e d i t unions are capable of becoming  'CCEC i s a s m a l l Vancouver c r e d i t union whose o b j e c t i v e s g i v e p r i o r i t y t o the f i n a n c i a l needs of c o o p e r a t i v e o r g a n i z a t i o n s such as housing coops, consumer coops and other n o n - p r o f i t o r g a n i z a t i o n s . Although CCEC i s a good example of a c r e d i t union f o l l o w i n g the p r i n c i p l e s of CBED, i t has not been chosen as a case f o r d e t a i l e d study because i t does not r e p r e s e n t a l i k e l y model f o r e x i s t i n g c r e d i t unions. Rather i t would r e q u i r e that a new c r e d i t union be formed, and a corresponding h o l i s t i c commitment t o CBED.  108  i n v o l v e d i n CBED. T h e r e f o r e , i t i s u s e f u l t o concentrate on the models s u i t e d t o the untapped p o t e n t i a l of e x i s t i n g  credit  unions, as t y p i f i e d by Nanaimo and VanCity c r e d i t unions.  Methodology The methodology adopted here i n v o l v e s examining s p e c i f i c programs or " i n s t i t u t i o n a l adjustments" employed by the two c r e d i t unions i n support of CBED. These w i l l be analysed a g a i n s t a framework  f o r the e v a l u a t i o n of a l t e r n a t i v e  i n s t i t u t i o n s d e r i v e d from F i s h e r ' s  financial  (1983) normative  framework.  T h i s i s an i n s t i t u t i o n a l p e r s p e c t i v e based on the n o t i o n a l t e r n a t i v e s p e c i f i c a t i o n s of p r o p e r t y r i g h t s a f f e c t of the outcomes  that  the nature  produced by economic e n t i t i e s . The  i n s t i t u t i o n a l i s t approach i s p a r t i c u l a r l y u s e f u l when a p p l i e d to the c r e d i t union s i n c e i t makes e x p l i c i t the "powers, responsibilities,  r i g h t s and l i a b i l i t i e s of those a f f e c t e d by or  i n v o l v e d i n the p r o d u c t i v e p r o c e s s . " ( F i s h e r  1983) Orthodox  economic assessment techniques a r e i n a p p r o p r i a t e because the s o c i a l b e n e f i t s t o i n d i v i d u a l s and communities a r e d i f f i c u l t to q u a n t i f y . As such, the outcomes as w e l l as the i n s t i t u t i o n a l processes themselves of the CBED programs  implemented by Nanaimo  and VanCity w i l l be assessed a g a i n s t a s e t of s o c i a l  value  c r i t e r i a developed i n the next s e c t i o n . Since the programs i n q u e s t i o n have only r e c e n t l y been implemented  i t i s too e a r l y to  perform a comprehensive e v a l u a t i o n of these i n i t i a t i v e s .  Instead  the purpose of t h i s chapter i s t o document the i n i t i a t i v e s , comment b r i e f l y on t h e i r a b i l i t y  to s a t i s f y the c r i t e r i a , and  109  make some o b s e r v a t i o n s r e g a r d i n g the s t r a t e g i e s f o l l o w e d , r e l a t i o n s h i p s with other community o r g a n i z a t i o n s , and i n s t i t u t i o n a l arrangements. Two sources were u t i l i z e d  f o r t h i s chapter:  personal  i n t e r v i e w s and correspondence with s t a f f and board members of both c r e d i t unions,  listed  information contained  i n Appendix B; and p u b l i s h e d  i n annual r e p o r t s , i n t e r n a l documents,  n e w s l e t t e r s , newspapers and magazines. The  four broad  s o c i a l value c r i t e r i a p o s t u l a t e d by F i s h e r  are as f o l l o w s : 1) i n d i v i d u a l growth and development 2) e q u a l i t y and c o o p e r a t i o n  in social  relationships 3) s o c i a l and b i o l o g i c a l c o n t i n u i t y 4) expansion  of knowledge and f r e e i n q u i r y  An a p p r o p r i a t e set of c r i t e r i a union  for evaluating a credit  i n v o l v e d i n CBED w i l l now be developed  general s o c i a l value c r i t e r i a . Derived  from the above  from the requirement  i n d i v i d u a l growth and development, the f i r s t c r i t e r i o n  of  i s a test  of the program's a b i l i t y to meet economic o b j e c t i v e s such as i n c r e a s i n g the amount of wealth  or economic a c t i v i t y  community through job c r e a t i o n and economic  i n the  diversification.  T h i s must be done i n a manner that ensures the c r e d i t continued  economic v i a b i l i t y . The c r e d i t union w i l l  union's  remain  u s e f u l as an a c t o r i n the community development process only i f it  i s a b l e t o remain s o l v e n t . T h i s c r i t e r i o n may be compared t o  that of e f f i c i e n c y  i n c o n v e n t i o n a l economic a n a l y s i s where the  110  aim  i s to produce the maximum value of output  minimizing  using c o s t  techniques of p r o d u c t i o n and c o n s i d e r i n g market  demand. The number of jobs c r e a t e d and the d o l l a r value of i n c r e a s e d economic a c t i v i t y a r e used to t e s t The  for this criterion.  second c r i t e r i o n i m p l i e s that e q u i t y should be a  consideration  i n the a l l o c a t i o n  that d i s p a r i t i e s individuals  of c r e d i t  union  investments  such  i n income and wealth a r e reduced among  and among r e g i o n s . I f job c r e a t i o n i s the t o o l or  s t r a t e g y employed then  i t should be d i r e c t e d t o those most i n  need. Furthermore, development should c r e a t e good jobs; a l l jobs are not e q u a l l y s a t i s f a c t o r y .  Clearly,  the q u a l i t y  of job, which  depends of the l e v e l of pay, s k i l l s r e q u i r e d , l e n g t h of employment as w e l l as the a c t u a l nature of the job, have a b e a r i n g on i t s d i s t r i b u t i v e  effects.  The p r i n c i p l e of c o o p e r a t i o n inherent i n the second s o c i a l value c r i t e r i o n and which F i s h e r a p p l i e s t o community reinvestment implicit  s t a t u t e s and p u b l i c banks i n the United S t a t e s , i s  i n the o p e r a t i o n s of a c r e d i t union. C r e d i t unions are  by d e f i n i t i o n c o o p e r a t i v e i n s t i t u t i o n s owned and c o n t r o l l e d  by  t h e i r membership. T h e r e f o r e , the extent to which the c o o p e r a t i v e model i s promoted as a form of business e n t e r p r i s e by the c r e d i t unions  through  these i n i t i a t i v e s w i l l be used to measure t h i s  aspect of e q u i t y . The activity  t h i r d c r i t e r i o n holds that the l o c u s of c r e d i t  union  i n CBED should be the l o c a l community. The p r i n c i p l e  impetus f o r CBED i n many communities i s l o s s of l i v e l i h o o d and a determination to remain i n the community. T h e r e f o r e , community  111  economic development should aim  to r e p l a c e l o s t  j o b s . A broader  i n t e r p r e t a t i o n of the word community c o u l d a l s o be a p p l i e d to the c r e d i t  union's community development a c t i v i t i e s .  I t would  attempt to determine i f the programs or p o l i c i e s d i r e c t e d at CBED h e l p to b u i l d a sense of s e l f  r e l i a n c e among community  r e s i d e n t s i n the economic sphere. A s s e s s i n g i s d i f f i c u l t as the CDC Glaser  1983;  l i t e r a t u r e p o i n t s out  (Cummings and  Mier and Wiewel 1983), n e v e r t h e l e s s ,  to comment on t h i s c r i t e r i o n Finally,  t h i s type of e f f e c t  i n each  I will  case.  i n s t i t u t i o n a l arrangements that p r o v i d e  exposure to f i n a n c i a l and other  greater  i n f o r m a t i o n u s e f u l i n the  community economic development process that do not. Educating  attempt  are p r e f e r r e d over  those  community members and b u i l d i n g l o c a l  c a p a c i t y to engage i n community based economic development are p o t e n t i a l l y u s e f u l r o l e s f o r a c r e d i t union  to assume.  In summary, four c r i t e r i a w i l l be c o n s i d e r e d  in assessing  the programs i n s t i t u t e d by Nanaimo and Vancouver c r e d i t Briefly,  they are c o n s i d e r a t i o n s of  cooperation,  3) community, and  unions.  1) e f f i c i e n c y , 2) e q u i t y  4) e d u c a t i o n . The  and  criteria  represent a broad p e r s p e c t i v e on the r o l e of a community economic development f i n a n c i a l i n s t i t u t i o n , but they are internally consistent c r i t e r i a .  I t i s l i k e l y that the o b j e c t i v e  of e f f i c i e n c y w i l l c o n f l i c t with those T h i s does not clarify  limit  o b j e c t i v e s . The  of e q u i t y and  t h e i r u s e f u l n e s s , but  the t r a d e - o f f s inherent  not  i n any  rather helps  undertaking  f o l l o w i n g s e c t i o n d e s c r i b e s the  programs undertaken by each c r e d i t union,  community. to  with m u l t i p l e  particular  then seeks to  assess  1 12  each program out  i n l i g h t of i t s own  o b j e c t i v e s and the c r i t e r i a set  above.  Assessment  of Community Based Economic Development  Nanaimo D i s t r i c t  Initiatives  Savings C r e d i t Union  Nanaimo D i s t r i c t  Savings C r e d i t Union has been a c t i v e i n  the community s i n c e i t s formation i n 1946. Past involvement i n c l u d e d l e a s i n g f u r n i t u r e and equipment  to the l o c a l  community  c o l l e g e and p r o v i d i n g premises f o r the consumer c o o p e r a t i v e . In f a c t , two branches of the c r e d i t union are s i t u a t e d on the same premises as Hub Co-op. The c r e d i t union appears to be w e l l i n t e g r a t e d i n t o the l o c a l community, as evident by the monthly meeting of the c r e d i t union, Hub Co-op, Creduco S e r v i c e s (the insurance arm of the c r e d i t union) and G r e a t e r Nanaimo Housing C o r p o r a t i o n , a wholly owned s u b s i d i a r y of the c r e d i t union and Hub Co-op. Two  " i n s t i t u t i o n a l adjustments" - the Community  Ventures Account  (CVA) and i t s r e l a t i o n s h i p with C o l v i l l e  Investments - are f u r t h e r evidence of t h i s  longstanding  commitment, i n s p i t e of the f a c t that the c r e d i t union has  been  under s u p e r v i s i o n by the CUDIC f o r s e v e r a l y e a r s . Faced with dim economic p r o s p e c t s s i n c e the e a r l y  1980s the c r e d i t union  decided to take some d e c i s i v e a c t i o n based economic  development  i n support of community  together with other community groups.  The l o c a l economy i s dependent  on the f o r e s t r y i n d u s t r y which  has s u f f e r e d a great l o s s i n employment i n the l a s t seven y e a r s . The c u r r e n t unemployment r a t e on Vancouver  I s l a n d remains high  113  at  14.7 percent i n January  Community Ventures  1987.  Account  The Community Ventures Account up at the c r e d i t union, which was  i s a r e v o l v i n g loan fund set  sponsored by Malaspina C o l l e g e  and another community o r g a n i z a t i o n , to reduce youth employment and t o c o n t r i b u t e to the economic h e a l t h of the l o c a l a r e a . The account i s funded by c r e d i t union members who  can choose to  accept a r e d u c t i o n i n the r a t e of i n t e r e s t p a i d on  their  d e p o s i t s i n savings accounts-and term investments. The  remainder  i s then a s s i g n e d t o the Community Ventures Account which i s administered by a n o n - p r o f i t s o c i e t y c a l l e d the Nanaimo Community Ventures S o c i e t y . I t i s comprised of r e p r e s e n t a t i v e s of the Kiwanis Club, Malaspina C o l l e g e and the c r e d i t union. The C o l l e g e and Kiwanis Club are r e s p o n s i b l e f o r the p r o v i s i o n of business a d v i s o r y support to i n d i v i d u a l a p p l i c a n t s and the c r e d i t union looks a f t e r the a c c o u n t i n g of the fund. Members of all  three o r g a n i z a t i o n s s i t on the board which makes l e n d i n g  d e c i s i o n s . Students (or others) aged  15 to 24 are e l i g i b l e f o r  a s s i s t a n c e from the fund, although e x c e p t i o n s are p o s s i b l e f o r o l d e r students. The CVA first  began a c c e p t i n g d e p o s i t s i n September  1984;  the  loans were to be made i n the s p r i n g of 1986. However, by  the end of February 1987 only $3000.00 had been c o n t r i b u t e d to the CVA,  primarily  from the Malaspina Student A s s o c i a t i o n , i t s  f a c u l t y a s s o c i a t i o n and v a r i o u s community o r g a n i z a t i o n s . With t h i s amount the CVA  has not been a b l e to f i n a n c e any  projects  1 14  although there are plans t o fund one or two student p r o j e c t s i n the summer of 1987. The general p u b l i c has not been very responsive to fund r a i s i n g e f f o r t s on b e h a l f of the Community Ventures Account.  Informal attempts  the reason f o r an apparent general reactions. F i r s t l y ,  by CVA s t a f f t o determine  lack of community support found two some r e s i d e n t s expressed the view  that young people do not need a d d i t i o n a l h e l p s i n c e they a r e a l r e a d y the t a r g e t of many government programs. The second reason put forward i s the b e l i e f that the economic will  situation  improve s h o r t l y , so these measures are unnecessary. The  s o c i e t y i s c u r r e n t l y i n v e s t i g a t i n g some a l t e r n a t i v e to r a i s e money f o r the Community Ventures  strategies  Account.  The manner i n which Nanaimo C r e d i t Union has chosen t o s t r u c t u r e the Community Ventures Account  does not pose a t h r e a t  to the f i n a n c i a l s t a b i l i t y of the c r e d i t union or i t s d e p o s i t e r s (members). Rather initiative  i t i s a very c o n s e r v a t i v e , t e n t a t i v e  i n t h i s r e s p e c t . Money i s r a i s e d from c r e d i t  members v o l u n t a r i l y f o r the purpose  union  of d e v e l o p i n g the l o c a l  economy, r a t h e r than from the c r e d i t union's loan p o r t f o l i o or retained earnings. This contribution  i s s i m i l a r to a c h a r i t a b l e  donation, although i t does not r e c e i v e the f a v o r a b l e tax treatment of a donation which was c o n s i d e r e d i n f e a s i b l e a t the time the Account  was c r e a t e d . The o p t i o n a l s o e x i s t s f o r members  to simply make a s t r a i g h t f o r w a r d donation t o the CVA. The  fund's o b j e c t i v e s are c o n s i s t e n t with the e q u i t y  c r i t e r i o n s i n c e i t aims t o reduce youth unemployment i n the r e g i o n . T h i s group i s disadvantaged  i n two ways. F i r s t , i n  115  Nanaimo as elsewhere,  unemployment f a l l s d i s p r o p o r t i o n a t e l y on  the shoulders of those aged 15 t o 24 y e a r s . Secondly, young people borrowing  f o r business purposes  experience even g r e a t e r  d i f f i c u l t y than a d u l t s i n g a i n i n g access to debt  financing since  t h e i r p e r s o n a l e q u i t y l e v e l s a r e low. So, i n the sense  that  youth employment i n the r e g i o n i s i n c r e a s e d , the program w i l l c o n t r i b u t e t o a more e q u i t a b l e d i s t r i b u t i o n of wealth. There i s no e x p l i c i t g o a l to promote c o o p e r a t i v e e n t e r p r i s e s . CVA  funds are r e s t r i c t e d t o youth businesses i n the Nanaimo  Regional D i s t r i c t , where they would c o n t r i b u t e t o the r e g i o n ' s employment base, a t l e a s t t e m p o r a r i l y . I f one were t o take the meaning of the term community f u r t h e r so as t o mean a sense of "commonality i n a c t i o n , " the a n a l y s i s becomes more d i f f i c u l t . The Community Ventures Account  i s . a n extremely  small s c a l e , low  v i s i b i l i t y p r o j e c t which has not, as of y e t , had any a p p r e c i a b l e impact  on the community or i t s morale.  I n s t i l l i n g young people with the " e n t r e p r e n e u r i a l s p i r i t " i s an i m p l i c i t o b j e c t i v e of the CVA, somewhat c o n s i s t e n t the e d u c a t i o n a l c r i t e r i o n  with  s e t out above. Experience gained  from  a summer business venture may very w e l l prove t o be a long term investment  i n human r e s o u r c e s . I t does not f u l f i l l  the broader  conception of c a p a c i t y b u i l d i n g which i s concerned with a c o l l e c t i v e r a t h e r than i n d i v i d u a l education i n economic decision-making, beyond that of small b u s i n e s s . However the l a c k of funds and corresponding i n a b i l i t y t o make any loans so f a r , make i t d i f f i c u l t community.  to guage the impact  of the CVA on the  116  Summary - Community Ventures Account There are s e v e r a l useful- i n s i g h t s to be gained from Nanaimo's b r i e f Firstly,  experience with the Community Ventures Account.  i t i s an extremely small s c a l e o p e r a t i o n whose impacts  on the community are not l i k e l y t o be l a r g e , even i f or when loans are made. Many community based economic efforts  are s i m i l a r i n t h i s  development  r e s p e c t ; they are small  t a c k l i n g extremely l a r g e , longstanding and complex social  initiatives economic  and  problems. Furthermore, i n the case of the Community  Ventures Account, the q u e s t i o n begging to be asked i s , can the e x i s t i n g method of r a i s i n g  money s u s t a i n the experiment? Would  some proven 'successes' i n c r e a s e the r a t e of c o n t r i b u t i o n s ? In terms of i n s t i t u t i o n a l  s t r u c t u r e , p a r t n e r i n g with other  community groups would appear to be a good way  of tapping  a d d i t i o n a l e x p e r t i s e and e l i c i t i n g broader community support f o r the  p r o j e c t . Small c r e d i t  have the s t a f f , of  unions l i k e Nanaimo are not l i k e l y to  i n terms of time or e x p e r t i s e , to c a r r y out a l l  the tasks a s s o c i a t e d with community based  economic  development. The Community Ventures Account a l s o i l l u s t r a t e s common tendency of CBED to t a r g e t groups which  the  traditionally  have d i f f i c u l t y i n e n t e r i n g the labour f o r c e , i n t h i s  case  youth.  Colville  Investments C o r p o r a t i o n  Nanaimo D i s t r i c t b a s i s with C o l v i l l e  (CIC)  Savings C r e d i t Union works on an  Investments, a s u b s i d i a r y of a  informal  local  employment s o c i e t y , to lend to small b u s i n e s s to s t i m u l a t e  local  1 17  economic development. C o l v i l l e Investments i s an  investment  fund  which seeks to encourage p r i v a t e s e c t o r employment through f i n a n c i a l and  t e c h n i c a l a s s i s t a n c e , but on a much l a r g e r s c a l e  than the Community Ventures Account. The involvement i s i n d i r e c t ; by C o l v i l l e on behalf process.  i t considers  c r e d i t union's  the recommendations made  of loan a p p l i c a n t s i n i t s loan  approval  In a d d i t i o n , C o l v i l l e w i l l sometimes guarantee a c r e d i t  union loan to a p r o s p e c t i v e  small business,  enabling  the c r e d i t  union to make a loan which otherwise might not have been f e a s i b l e from the c r e d i t union's p e r s p e c t i v e . The works the other  way  relationship  around as w e l l ; the c r e d i t union w i l l d i r e c t  a p o t e n t i a l business c l i e n t  to C o l v i l l e f o r a d v i c e  and  counselling. C o l v i l l e Investments was  e s t a b l i s h e d i n 1980  as a  s u b s i d i a r y of Nanaimo Community Employment Advisory (NCEAS). The  Society  l a t t e r ' s o b j e c t i v e s i n c l u d e "development of a  s t r a t e g y which would r e s u l t i n a more s t a b l e , d i v e r s i f i e d economy p r o v i d i n g 1986)  increased  employment o p p o r t u n i t i e s . "  NCEAS i s a community development c o r p o r a t i o n  funded by the Employment and LEDA, LEAD and two  arms, one  now  Immigration Commission through  p r o f i t making, the other  environmental i s s u e s , such as the Nanaimo R i v e r  p r o f i t s accruing  NCEAS has  n o n - p r o f i t . I t s non-  p r o f i t employment development a c t i v i t i e s g e n e r a l l y  but any  (NCEAS  largely  the Community Futures Program. The  Enhancement Program. C o l v i l l e  local  is a profit  focus  on  Salmonid  seeking  organization,  to C o l v i l l e as a r e s u l t of i t s  investments must be r e - i n v e s t e d to f u r t h e r i t s o b j e c t i v e s .  118  Colville Since and  i s governed by an e i g h t member board of d i r e c t o r s .  there  i s no formal  Colville,  r e l a t i o n s h i p between the c r e d i t union  there are no c r e d i t union s t a f f members on the  board. Some general  c r i t e r i a define e l i g i b i l i t y  requirements f o r  a s s i s t a n c e , although these are not i n f l e x i b l e . F i r s t l y , the e n t e r p r i s e r e c e i v i n g a s s i s t a n c e must be l o c a t e d w i t h i n  Nanaimo  Regional D i s t r i c t and secondly, the proposed p r o j e c t must demonstrate p o t e n t i a l f o r commercial v i a b i l i t y and job c r e a t i o n . If  the proposal  i s f o r f i n a n c i a l a s s i s t a n c e of some k i n d , a  number of a d d i t i o n a l c r i t e r i a must be met, the most s i g n i f i c a n t of these being conventional criteria.  that the a p p l i c a n t must have been r e j e c t e d by  l e n d e r s . The remainder a r e t y p i c a l  investment  (NCEAS 1986) The types of a s s i s t a n c e p r o v i d e d  i n c l u d e c o u n s e l l i n g , market a n a l y s i s , r e f e r r a l to other resources, feasibility  a s s i s t a n c e with p r e p a r a t i o n  of f i n a n c i a l  s t u d i e s , and loan p r o p o s a l s ,  by CIC local  statements,  c a p i t a l on an e q u i t y or  debt b a s i s , and f o l l o w up c o u n s e l l i n g such as accounting  and  marketing. What has C o l v i l l e been a b l e t o accomplish with the c r e d i t union's a s s i s t a n c e over the l a s t s i x years i n terms of new businesses and employment generation? According  to the NCEAS  annual r e p o r t , as of March 31, 1985, CIC had helped t o c r e a t e 342 f u l l and part-time since  jobs through investments of $717,000  1980. In 1984-85 most of the jobs c r e a t e d were i n the  s e r v i c e s e c t o r and 14 out of 22 firms that r e c e i v e d loan were e x i s t i n g businesses.  funds  The t o t a l c o s t per job ( i n c l u d i n g  119  monies l e v e r e d i n from other was  $11,650.00. No  union's d i r e c t  sources such as the c r e d i t  f i g u r e s are a v a i l a b l e to show the  involvement with CIC.  i n c l u d e d , the t o t a l c o s t per f i g u r e represents  credit  I f o u t s i d e sources are only $3058.00. T h i s  government monies a l l o c a t e d to CIC  purpose of investment and The  job was  union)  administration  d i r e c t b e n e f i t s which accrued  not  latter  f o r the  costs.  to the l o c a l  community  from 1984-1985 investment of $298,900 were c o n s i d e r a b l e , when money l e v e r e d i n from other  sources t o t a l l i n g $1,177,000 i s  i n c l u d e d . Approximately $2.7 estimated CIC,  million  to have r e s u l t e d from t h i s  an estimate  i n l o c a l expenditures investment according  comprised of l o c a l wages, m a t e r i a l s ,  overhead c o s t s a s s o c i a t e d with running the c o s t of imported m a t e r i a l s . perspective,  1  From a business  the o r g a n i z a t i o n has  investments, a c h i e v i n g a d e b t - l o s s norm. T h i s may  Development S o c i e t y  resources  efficiency  r a t i o lower than the  industry  by C o l v i l l e .  (Alberni-Clayquot  1984)  s t r a t e g y whereby the c r e d i t union c o o r d i n a t e s i t s with those of a community group i s a good one.  small business  provided  excludes  been q u i t e s u c c e s s f u l i n i t s  the c r e d i t union's p e r s p e c t i v e , the r i s k normally with  and  but  or  to  w e l l be a t t r i b u t e d to the l e v e l and q u a l i t y of  t e c h n i c a l a s s i s t a n c e provided  The  a business,  are  l e n d i n g i s reduced by the  by C o l v i l l e to the entrepreneur and  From  associated  assistance i n some cases,  a  The f i g u r e of $2.7 m i l l i o n i s d e r i v e d from the 1984-85 NCEAS annual report and i s based on p r o j e c t e d f i r s t year revenues and expenses of f i r m s i n i t i a t e d through CIC a c t i v i t i e s . 1  120  loan guarantee.  A l s o , c r e d i t union s t a f f time devoted  b u s i n e s s loans i s s u b s t a n t i a l l y reduced. Given the demonstrated by Nanaimo and D i s t r i c t  to  interest  Savings C r e d i t Union i n  CBED, i t would seem that there i s scope f o r an expanded working r e l a t i o n s h i p between C o l v i l l e and the c r e d i t union  i n support of  CBED. C o l v i l l e has been q u i t e s u c c e s s f u l i n meeting i t s own o b j e c t i v e s concerning job c r e a t i o n i n the p r i v a t e s e c t o r a c c o r d i n g to the f i g u r e s presented e a r l i e r . However, the p r o p o r t i o n of jobs c r e a t e d i n the s e r v i c e s e c t o r i s of some concern  s i n c e these tend to be low wage, p a r t - t i m e or temporary  i n nature. CIC may  f a c i l i t a t e s the formation and expansion  be termed marginal b u s i n e s s e s . T h i s i s due  requirement  of what  t o the  that f i n a n c i a l a s s i s t a n c e be l i m i t e d to those  r e j e c t e d by c o n v e n t i o n a l f i n a n c i a l  i n s t i t u t i o n s , c o n s i s t e n t with  the e q u i t y c r i t e r i o n . I t i s l i k e l y based on the assumption s m a l l businesses experience d i f f i c u l t y f i n a n c i n g as i l l u s t r a t e d  i n Chapter  r e s t r i c t i n g loans to those who  that  in g a i n i n g access to  3. Furthermore,  would not be served  in otherwise,  the s o c i e t y ' s p o l i c i e s are c o n t r i b u t i n g to a more e q u i t a b l e d i s t r i b u t i o n of income i n the region through expanded employment opportunities. The  l o c u s of CIC a c t i v i t i e s  i s the Nanaimo Regional  D i s t r i c t , c o n s i s t e n t with the t h i r d c r i t e r i o n  to preserve  the  community. C o l v i l l e ' s r e c o r d i n educating the community towards s e l f - r e l i a n c e i n economic matters  i s u n c l e a r , however the  s o l u t i o n s i t promotes are h i g h l y i n d i v i d u a l i s t i c  rather than  121 community-oriented.  Summary - C o l v i l l e Investments  Corporation  Nanaimo D i s t r i c t Savings C r e d i t Union's  involvement  CIC p r o v i d e s an example of i n d i r e c t c r e d i t union in CBED. C o l v i l l e  with  participation  i s the l e a d agency i n t h i s case; the c r e d i t  union p l a y s a secondary  or support r o l e . A combination  of  f e d e r a l funds through Community F u t u r e s , c r e d i t union loans and community group support has c o n t r i b u t e d to expanding of economic a c t i v i t y  the volume  i n the Nanaimo area p o t e n t i a l l y on a much  l a r g e r s c a l e than the c r e d i t union  (or community group) c o u l d  achieve s e p a r a t e l y . The p a i r i n g of p u b l i c investment and p r i v a t e investment  through  CIC  through Nanaimo C r e d i t Union would appear  to be a good model f o r other c r e d i t unions to f o l l o w . The  investment  s t r a t e g y f o l l o w e d by CIC r e f l e c t s  the  p r e v a i l i n g ethos of " e n t r e p r e n e u r s h i p " more so than one of community-based economic development per se. As mentioned p r e v i o u s l y , CIC supports businesses which would not r e c e i v e f i n a n c i n g i n the c o n v e n t i o n a l sense, but when p r o v i d e d with business c o u n s e l l i n g to supplement the f i n a n c i n g can achieve p o s i t i v e r e s u l t s . Emphasis i s on the i n d i v i d u a l business person - to t h i s p o i n t there have been no c o o p e r a t i v e s or community type b u s i n e s s e s aided by CIC. T h i s might be a t t r i b u t e d t o the f a c t that c o o p e r a t i v e businesses r e q u i r e a d i f f e r e n t  s o r t of  c o u n s e l l i n g e x p e r t i s e than t r a d i t i o n a l b u s i n e s s e s . Perhaps t h i s might be an o p p o r t u n i t y f o r the c r e d i t union to p l a y a more a c t i v e r o l e i n a s s o c i a t i o n with  CIC.  1 22  Vancouver C i t y Savings C r e d i t  Union  Vancouver C i t y Savings C r e d i t Union has a l s o d i r e c t e d some of  i t s recent e f f o r t s towards community based economic  development r e f l e c t i n g a s h i f t in  i n c r e d i t union p o l i c y beginning  1983. In 1983 and i n subsequent  S l a t e " comprised  board e l e c t i o n s , the " A c t i o n  of team of a c t i v i s t s  i n c l u d i n g some NDP MLAs,  assumed c o n t r o l of VanCity's board of d i r e c t o r s . They  contended  that the c r e d i t union was s t r a y i n g from i t s o r i g i n a l mandate especially  i n making loans f o r s p e c u l a t i v e r e a l e s t a t e ventures  o u t s i d e the p r o v i n c e . Loans were subsequently r e s t r i c t e d t o the Vancouver a r e a . P h i l o s o p h i c a l i s s u e s a s i d e , the move was a l s o a pragmatic one s i n c e the c r e d i t union was l o s i n g money i n i t s a c t i v i t i e s elsewhere;  three times as many problem  loans  o r i g i n a t e d o u t s i d e the GVRD than w i t h i n GVRD boundaries. Until  1984 V a n C i t y ' s a s s e t base r e f l e c t e d t h a t of the  c r e d i t union system as a whole - h e a v i l y b i a s e d towards r e s i d e n t i a l and t o some extent commercial  mortgages. In 1986,  almost 90 percent of V a n C i t y ' s l e n d i n g was secured by mortgages, both r e s i d e n t i a l and commercial.  P e r s o n a l loans account f o r  s i g n i f i c a n t p o r t i o n of a s s e t s as w e l l , j u s t l e s s than 10 p e r c e n t . Since 1984 however, VanCity has slowly expanded i t s business l e n d i n g , but i t remains a f r a c t i o n of other l e n d i n g , about  2 p e r c e n t . (Vancouver  C i t y Savings C r e d i t Union 1987)  Vancouver C i t y Savings C r e d i t Union has a r e p u t a t i o n as a h i g h l y i n n o v a t i v e and t r e n d s e t t i n g c r e d i t union. Numerous now commonplace f i n a n c i a l s e r v i c e s were f i r s t such as the f i r s t  daily  o f f e r e d by VanCity,  i n t e r e s t savings account  i n Canada. At  123  the same time,  (or perhaps  because of t h i s ) i t i s the l a r g e s t  c r e d i t union i n Canada with 21 branches a c r o s s the Lower Mainland, and almost c r e d i t union system  one q u a r t e r of the e n t i r e a s s e t base of the i n B.C.  Furthermore,  VanCity was  recently  named as one of the top one hundred employers i n Canada f o r 'spirit'  by the F i n a n c i a l P o s t . (Innes, Perry and Lyons 1986)  received  'very good' r a t i n g s a c c o r d i n g to the  It  following  c r i t e r i a : b e n e f i t s , job s e c u r i t y , atmosphere, job s a t i s f a c t i o n , communications and p e r s o n a l development. VanCity a l s o garnered a l o t of a t t e n t i o n with i t s u n s u c c e s s f u l attempt B r i t i s h Columbia.  to purchase  the a s s e t s of the Bank of  In a c r e d i t union n e w s l e t t e r , the  rationale  behind the move was e x p l a i n e d . Our concern was that the p r o v i n c e and community we serve would l o s e a s i g n i f i c a n t p r o v i n c i a l l y based f i n a n c i a l i n s t i t u t i o n . We f e l t that keeping the bank under l o c a l d e c i s i o n making a u t h o r i t y was a good t h i n g f o r a l l of us here i n B.C. We were a l s o concerned about a p o t e n t i a l l o s s of j o b s . (VanCity 1986) Since the attempted  Bank of B r i t i s h Columbia  purchase  VanCity  has c a p i t a l i s e d on the " l o c a l bank f o r l o c a l people" theme i n i t s a d v e r t i s i n g using the slogan "Where money works f o r people in  B.C." However, VanCity's " p r o g r e s s i v e " a c t i o n s have been  viewed  with dismay by some c r e d i t unions. They fear that t h e i r goals do not c o i n c i d e with those of V a n C i t y . Since VanCity dominates the B.C. any  c r e d i t union system  i n terms of sheer s i z e they worry that  f a l s e move on VanCity's p a r t c o u l d prove damaging f o r the  whole movement.  124  Seed C a p i t a l  Project  In c o n t r a s t to the Nanaimo c r e d i t union's participation  joint  i n CBED with other community groups,  VanCity  pursues these goals independently. I t i n i t i a t e d the Seed C a p i t a l P r o j e c t on a p i l o t b a s i s i n January a v a i l a b l e i n the f i r s t meeting  1986, making $500,000  year f o r loans to small businesses  c e r t a i n c r i t e r i a . The c r e d i t union's s t a t e d  objectives  are t o : s t i m u l a t e the l o c a l economy, encourage employment g e n e r a t i o n , and encourage new businesses that would otherwise not get a s t a r t . A f o u r t h i s t e n t a t i v e l y i n c l u d e d , that being support f o r three c o o p e r a t i v e e n t e r p r i s e s .  (David Cox, VanCity,  p e r s o n a l communication, May 7, 1986) Each loan i s capped at $150,000 so that VanCity can reach those small b u s i n e s s e s not w e l l served by other i n s t i t u t i o n s or venture c a p i t a l i s t s . I t s t a r g e t group d i f f e r s from that of the t r a d i t i o n a l  financial  i n s t i t u t i o n s i n that loans a r e made t o persons without the r e q u i s i t e p e r s o n a l e q u i t y , but who have completed  a new business  program a t a community c o l l e g e or u n i v e r s i t y . In doing so VanCity i s e s s e n t i a l l y r e c o g n i z i n g an investment  i n human  resources as e q u i t y . Loans are made t o businesses l o c a t e d i n the GVRD and which a r e engaged i n export or import Furthermore,  replacement.  one job must be c r e a t e d f o r each $20,000 to $30,000  i n v e s t e d by VanCity. The program i s implemented i n house by a former venture c a p i t a l i s t , who p l a y s a key r o l e i n the loan approval process and i n p r o v i d i n g management a d v i c e to the a p p l i c a n t s . A committee of the board of d i r e c t o r s approves loan.  each  125  As of December 1986 e i g h t b u s i n e s s p r o j e c t s had been f i n a n c e d under the program, c r e a t i n g a t o t a l of 21 l a r g e l y time jobs a t approximately Cox,  full-  $10,000 to 15,000 per job. (David  VanCity, p e r s o n a l communication, March 19, 1987) An  a d d i t i o n a l $500,000 i s a l l o c a t e d f o r the second year of the Seed C a p i t a l P r o j e c t . Although  the i n t e n t of the program i s to  provide f i n a n c i a l a s s i s t a n c e , several a p p l i c a n t s received a c o n s i d e r a b l e amount of business c o u n s e l l i n g even though the d e c i s i o n was made not t o fund these p a r t i c u l a r p r o p o s a l s . Most of the f i r m s f i n a n c e d a r e t r a d i t i o n a l s m a l l b u s i n e s s e s , but one of the i n i t i a t i v e s  funded  is particularly  innovative. I t  i n v o l v e s c o n s t r u c t i o n of s t r e e t huts f o r handicapped vendors,  coffee  under a j o i n t arrangement with the F e d e r a l Business  Development Bank (FBDB). From a f i n a n c i a l p e r s p e c t i v e , V a n C i t y ' s loans have proved to be secure, a t l e a s t at t h i s e a r l y date. There loan l o s s e s i n the f i r s t  have been no  year of the p r o j e c t ' s o p e r a t i o n  although two of the e i g h t a r e e x p e r i e n c i n g some d i f f i c u l t y . The prospect of l o s i n g some of the $500,000 a l l o c a t e d  f o r the f i r s t  year of the program i s a r e a l one. But with the advantage of l a r g e s i z e , VanCity f o r the f i n a c i a l The primary  f e e l s that the r i s k  s t a b i l i t y of the c r e d i t  union.  r o l e of education i n the Seed C a p i t a l Program  i s i n s t r u c t i v e . Education e q u i t y investment  i s not a c r i t i c a l one  i s used as a proxy  f o r an a c t u a l  i n the company. T h i s r e f l e c t s the emphasis  p l a c e d on human r e s o u r c e s i n the l o c a l development Furthermore,  t h i s mechanism s u b s t a n t i a l l y  literature.  i n c r e a s e s the access  126  of Seed C a p i t a l f i n a n c i n g to those without the  financial  r e s o u r c e s to put up some p e r s o n a l e q u i t y , meeting  the e q u i t y  c r i t e r i o n . However, l i m i t i n g a p p l i c a n t s to graduates of e n t e r p r i s e education programs has proven to be too Measures are being taken to i n v e s t i g a t e  restrictive.  alternatives.  Another promising f e a t u r e of the Seed C a p i t a l P r o j e c t i s i t s g o a l of funding three worker c o o p e r a t i v e s the f i r s t  year.  However, although s e v e r a l q u e r i e s were made r e g a r d i n g worker c o o p e r a t i v e s , none have been funded. Again the tendency to be reduced to p u r e l y s m a l l b u s i n e s s development  f o r CBED  i s evident,  e s p e c i a l l y where no government funds are i n v o l v e d . The p o s s i b i l i t y of the p r o v i n c i a l government i n t r o d u c i n g a loan guarantee fund f o r c r e d i t union programs of t h i s nature  was  r a i s e d i n the l e g i s l a t u r e r e c e n t l y . While the s t a t u s of t h i s p r o p o s a l i n u n c l e a r , past experience with loan  guarantee  programs, e s p e c i a l l y the Small Business Loans Act (SBLA) reviewed i n Chapter 3 r e v e a l some p o t e n t i a l problems with t h i s approach. VanCity's common bond encompasses the e n t i r e Lower Mainland from the Sunshine Coast to Hope. Although Seed C a p i t a l monies are r e s t r i c t e d to businesses i n the Lower Mainland, i t i s not l i k e l y that an i n i t i a t i v e of t h i s magnitude w i l l be e f f e c t i v e i n b u i l d i n g l o c a l c a p a c i t y to develop. Residents of such a l a r g e area w i l l not l i k e l y experience an enhanced sense of c o n t r o l over economic matters as a consequence  of t h i s p r o j e c t . Rather,  an a d v e r t i s i n g campaign of the kind d e s c r i b e d above i s more l i k e l y to f o s t e r a sense of l o c a l  pride.  127  Summary - Seed C a p i t a l P r o j e c t V a n C i t y ' s Seed C a p i t a l P r o j e c t  i l l u s t r a t e s the advantages  of l a r g e s i z e i n implementing an i n n o v a t i v e  community based  economic development program. I t i s able to apply  a substantial  amount of money from r e t a i n e d e a r n i n g s t o the program, however t h i s sum represents  only a f r a c t i o n of one percent  union's t o t a l loan p o r t f o l i o i n 1986. U n f o r t u n a t e l y very  of the c r e d i t there are  few l a r g e c r e d i t unions i n Canada with the p o t e n t i a l to  c a r r y out a program of t h i s magnitude. What i s c l e a r from t h i s p r o j e c t , as from the C o l v i l l e e x p e r i e n c e , i s the c r i t i c a l importance of management advice businesses.  in facilitating  marginal  The Seed C a p i t a l P r o j e c t Manager even a s s e r t s  h i s r o l e as an a d v i s o r  that  i s as important t o the success of a  business as that of the owner. While there was some consideration  given t o the n o t i o n  of a business a d v i s o r y  at the o u t s e t , VanCity chose t o pursue an independent  group  strategy  with the Seed C a p i t a l P r o j e c t .  E t h i c a l Growth Fund V a n C i t y ' s E t h i c a l Growth Fund i s i n c l u d e d  in this  section  with some q u a l i f i c a t i o n s . I t i s not an i l l u s t r a t i o n of community based economic development i n the same manner as the previous examples. Rather, i t can b e t t e r be c h a r a c t e r i z e d as another way in which s o c i a l o b j e c t i v e s a r e a p p l i e d t o economic d e c i s i o n making i n a c r e d i t union or as the " i n t e r s e c t i o n of i d e a l i s m and shrewd i n v e s t i n g . " (Equity, October  1986) Nevertheless,  the  E t h i c a l Growth Fund i s r e l e v a n t t o t h i s d i s c u s s i o n because i t  128  has a number of i n t e r e s t i n g i m p l i c a t i o n s f o r CBED and can i n f a c t be l i n k e d with the V a n C i t y ' s other program, the Seed C a p i t a l P r o j e c t . The same framework f o r e v a l u a t i o n w i l l  be  a p p l i e d to the E t h i c a l Growth Fund. The E t h i c a l Growth Fund i s a mutual fund which buys stocks i n Canadian  c o r p o r a t i o n s meeting  f i v e e t h i c a l c r i t e r i a . A mutual  fund takes money from i n d i v i d u a l s u b s c r i p t i o n s i n t o a pool which i s then i n v e s t e d i n s t o c k s , bonds, or mortgages by p r o f e s s i o n a l money managers. The c u r r e n t cumulative worth of those investments purchases  i s expressed as a " u n i t " v a l u e ; the  investor  x amount of u n i t s . A c c o r d i n g to V a n C i t y , the  five  e t h i c a l c r i t e r i a are commonly h e l d e t h i c a l standards of Canadians.  Investments  are l i m i t e d t o :  * Companies with a r e g i s t e r e d head o f f i c e i n Canada and whose e q u i t i e s are p u b l i c l y traded on a Canadian  stock exchange.  * Companies p r a c t i s i n g p r o g r e s s i v e i n d u s t r i a l r e l a t i o n s with t h e i r s t a f f but are not necessarily unionized. * Companies that conduct  business only with  c o u n t r i e s where r a c i a l e q u a l i t y * Companies who for  produce  prevails.  products or s e r v i c e s only  civilians.  * Energy companies whose major source of revenue are from non-nuclear  energy  Corporate a c t i v i t i e s are monitored c o n s u l t a t i o n s with s p e c i a l  products.  through the media,  i n t e r e s t groups and through h o l d e r s  129  of the fund at annual meetings. W r i t t e n submissions a r e a l s o invited. The ensuing debate c o n c e r n i n g the "success" of the fund focuses on whether economic o b j e c t i v e s are s a c r i f i c e d when s u b j e c t e d to the f o r e g o i n g e t h i c a l c o n s t r a i n t s . There are two views. The f i r s t holds that the E t h i c a l Growth Fund i s a s o l i d and s e n s i b l e investment and that companies which abide by these e t h i c a l standards are l i k e l y  to s t a y h e a l t h y i n the long run.  The other view assumes t h a t any k i n d of r e s t r i c t i o n on investment w i l l n e c e s s a r i l y reduce the r e t u r n on the fund. Whether t h i s i s a c t u a l l y the r e l e v a n t q u e s t i o n i s debatable. Some people a r e w i l l i n g to take a reduced r e t u r n on an investment of t h i s nature f o r the s a t i s f a c t i o n of knowing that i t meets t h e i r e t h i c a l s t a n d a r d s . What about  the e t h i c a l c r i t e r i a  themselves? Are they a  reasonable r e p r e s e n t a t i o n of Canadian moral standards and i f so, are  they being adequately met? There a r e some obvious  ommissions. For example, t h e r e a r e no environmental  restrictions  on the fund as there a r e i n other s o c i a l l y c o n s c i o u s mutual funds. The i s s u e of human r i g h t s abuse i s another criteria  possible  f o r e x c l u s i o n from the fund. Among the e t h i c a l mutual  funds a v a i l a b l e i n North America, VanCity's would appear l e s s r e s t r i c t i v e than most. A sampling of other mutual  to be  funds  r e v e a l s some a d d i t i o n a l p o l i c i e s : e x c l u s i o n of companies producing a l c o h o l , tobacco, gambling  or gambling  pornographic m a t e r i a l ; and one e t h i c a l with worker p a r t i c i p a t i o n .  products and  fund f a v o r s companies  (Pax World Fund Inc., Dreyfus T h i r d  130  Century Fund, C a l v e r t S o c i a l Investment Fund, New  Alternatives  Fund) While the E t h i c a l Growth Fund was  i n i t i a l l y only a v a i l a b l e  to VanCity members i n B r i t i s h Columbia, i t has  r e c e n t l y been  o f f e r e d f o r s a l e through other c r e d i t unions and brokers across  Canada. The  comparison w i t h an purchases may smaller  minimum purchase i s $500 i n  i n d u s t r y norm of $1000 and  be made i n amounts of $100  i n v e s t o r s to take p a r t , a bow  increased a c c e s s i b i l i t y , and The  or more. T h i s  enables  i n the d i r e c t i o n of  therefore  equity. an  the p u b l i c about the p o s s i b i l i t i e s  of  s o c i a l c r i t e r i a or e t h i c a l standards to what have been  p r e v i o u s l y viewed as p u r e l y  f i n a n c i a l d e c i s i o n s . The  overwhelming p o p u l a r i t y from the outset the p u b l i c d i d n ' t need educating, demand f o r such an l o s t on  subsequent  E t h i c a l Growth Fund c l e a r l y gets top marks as  instrument f o r educating applying  investment  fund's  however suggests that  r a t h e r there was  a latent  investment v e h i c l e . T h i s p o i n t has  s e v e r a l investment companies i n Canada who  not  been  have s i n c e  jumped on the e t h i c a l band-wagon. (Summa Fund, Cedar Fund)  Summary - E t h i c a l Growth Fund What are the  i m p l i c a t i o n s of the E t h i c a l Growth Fund f o r  community based economic development? In the sense that able to r a i s e the general  l e v e l of awareness regarding  s o c i a l a s p e c t s of economics, an  it is the  important p r i n c i p l e of CBED, the  E t h i c a l Growth Fund i s s i g n i f i c a n t . The of l o c a l l y based s t r a t e g i e s i n the  question  of the e f f i c a c y  face of the g l o b a l i z a t i o n of  131  the economy i s a l s o r a i s e d . Is i t u l t i m a t e l y p o s s i b l e to restrict capital  flows,  e i t h e r on a g e o g r a p h i c a l  b a s i s as with  CBED, or on some kind of e t h i c a l b a s i s as with the E t h i c a l Growth Fund? C a p i t a l i s extremely mobile among companies across  n a t i o n a l boundaries. In f a c t ,  notion  of e t h i c a l  i n v e s t i n g may  e t h i c a l posturing."  1986)  have negative  l o c a l development ( o f t e n s m a l l - s c a l e ) the  i n the long run, the whole  be l i t t l e more than "comfortable  ( E q u i t y , October  Mutual funds i n general  and  consequences f o r  because of t h e i r r o l e i n  ' i n s t i t u t i o n a l i z a t i o n ' of investment. Mutual fund managers  responsible  f o r l a r g e sums of money look  for opportunities  to  i n v e s t i n l a r g e b l o c k s , e f f e c t i v e l y b a r r i n g small companies from t h i s source of e q u i t y c a p i t a l . Community based economic development i s i n p a r t an attempt to counteract tendencies.  Does VanCity recognize  the Seed C a p i t a l P r o j e c t and  these  the c o n t r a d i c t o r y nature of  the E t h i c a l Growth Fund? While  t h e i r goals do not c o n f l i c t , the outcomes do.  One  way  of  c o r r e c t i n g the problem might be to a l l o c a t e a p o r t i o n of E t h i c a l Growth Fund's a s s e t s  to the Seed C a p i t a l fund f o r the  purpose of f i n a n c i n g CBED. T h i s s t r a t e g y was Ted  the  recommended by  Dr.  Jackson, member of the Canadian S o c i a l Investment Study  Group. (Globe and M a i l , January 2,  1987;  Jackson  1984)  Some Concluding Remarks The  Nanaimo and  VanCity experience in employing  specific  " i n s t i t u t i o n a l adjustments" in support of community based economic development are  i n s t r u c t i v e i n s e v e r a l ways. F i r s t  of  132  all,  t h e i r a c t i o n s i n r e s p e c t of CBED show that there i s some  interest  i n CBED among B.C. c r e d i t unions. Secondly, the two  examples demonstrate  some of the p r e f e r r e d s t r a t e g i e s ,  r o l e s and  r e l a t i o n s h i p s with other community o r g a n i z a t i o n s , that may employed by a c r e d i t union i n support of CBED. With the exception of the E t h i c a l Growth Fund, they f o l l o w an e n t e r p r i s e development s t r a t e g y comprised  of f i n a n c i n g and management  a d v i c e d i r e c t e d toward marginal b u s i n e s s e s , those with l i t t l e or no e q u i t y and whose owners or employees a r e t r a d i t i o n a l l y to employ. With respect t o meeting  t h e i r own o b j e c t i v e s , the  r e s u l t s have been mixed. The Community Ventures Account extremely  hard  has been  slow o f f the mark and w i l l p o s s i b l y need some  adjustments  before any success i s a c h i e v e d . When e v a l u a t e d  a g a i n s t the four c r i t e r i a  of e f f i c i e n c y , e q u i t y and c o o p e r a t i o n ,  community, and education, the s p e c i f i c p o l i c i e s of the two c r e d i t unions f a r e q u i t e w e l l . However, i t i s premature t o comment on the impact  of these p o l i c i e s on the l o c a l economy  over the long term s i n c e they have only been i n p l a c e f o r a short  time. C r e d i t union e f f o r t s i n support of CBED are h i g h l y  i n n o v a t i v e i n that they represent attempts  by p r i v a t e community  based o r g a n i z a t i o n s to d e a l with socio-economic manner which r e l i e s on l o c a l  problems i n a  i n i t i a t i v e . One way of  c h a r a c t e r i z i n g the r o l e of the Nanaimo and VanCity w i t h i n the c r e d i t union system  initiatives  i s that of exposing the  p o s s i b i l i t i e s of c r e d i t union p a r t i c i p a t i o n they may have a s i g n i f i c a n t demonstration  i n CBED, and as such  e f f e c t on other c r e d i t  133  unions.  S i m i l a r l y , these examples demonstrate c l e a r l y  that  c r e d i t unions must be very c a r e f u l to pay a t t e n t i o n to the 'bottom l i n e ' . I t i s imperative the c r e d i t union  that the f i n a n c i a l s t a b i l i t y  i s maintained. As such there  i s a marked  tendency f o r the c r e d i t unions to take a c o n s e r v a t i v e to The  the whole q u e s t i o n  of  approach  of community based economic development.  magnitude of the i n i t i a t i v e s d e s c r i b e d here i s small i n  r e l a t i o n to c r e d i t union a s s e t s or loans and c r e a t e d . For example, i t i s not union  i n terms of  l i k e l y that an e x i s t i n g  jobs credit  would expand i t s CBED a c t i v i t i e s to encompass the bulk  of  the c r e d i t union's a s s e t s as does CCEC. The  critical  tandem with c r e d i t union  r o l e of what i s termed management advice i n  f i n a n c i a l a s s i s t a n c e i s c o n s i s t e n t i n each of  s t r a t e g i e s o u t l i n e d above. T h i s f u n c t i o n c l e a r l y  d i s t i n g u i s h e s these programs from t r a d i t i o n a l small loans a v a i l a b l e from most f i n a n c i a l s i m i l a r to s m a l l business Business  the  business  i n s t i t u t i o n s , but  are  development s t r a t e g i e s of the  Development Bank f o r i n s t a n c e . Furthermore,  c r e d i t unions demonstrate the tendency and  utility  Federal  these  of i n v o l v i n g  other community o r g a n i z a t i o n s i n the CBED p r o c e s s . C r e d i t unions are only one play a role  among many i n s t i t u t i o n s or o r g a n i z a t i o n s which can i n CBED.  134  Typology of I n s t i t u t i o n a l Arrangements It  i s u s e f u l to summarize the d i s t i n g u i s h i n g f e a t u r e s of  the d i f f e r e n t  s t r a t e g i e s employed by the c r e d i t unions reviewed  here. The diagram  i n F i g u r e 4 i s a two dimensional  r e p r e s e n t a t i o n of the i n s t i t u t i o n a l arrangements  adopted by the  c r e d i t unions. The h o r i z o n t a l a x i s d e p i c t s the l e v e l of commitment d i s p l a y e d by the c r e d i t union i n i t s p u r s u i t of community based economic development.  P a r t i a l commitment means  that only a p o r t i o n of the c r e d i t union's resources are d i r e c t e d toward CBED u s u a l l y i n the form of a program or p r o j e c t . H o l i s t i c commitment r e f e r s to a c r e d i t union such as CCEC i n Vancouver  whose o p e r a t i o n s are completely devoted to community  based economic development.  The v e r t i c a l a x i s r e p r e s e n t s the  c a p a c i t y i n which the c r e d i t union i s a c t i n g , e i t h e r alone or i n concert with another community o r g a n i z a t i o n . The c r e d i t union i s c l a s s i f i e d as the l e a d agency  i f i t i n i t i a t e d the program i n  q u e s t i o n . Examples of each are p l a c e d i n the diagram f o r illustrative  purposes. Figure 4 Inss t i t u t i o n a l  C r e d i t Union A c t i n g Alone C r e d i t Union Acting in Concert: Leading Agency Support Agency  Arrangenu;nts  Holistic Commitment  Partial Commitment  CDCU, CCEC CEE, CLP  Seed C a p i t a l Project  Colville,  CVA  135  All  of  the  unions CBED;  B.C.  followed  hand,  At the  Congress  development  the  stages  importance  examples  of  CBED. As  existing  yet the  potentially  presented  credit of  to  be  Change  Union a  union  approach  Populaire  (CDCU) w h i c h  more  to  some  (CCEC),  holistic  local  and  as  the  other  the  Caisses  (CLP),  and  are  commitment  but  a  based vital  Chapter  6  CBED a n d  they  unions  element  the  credit  a  to  a  long  to  here  term  out  are as  institutions,  the  larger  unions.  one.  useful  participate  in the  are  community  they  stand  financial  to  from  i n which  synthesizes  them  reviewed  viewed  economies  for credit  relates  between  when  is necessarily  determined,  community  serve  initiatives  development  potential  process.  here  relationship  Credit  and  credit  o r g a n i z a t i o n . On  Laboral  represent  i n the  has  development  Caja  of  incremental  resources  f o r Economic  p e r s p e c t i v e , which  situated  can  an  review  CBED.  present, early  called  their  (CEE),  A  in this  community  Development  of  be  of  another  i n Appendix  notion  Their  might  Economique  Community  described  in  with  Community  D'Entraide  the  what  presented  partial-commitment  relationship  the  examples  in they  community findings  question  of  the  136  CHAPTER 6  SUMMARY AND CONCLUSIONS T h i s chapter c o n s i s t s of four p a r t s . The f i r s t summarizes  reviews and  the f i n d i n g s of the p r e v i o u s f i v e c h a p t e r s . The  second p a r t frames these f i n d i n g s i n t o some s p e c i f i c  conclusions  regarding the r o l e of the c r e d i t union i n community based economic development, and d i s c u s s e s some of the l a r g e r  issues  r a i s e d by t h i s r e s e a r c h . In the t h i r d s e c t i o n , some suggestions regarding avenues f o r f u r t h e r r e s e a r c h a r e made i n l i g h t of the f o r e g o i n g f i n d i n g s . F i n a l l y , the l a s t s e c t i o n p r e s e n t s a s e r i e s of p r o p o s a l s addressed to l o c a l c r e d i t unions, B.C. C e n t r a l C r e d i t Union, and CBED o r g a n i z a t i o n s , t o enhance the p r o s p e c t s f o r c r e d i t union p a r t i c i p a t i o n  i n CBED.  Summary of F i n d i n g s Community based economic development i s an i n c r e a s i n g l y popular response to the fundamental problems f a c i n g Canadian resource communities as a consequence of both s t r u c t u r a l economic change and inadequate government  programs t o a m e l i o r a t e  longstanding r e g i o n a l d i s p a r i t i e s and high unemployment  rates.  Community based economic development i s a process of development i n a broad socio-economic sense, which i s c a r r i e d out at the l o c a l l e v e l , u s i n g l o c a l resources, with some measure of community c o n t r o l . A small business development s t r a t e g y i s f r e q u e n t l y used. Because l o c a l economies a r e i n c r e a s i n g l y i n t e g r a t e d i n t o the g l o b a l economic system, g l o b a l events do  137  place  r e s t r i c t i o n s on the e f f i c a c y of a l o c a l development  s t r a t e g y . Nevertheless, two  t h e o r i e s of l o c a l development  identify  meaningful sources of community based economic development -  human resources  and l o c a l ownership of p r o d u c t i v e  enterprises.  T y p i c a l l y , three of the s i g n i f i c a n t b a r r i e r s t o CBED which operate to i n h i b i t the f u l l lack o f : information,  terms of o b t a i n i n g  capacity.  a t the experience of CBED o r g a n i z a t i o n s i n  f i n a n c i n g from banks and f e d e r a l government  employment programs. Chartered  banks have not g e n e r a l l y been  r e c e p t i v e to CBED up to t h i s p o i n t  i n time, but do lend t o  t r a d i t i o n a l small businesses and provide of a s t r i c t l y  are a  f i n a n c i a l c a p i t a l , and an ethos of  development c a l l e d l o c a l Chapter 3 looked  u t i l i z a t i o n of l o c a l resources  some management advice  e n t r e p r e n u e r i a l nature. Government employment  programs a r e b e t t e r a t removing i n f o r m a t i o n a l b a r r i e r s to CBED, but  the b u r e a u c r a t i c  nature of funding  d e l i v e r y f r u s t r a t e s the  l o c a l autonomy r e q u i r e d by CBED o r g a n i z a t i o n s . Chapter 4 examined the argument that c r e d i t unions, as community based f i n a n c i a l  i n s t i t u t i o n s , possess c e r t a i n  c h a r a c t e r i s t i c s which make them w e l l - s u i t e d t o pursue a community based economic development s t r a t e g y . a t t r i b u t e s such as a c o o p e r a t i v e l o c a l o r i e n t a t i o n do serve  Several  o r g a n i z a t i o n a l s t r u c t u r e and a  the c r e d i t union i n good stead f o r  CBED. However, s e v e r a l s e r i o u s c o n s t r a i n t s are a s s o c i a t e d  with  c r e d i t union p a r t i c i p a t i o n i n CBED: f i r s t l y , members are not motivated by i d e o l o g i c a l commitment to CBED p r i n c i p l e s ; and secondly, CBED e n t e r p r i s e s a r e regarded as h i g h l y r i s k y ventures  138  which c r e d i t unions cannot a f f o r d due t o t h e i r s t a t u s . Another c o n s t r a i n t  non-profit  i s the p e r c e i v e d i n s t a b i l i t y of  r e g i o n a l banking. Despite these c o n s t r a i n t s , some c r e d i t unions have demonstrated the w i l l and the a b i l i t y t o p a r t i c i p a t e i n CBED. Chapter 5 documented at Nanaimo D i s t r i c t  programs  i n support of CBED o p e r a t i n g  Savings C r e d i t Union and Vancouver  City  Savings C r e d i t Union. Notwithstanding the p r e l i m i n a r y nature of the r e s e a r c h , the two examples were found t o c o n t a i n some u s e f u l i n s i g h t s r e g a r d i n g s t r a t e g y , r e l a t i o n s h i p s with other community o r g a n i z a t i o n s , and i n s t i t u t i o n a l arrangements. These c r e d i t unions have tended t o view t h e i r r o l e p r i m a r i l y as one of f i n a n c i n g CBED by c r e a t i n g  i n n o v a t i v e ways t o r e p l a c e e q u i t y .  They have a l s o accompanied t h e i r loans with management advice of some s o r t which seems to be an i n t e g r a l component of the l e n d i n g p r o c e s s . Each i n i t i a t i v e  f a r e d q u i t e w e l l when t e s t e d a g a i n s t  four s o c i a l value c r i t e r i a designed s p e c i f i c a l l y e v a l u a t i o n of a community development  financial  f o r the institution. A  typology of the i n s t i t u t i o n a l arrangements employed by the c r e d i t unions was developed to o r g a n i z e some of the a l t e r n a t i v e arrangements.  Prospects f o r C r e d i t Union P a r t i c i p a t i o n  i n CBED  There a r e s e v e r a l important c o n c l u s i o n s which may be drawn from t h i s examination of the b a s i s f o r c r e d i t union participation  i n community based economic development. These  o b s e r v a t i o n s are r e l a t e d to the three research q u e s t i o n s put  139  forward i n Chapter 1. F i r s t l y , according development d e s c r i b e d experience  t o the t h e o r i e s of l o c a l economic  i n the l i t e r a t u r e , and the p r a c t i c a l  of CBED o r g a n i z a t i o n s with banks and f e d e r a l CBED  programs, there appears to be s u b s t a n t i a l scope f o r an alternative financial perform some v i t a l  i n s t i t u t i o n such as the c r e d i t union to  r o l e s i n f a c i l i t a t i n g a process  of economic  development i n the l o c a l community. The o b j e c t i v e s of CBED are i n c o n s i s t e n t with those of t r a d i t i o n a l  financial  institutions  such as c h a r t e r e d banks, but banks a r e r e c e p t i v e t o some degree, to the f i n a n c i a l needs of t r a d i t i o n a l small businesses,  some of  which are i n s t i g a t e d through an e n t e r p r i s e development s t r a t e g y of CBED. However, the banks l i k e l y w i l l  f i n a n c e only the best  loan a p p l i c a n t s from the p o i n t of view of r i s k and r a t e of return. The  importance of f e d e r a l employment programs as a funding  source f o r CBED o r g a n i z a t i o n s suggests that the f i n a n c i a l i n s t i t u t i o n s r e f e r r e d to above a r e not meeting the needs of CBED. The common emphasis p l a c e d on employment c r e a t i o n f o r marginal groups i n s o c i e t y such as women and n a t i v e people i s likely  responsible  f o r t h i s . While government i s b e t t e r s u i t e d  than banks t o support  CBED, funding  f o r permanent job c r e a t i o n  through CBED has c l e a r l y not been a p r i o r i t y of the f e d e r a l employment m i n i s t r y . Thus, the search  f o r a l t e r n a t i v e means of  f i n a n c i n g among CBED groups i s c l e a r l y l i n k e d t o a l a c k of commitment on the p a r t of the f e d e r a l government. T h i s l a c k of commitment i s a l s o i l l u s t r a t e d by the frequency with which these  140  programs a r e disbanded and r e - i n t r o d u c e d under another name, featuring  s l i g h t changes i n e l i g i b l i t y c r i t e r i a and program  regulations.  The LEAD program f r u s t r a t e s  p r i n c i p l e s of CBED such as l o c a l c o n t r o l , the  community, and s o c i o  economic  some of the key initiation  from w i t h i n  development.  The second r e s e a r c h q u e s t i o n asked i f c r e d i t unions a r e well-suited  to accommodate the p r i n c i p l e s of CBED. Two  fundamental c o n s t r a i n t s from t a k i n g an a c t i v e suited  p r e s e n t l y a c t to prevent c r e d i t  r o l e i n CBED and make them l e s s than  to do so. F i r s t and foremost i s the lack  unions a r e viewed s o l e l y as banking  i n CBED to date. Secondly, even the w i l l to p a r t i c i p a t e  Credit  i n s t i t u t i o n s by t h e i r  members and boards, and consequently have e x h i b i t e d  exhibit  well  of s o c i a l  r e s p o n s i b i l i t y on the part of the modern c r e d i t union.  interest  unions  little  i f c r e d i t unions d i d  i n CBED, high l e v e l s of r i s k  a s s o c i a t e d with CBED e n t e r p r i s e s a r e p r o b l e m a t i c f o r t h i s nonp r o f i t o r g a n i z a t i o n . Should c r e d i t unions develop an i n t e r e s t i n CBED, r e c o n c i l i n g  low p r o f i t margins with h i g h l e v e l s of r i s k  w i l l be of primary importance. There a r e a number of i n n o v a t i v e f e a t u r e s which the c r e d i t union c o u l d i n t r o d u c e t o reduce r i s k or at l e a s t be compensated f o r r i s k t a k i n g of t h i s nature, which deserve f u r t h e r participation Credit  investigation.  However, c r e d i t  union  i n CBED i s not l i m i t e d t o f i n a n c i a l involvement.  unions can a c t to p r o v i d e management advice t o l o c a l  community groups and to f a c i l i t a t e or i n i t i a t e a process of CBED. The c h i e f  reason why c r e d i t unions are a t t r a c t i v e  from the  141  p o i n t of view of CBED would appear to l i e i n t h e i r  cooperative,  democratic d e c i s i o n making s t r u c t u r e . T h i s p r o v i d e s a mechanism whereby member needs can be  incorporated  i n t o d e c i s i o n making,  by v i r t u e of the one-member, one-vote d e c i s i o n r u l e . In a s i t u a t i o n where the c r e d i t union does possess the d e s i r e to participate board can  in strengthening  represent  the l o c a l economy, the c r e d i t  these needs. The  advantages of l o c a l c o n t r o l and  evidence concerning  union  the  l o c a l ownership f o r community  based economic development i s not c o n c l u s i v e . However, the c r e d i t union does e x h i b i t a f l e x i b i l i t y corresponding  i n p o l i c y making  and  a b i l i t y to adapt to the l o c a l s i t u a t i o n which  a r i s e because of i t s p a r o c h i a l i s m . However, the c r e d i t union i s still  c o n s t r a i n e d by the need to r e c o n c i l e r i s k and  reward i n  l e n d i n g to CBED e n t e r p r i s e s . The  final  research q u e s t i o n  asked whether there i s  e m p i r i c a l evidence to s u b s t a n t i a t e the a s s e r t i o n that unions are capable of p a r t i c i p a t i n g i n CBED and should  credit  consequently  become i n v o l v e d i n t h e i r l o c a l community in t h i s  way.  C r e d i t union i n t e r e s t i n the notion of CBED i s not widespread at t h i s time, but  there are a number of i n n o v a t i v e  underway i n v a r i o u s p l a c e s . The presented  unions demonstrated strong  which was  c r e d i t union examples  here are evidence of t h i s , as are the three  union i n i t i a t i v e s d e s c r i b e d  is vividly  two  initiatives  in Appendix A. Both B.C.  credit  r e s o l v e to p a r t i c i p a t e i n CBED. T h i s  i l l u s t r a t e d by Nanaimo D i s t r i c t  Savings C r e d i t Union  under s u p e r v i s i o n by the C r e d i t Union  Insurance C o r p o r a t i o n  credit  Deposit  at the time the Community Ventures Account  142  was i n i t i a t e d . Based on these two examples, i t appears that c r e d i t unions  (and the d i s t i n c t i o n i s a necessary  existing one), are  l i k e l y to pursue a c a u t i o u s , c o n s e r v a t i v e approach t o CBED i n terms of time and money; one which i s l i k e l y to be fragmented from normal c r e d i t  union o p e r a t i o n s and represent a p a r t i a l  commitment to CBED p r i n c i p l e s . The two c r e d i t  union  initiatives  d e s c r i b e d i n the p r e v i o u s chapter have not had an a p p r e c i a b l e impact  on t h e i r r e s p e c t i v e l o c a l communities and do not  represent a s i g n i f i c a n t share of c r e d i t  union  resources.  However, both c r e d i t unions a r e r e l a t i v e l y new t o t h i s and a longer term view i s necessary when speaking about CBED. The advantage t o t h i s approach i s that there a r e 134 c r e d i t i n B.C. which o s t e n s i b l y c o u l d p a r t i c i p a t e incremental way without credit  and  i n CBED i n an  the e f f o r t i n v o l v e d i n forming a new  union. D e s p i t e the c a u t i o u s n e s s of these two c r e d i t  unions, union  unions  they a r e h e l d up as models t o the r e s t of the c r e d i t  system i n respect of CBED, and are viewed as p r o g r e s s i v e  innovative. The d i s c u s s i o n r e g a r d i n g the r o l e of the c r e d i t union i n  community based economic development should be p l a c e d i n the larger  context of funding f o r CBED i n g e n e r a l . As we have  seen,  employment development and economic growth w i t h i n a r e g i o n a l or l o c a l context can be d e s c r i b e d as somewhat of a common denominator i n CBED, both of which a r e regarded as the mandates of the f e d e r a l  and p r o v i n c i a l  governments. These two l e v e l s of  government spend i n o r d i n a t e amounts of money on v a r i o u s job  143  c r e a t i o n and r e g i o n a l development schemes, but with  limited  success. I f CBED i s a l s o a p u b l i c good, then i t i s important to ask why a p r i v a t e i n s t i t u t i o n such as a c r e d i t union should undertake  t o f i n a n c e or otherwise support CBED. In t h i s case,  should CBED be f i n a n c e d through tax d o l l a r s , r a t h e r than on the backs of c r e d i t union members? There  i s a s t r o n g argument f o r  government support f o r CBED as opposed to p r i v a t e funding through c r e d i t unions. However, given the inadequacy  of r e g i o n a l  development p o l i c y , short-term j o b c r e a t i o n and CBED programs such as LEAD, the l i k e l i h o o d that government w i l l p l a y a significant  r o l e i n funding CBED i s l i m i t e d . Consequently,  CBED  o r g a n i z a t i o n s w i l l have t o depend on a l t e r n a t i v e sources such as the c r e d i t union. There c r e d i t union i n i t i a t i v e s guarantee  i s scope  i n favour of CBED, through a loan  program f o r example. Furthermore,  interesting alternatives  there are several  f o r CBED f i n a n c i n g beside c r e d i t  unions, such as labour investment investment  f o r government support of  through pension funds,  social  by church groups and r e v o l v i n g loan funds. C r e d i t  unions should be viewed as only one among many p a r t i c i p a n t s i n f a c i l i t a t i n g community based economic development. In c o n c l u s i o n , while i n t e r e s t among l o c a l c r e d i t unions may be growing  as demonstrated  by the Nanaimo and VanCity  i n i t i a t i v e s , a p o t e n t i a l b a r r i e r t o c r e d i t union a r i s e s because they do not d i f f e r  participation  from banks i n t h e i r a c t i o n s  and may not regard CBED as t h e i r r e s p o n s i b i l i t y . Education may serve to heighten i n t e r e s t especially  i n CBED among c r e d i t  i f i t can be demonstrated  unions,  that p a r t i c i p a t i o n  i s of  1 44  benefit  to c r e d i t union members. C r e d i t  contribution  unions can make a  to CBED but i t i s l i k e l y that  w i l l be l i m i t e d u n t i l  their f i n a n c i a l role  some mechanisms a r e found to m i t i g a t e the  r i s k a s s o c i a t e d with l e n d i n g to CBED e n t e r p r i s e s .  Other v a l u a b l e  o p t i o n s do e x i s t f o r c r e d i t union involvement i n CBED such as p r o v i d i n g management a d v i c e , making c r e d i t union d e p o s i t - t a k i n g f a c i l i t i e s available  t o CBED groups and a c t i n g  as a f a c i l i t a t o r  i n the community f o r CBED.  Suggestions f o r F u r t h e r Research One of the f u n c t i o n s of p r e l i m i n a r y r e s e a r c h i s t o i d e n t i f y areas where f u r t h e r possible  r e s e a r c h would be advantageous. I t i s  to i d e n t i f y several  areas where f u r t h e r  c o n t r i b u t e t o understanding the r e l a t i o n s h i p  research could  between the c r e d i t  union and community based economic development. F i r s t  of a l l ,  it  would be i n s t r u c t i v e t o o b t a i n a more comprehensive understanding of the extent of c r e d i t union p a r t i c i p a t i o n i n CBED throughout Canada, where these a c t i v i t i e s occur, and the type of s t r a t e g i e s particular  interest  and i n s t i t u t i o n a l arrangements employed. Of i s the D e s j a r d i n s Group i n Quebec which f o r  i n s t a n c e , j u s t completed the f i r s t  ' s o c i a l audit'  of i t s  o p e r a t i o n s and p r o v i d e s e q u i t y c a p i t a l to c o o p e r a t i v e s i n the p r o v i n c e through a s u b s i d i a r y  c o r p o r a t i o n . One suspects that a  great amount of a c t i v i t y occurs i n Quebec which i s b a s i c a l l y b a r r e d from view by v i r t u e of the language b a r r i e r . A comprehensive e v a l u a t i o n of a p a r t i c u l a r c r e d i t union  initiative  undertaken a f t e r a s u f f i c e n t p e r i o d of time (seven to ten  145  y e a r s ) , would c o n t r i b u t e t o g r e a t e r understanding of the potential An  impact  of c r e d i t union i n i t i a t i v e s  i n respect of CBED.  i n t e r e s t i n g q u e s t i o n r e l a t i n g to the c r e d i t union might  ask whether the t y p i c a l c r e d i t union f u n c t i o n s as a community development f i n a n c i a l  institution  i n i t s own  r i g h t by m o b i l i z i n g  l o c a l savings or p r o v i d i n g community s e r v i c e s ? Does the c r e d i t union a c t to reduce leakages from the community economy i n a that c h a r t e r e d banks do not? Another  way  related empirical question  concerns whether c r e d i t unions do operate i n a manner which d i s t i n g u i s h e s them from other f i n a n c i a l example would be Nanaimo D i s t r i c t  i n s t i t u t i o n s ? A good  Savings C r e d i t Union; while i t  has been unable to achieve much with the Community Account,  i t appears  Ventures  to be i n t e g r a t e d i n t o the l o c a l community  and c o o p e r a t i v e s e c t o r i n an important  way.  On a more s t r a t e g i c or o p e r a t i o n a l l e v e l , two  additional  strands of r e s e a r c h would be u s e f u l from the p o i n t of view of community based economic development i n g e n e r a l . The prospect of a s p e c i a l i z e d loan guarantee  fund f o r CBED l e n d i n g means that  f u r t h e r r e s e a r c h on the s p e c i f i c s of such a program,  perhaps  based on the experience of the Small Business Loans Act guarantee  program, would be u s e f u l . In the same v e i n there are a  number of t e c h n i c a l and  financial  i s s u e s r a i s e d by the prospect  of c r e d i t unions becoming i n v o l v e d i n CBED such as different  matching  l e v e l of r i s k or r a t e of r e t u r n with investment  and  l e n d i n g o p t i o n s a v a i l a b l e to c r e d i t unions. An understanding of these i s s u e s i s c r i t i c a l participation  i n CBED.  to expanding  the scope of c r e d i t  union  146  F i n a l l y , no d e t a i l e d study of the v a r i o u s long-term employment development programs of Employment and Immigration Canada has been c a r r i e d out t o date or at l e a s t made p u b l i c . There are o s t e n s i b l y some important q u e s t i o n s surrounding the e f f i c a c y and value of these programs from the p o i n t of view of community based economic development. F i r s t  of a l l ,  a r e the  e x i s t i n g programs r e a l l y CBED programs at a l l ? Do program requirements mean the p r o j e c t s are doomed to f a i l u r e by u n s u i t a b l e terms and c o n d i t i o n s , and continuous r e o r g a n i z a t i o n ? Is the employment m i n i s t r y the a p p r o p r i a t e agency f o r d e l i v e r y ? On a broader l e v e l ,  i t i s a l s o u s e f u l to c o n s i d e r the r o l e of  government i n CBED.  Proposals The p r o p o s a l s o u t l i n e d below a r e d i r e c t e d toward groups  three  or o r g a n i z a t i o n s : l o c a l c r e d i t unions, B.C. C e n t r a l  C r e d i t Union and community based economic development o r g a n i z a t i o n s i n the p r o v i n c e . These suggestions a r e p r a c t i c a l and a r i s e  i n response t o the c o n s t r a i n t s to c r e d i t  p a r t i c i p a t i o n d e s c r i b e d i n Chapter in the assessment initiatives.  4 and weaknesses  of Nanaimo and VanCity c r e d i t  union identified  union  147  L o c a l C r e d i t Unions should: 1) Become f a m i l i a r with the experiences of other credit  unions  i n v o l v e d i n CBED, with p a r t i c u l a r  a t t e n t i o n to s t r a t e g i e s , community involvement, and i n s t i t u t i o n a l arrangements. 2) I n v e s t i g a t e community o r g a n i z a t i o n s i n t h e i r  area  that have a mandate f o r economic development, employment c r e a t i o n or s o c i a l  service provision for  t h e i r p o t e n t i a l as p a r t n e r s i n a CBED program.  B.C. C e n t r a l C r e d i t Union I t i s recognized that the i n i t i a t i v e s d e s c r i b e d below are contingent upon l o c a l c r e d i t union  support. Bearing t h i s i n  mind, the f o l l o w i n g i n i t i a t i v e s a r e proposed:  1) Undertake a r e s e a r c h program t o i n v e s t i g a t e b u s i n e s s o p t i o n s , i n d u s t r y s e c t o r s , economic i n d i c a t o r s u s e f u l f o r c r e d i t union p a r t i c i p a t i o n i n CBED. 2) Examine t r a i n i n g and education programs f o r c r e d i t union managers and board members f o r relevance to CBED. Techniques  of a n a l y s i n g CBED p r o p o s a l s and  m o n i t o r i n g business loans are of prime 3) I n v e s t i g a t e u t i l i t y of loan guarantee CBED. 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P r o v i n c i a l Government Banks: A Case Study of Regional Response to N a t i o n a l I n s t i t u t i o n s Vancouver: The F r a s e r I n s t i t u t e , 1978. Canadian Bankers A s s o c i a t i o n . The Banks and the West: F a c t s , F i g u r e s and the Future. V o l . 16, No. 2, J u l y 1973. Canadian F e d e r a t i o n of Independent B u s i n e s s . A Study of Job C r e a t i o n 1975 to 1982 and F o r e c a s t s t o 1990. Toronto: 1983. Canadian F e d e r a t i o n of Independent Business. 1985 Banking Survey Toronto: December 11, 1985. Hatch, James. Bank F i n a n c i n g of Small Business i n Canada E x e c u t i v e Summary. London: U n i v e r s i t y of Western O n t a r i o , of Business A d m i n i s t r a t i o n , 1982.  School  Hatch, James, L a r r y Wynant and Mary Jane Grant. Government Loan Guarantee Programs f o r Small Business London: School of Business A d m i n i s t r a t i o n , 1985. BIBLIOGRAPHIES Barbe, N. and J . Sekera. S t a t e s and Communities: The C h a l l e n g e for Economic A c t i o n . N a t i o n a l Congress f o r Community Economic Development and C o u n c i l f o r Community Development, 1984. C o u n c i l of Planning L i b r a r i a n s . F i f t e e n Years of Community-Based Development: An Annotated B i b l i o g r a p h y 1968-1983. #156, September 1985. Glasmeier, Amy K. Regional P l a n n i n g and Economic Development: A B i b l i o g r a p h y C o u n c i l of Planning L i b r a r i a n s , #112. May 1983. Shapira, P h i l i p . Economic Development A n a l y s i s and P l a n n i n g i n Advanced I n d u s t r i a l Economies: A B i b l i o g r a p h y C o u n c i l of Planning L i b r a r i a n s , #111. June 1983. S t a l l s , Suzanne, Frank Manley and John Volkman. Community Economic Development: Annotated B i b l i o g r a p h y and Resource L i s t . (1st e d i t i o n ) Washington, D . C : N a t i o n a l Center f o r A p p r o p r i a t e Technology, 1979.  155  APPENDIX A  OTHER CREDIT UNION INITIATIVES  T h i s s e c t i o n i s intended t o g i v e the reader a sense of the scope of l o c a l development a c t i v i t i e s undertaken by c r e d i t unions o u t s i d e B.C. s p e c i f i c a l l y : the c a i s s e e ' e n t r a i d e economique i n Quebec, the community development c r e d i t union i n the U.S. and the Caja L a b o r a l P o p u l a i r e i n Spain. These c r e d i t unions d i f f e r  from those d e s c r i b e d i n Chapter  f u n c t i o n almost  e x c l u s i v e l y t o develop  5 i n that they  the l o c a l economy, much  in the same v e i n as community based economic development.  C a i s s e D'Entraide  Economique  The c a i s s e d ' e n t r a i d e economique (CEE) o r i g i n a t e d i n Quebec in the 1960s out of a concern  for self  the context of the Quiet R e v o l u t i o n . financial  1  r e l i a n t development i n The CEE were c o o p e r a t i v e  i n s t i t u t i o n s e s t a b l i s h e d to pool the savings of  Quebecers l i v i n g  i n small towns and r u r a l areas f o r investment  in l o c a l l y based e n t e r p r i s e s . They were not a s s o c i a t e d with the D e s j a r d i n s f e d e r a t i o n . As with many other CBED e f f o r t s , the CEE employed two s t r a t e g i e s ; f i n a n c i a l support and networks of " a d v i s o r s " to a s s i s t  r e s i d e n t s i n forming or expanding  'Owing to the extreme d i f f i c u l t y of o b t a i n i n g d e t a i l e d i n f o r m a t i o n concerning the CEE i n e n g l i s h , t h i s d i s c u s s i o n w i l l be b r i e f .  156  b u s i n e s s e s . Investment shares c a l l e d  "capital social"  the v e h i c l e to f i n a n c e l o c a l economic development. By  provided 1981  were 77 CEE with 350,000 members and a s s e t s worth $1.4  there  billion  of which roughly 85 percent c o n s i s t e d of loans made w i t h i n the l o c a l r e g i o n . (Bureau  de l a s t a t i s t i q u e du Quebec,  1986)  However, the c a i s s e d ' e n t r a i d e economiques experienced a financial crisis r a t e s . The  i n 1981,  brought about i n p a r t by high  c a i s s e s had been borrowing  interest  on a s h o r t term b a s i s and  l e n d i n g on a long term b a s i s . Both the p r o v i n c i a l government the Canadian Deposit Insurance  C o r p o r a t i o n o f f e r e d a s s i s t a n c e to  the c a i s s e s and by the end of 1985, j o i n e d the D e s j a r d i n s system and and  and  s e v e r a l of the c a i s s e s had  the remainder were r e s t r u c t u r e d  renamed s o c i e t e d ' e n t r a i d e economique. The  example of an i n n o v a t i v e c o o p e r a t i v e f i n a n c i a l  CEE are j u s t  one  institution  o p e r a t i n g i n the p r o v i n c e of Quebec. The D e s j a r d i n s Group of c a i s s e s p o p u l a i r e s a l s o has a number of community development and venture c a p i t a l s u b s i d i a r i e s which are of i n t e r e s t to a c o n s i d e r a t i o n of c r e d i t union p a r t i c i p a t i o n  i n CBED.  Community Development C r e d i t Unions Community development c r e d i t unions  (CDCU) are  another  i n t e r e s t i n g system of c r e d i t unions, which, a c c o r d i n g to a recent study, are performing  the important  f u n c t i o n of savings  m o b i l i z a t i o n i n low-income communities i n the U.S.  (NFCDCU  1986)  CDCU are f i n a n c i a l c o o p e r a t i v e s s e r v i n g low-income neighbourhoods which have an e x p l i c i t mandate of community investment  and which p r o v i d e some i n s i g h t to the c o n s i d e r a t i o n  157  of the r o l e of c r e d i t unions development i n Canada.  1  There are approximately approximately  i n community based economic  400  CDCU i n the U.S.  350,000 members. The  with  impetus f o r most of  these  c r e d i t unions, many of which were c h a r t e r e d between 1960 1969,  was  the a n t i - r e d l i n i n g movement and concerns  disinvestment  regarding  which o c c u r r e d i n American inner c i t y  neighbourhoods at that time. Community A c t i o n Agencies as sponsors  and  (Caftel  of the War  f o r many l i m i t e d  1978)  Interestingly,  on Poverty program served  income c r e d i t unions.  (NFCDCU  Most CDCU have a s s e t s of l e s s than $500,000, extremely comparison to B.C.  credit  The CDCU's primary  1986)  small in  unions.  activities  i n c l u d e b a s i c savings  and  loans s e r v i c e s c o n s i s t i n g p r i m a r i l y of p e r s o n a l l o a n s , r e s i d e n t i a l r e a l e s t a t e loans, other r e a l e s t a t e loans and  small  business l o a n s . The value of the average outstanding loan i n 1984  was  $2844. D e s p i t e the f a c t that CDCUs serve a high  p o p u l a t i o n they have not bad debt  i n c u r r e d dramatic  r a t i o comparable to t h a t of other  institutions.  (NFCDCU 1986)  The  risk  losses, maintaining a financial  study estimated that  business  loans to t r a d i t i o n a l and n o n - p r o f i t o r g a n i z a t i o n s c r e a t e d 16,000 to 17,000 jobs at a c o s t of $6000 per job from 1981  to  1984.  CDCUs are able to pursue community development goals by  CDCU d i f f e r from r e g u l a r c r e d i t unions i n that they possess a m a j o r i t y of low-income members i n t h e i r f i e l d of membership which may be d e f i n e d on an a s s o c i a t i o n a l , o c c u p a t i o n a l or geographic b a s i s . 1  158  v i r t u e of some i n n o v a t i v e p o l i c i e s and programs. F i r s t l y , CDCUs accept  non-member d e p o s i t s , mostly  c o r p o r a t i o n s and foundations, subsequently  from i n d i v i d u a l s ,  churches,  to expand t h e i r d e p o s i t base and  to make more l o a n s . These allow the c r e d i t union to  withstand  the d i f f i c u l t  formative p e r i o d and more s p e c i f i c a l l y  to permit  l a r g e r s c a l e community  otherwise  be p o s s i b l e . A CDCU r e v o l v i n g loan fund was r e c e n t l y  development e f f o r t s than  would  r e - a c t i v a t e d by Congress, which w i l l l i k e l y take the form of l o w - i n t e r e s t d e p o s i t s i n CDCUs and p o s s i b l y some t e c h n i c a l a s s i s t a n c e f o r community  economic development. CDCUs are a l s o  l i n k e d with Community Development C o r p o r a t i o n s  i n some  communities and have i n f a c t e s t a b l i s h e d t h e i r own CDCs i n some cases.  Caja L a b o r a l  Populaire  Mondragon i s o f t e n r e f e r r e d to i n the CBED l i t e r a t u r e as a model of community  development. (MacLeod 1986; Wismer and P e l l  1982) Somewhat s i m i l a r l y , the Caja L a b o r a l P o p u l a i r e c r e d i t c o o p e r a t i v e a s s o c i a t e d with Mondragon cooperatives  i n the Basque r e g i o n of Spain,  of c r e d i t union p a r t i c i p a t i o n specifically  (CLP), the  producer i s viewed as a model  i n CBED. I t was formed i n 1959  to c a p i t a l i z e new c o o p e r a t i v e e n t e r p r i s e s and  c o o r d i n a t e t e c h n i c a l a s s i s t a n c e to p o t e n t i a l new e n t e r p r i s e s . T h i s was a h i g h l y i n n o v a t i v e s t r a t e g y s i n c e the h i s t o r y of c o o p e r a t i v e s was one of i s o l a t e d development of consumer, producer  and c r e d i t c o o p e r a t i v e s . The motto of the CLP was  ' L i b r e t a o Maleta'  meaning  'savings book or s u i t c a s e . ' I t  159  r e f e r r e d to the f a c t that by i n v e s t i n g i n t h e i r community, young Basques would not have to emigrate  to f i n d work.  The Caja L a b o r a l P o p u l a i r e i s p a r t of a complex system of c o o p e r a t i v e s governing a l l aspects of everyday Mondragon. Apart  l i f e in  from the CLP and worker c o o p e r a t i v e s , there i s  a h i g h l y evolved c o o p e r a t i v e education and  social  system which f u r t h e r support  goals of the Basques.  the long-term  security  The Caja L a b o r a l P o p u l a i r e and Mondragon i n g e n e r a l have been very s u c c e s s f u l i n a c h i e v i n g t h e i r g o a l s . By the e a r l y  1980s  over 80 worker c o o p e r a t i v e s had been f i n a n c e d c r e a t i n g over 17,000 j o b s . Wismer and CLP  Pell  (1982) a t t r i b u t e the success of the  to the f a c t that l e g i s l a t i o n allows c o o p e r a t i v e banks i n  Spain to pay higher i n t e r e s t financial  r a t e s on d e p o s i t s than  other  institutions.  The Caja L a b o r a l P o p u l a i r e i s unique among c r e d i t  unions  f o r i t s i n t e g r a t i o n with other elements of the Mondragon system. Furthermore, the c l o s e working r e l a t i o n s h i p between the Management S e r v i c e s D i v i s i o n of CLP c o o p e r a t i v e s suggests  and p o t e n t i a l  producer  that there i s some connection between the  q u a l i t y and q u a n t i t y of management advice and  s u c c e s s f u l worker  c o o p e r a t i v e s . The Management S e r v i c e s D i v i s i o n of CLP  has  three  main a c t i v i t i e s : promotion, a s s i s t a n c e and e n g i n e e r i n g , f o r which i t employs economists,  engineers, lawyers, urban planners  and o t h e r s . In order to promote the c r e a t i o n of  new  c o o p e r a t i v e s , the CLP puts together bank experts and new managers who feasibility  work together s t u d i e s and  coop  f o r s e v e r a l years p r e p a r i n g  the l i k e . Once f i n a n c i a l support i s  160  committed, the CLP the c o o p e r a t i v e  f u r t h e r guarantees c o n t i n u i n g a s s i s t a n c e  should  i t be  required.  to  161  APPENDIX B LIST OF PERSONS INTERVIEWED A l l e n , R i c h a r d . C h i e f Economist, B.C. C e n t r a l C r e d i t Vancouver: Interview October 20, 1986.  Union.  Back, Ian H. Economist, Community Economic Development Branch, B.C. M i n i s t r y of Industry and Small Business Development. V i c t o r i a : Interview June 3, 1986. Cox, David. Manager, Seed C a p i t a l P r o j e c t , Vancouver C i t y Savings C r e d i t Union. Vancouver: Interview May 7, 1986. Gordon, L a r r y . Communications C o - o r d i n a t o r C r e d i t Union C e n t r a l of O n t a r i o . Toronto: Interview by telephone, Feb 10, 1987. Hann, B r i a n . Manager, Independent Business, Royal Bank. Vancouver: Interview by telephone, December 15, 1986. J a r d i n e , K e i t h . B. C. C e n t r a l C r e d i t Union, Vancouver: Interview August 13, 1986. Jessop, John. S o c i a l Planner, Vancouver S o c i a l P l a n n i n g Department, Vancouver: Interview by telephone, June 4, 1 9 8 6 . E x e l l , Oksana. D i r e c t o r P r o v i n c i a l A f f a i r s . Canadian F e d e r a t i o n of Independent B u s i n e s s . Vancouver: Interview August.12, 1986. Leach, Joy. Member, Board of D i r e c t o r s , VanCity Saving C r e d i t Union. Vancouver: Interview by telephone March 1986, A p r i l 10, 1987. MacMillan, Don. General Manager, C o l v i l l e Investments C o r p o r a t i o n . Nanaimo: Interview by telephone Feb 10, 1987. McClure, David. Manager, Teachers C r e d i t Union. Vancouver: Interview by telephone, October 9, 1986. M a r z a r i , Darlene. Board Member, Vancounver C i t y Savings Union. Vancouver: Interview December 8, 1986. May, Ken. General Manager, Nanaimo D i s t r i c t Union. Nanaimo: Interview May 31, 1986.  Savings  Credit  Credit  Olson, John. Manager, A l b e r n i - C l a y q u o t Development S o c i e t y . Port A l b e r n i : Interview by telephone November 19, 1986. Podovinikoff, Peter. Chief Executive O f f i c e r , Delta Credit Union. Interview May 23, 1986. Rosenthal, C l i f f o r d . E x e c u t i v e D i r e c t o r , N a t i o n a l F e d e r a t i o n of Community Development C r e d i t Unions, New York: Interview by  162  telephone March 24,  1987  R u f f i n , C a t h e r i n e . Manager, Community Congress f o r Economic Change (CCEC). Vancouver: Interview by telephone, May 26, 1986. Shantz, Barbara. D i r e c t o r , Community Futures, Employment and Immigration Commission. Vancouver: Interview August 12, 1986. W i l l i a m s , Bob. V i c e Chairman, Board of D i r e c t o r s , VanCity Savings C r e d i t Union. Vancouver: Interview, May 13, 1986.  163  APPENDIX C SUMMARY OF FEDERAL AND B.C. GOVERNMENT PROGRAMS OF USE IN COMMUNITY BASED ECONOMIC DEVELOPMENT " 7  (as at September  1986)  FINANCIAL SUPPORT F e d e r a l Government  Programs  1- Canada Employment  and Immigration Commission  (CEIC)  Canadian Jobs S t r a t e g y , s i x program o p t i o n s Community Futures Innovations Job Development Job E n t r y S k i l l Investment S k i l l Shortage 2- Department of Regional Business  Improvement  I n d u s t r i a l Expansion (DRIE) Loans  I n d u s t r i a l and Regional Development Native Economic Development  Program  Program  S p e c i a l A g r i c u l t u r e and R u r a l Development Act 3- F e d e r a l Business Development Bank (FBDB) Term Loans Loan Guarantee Program Financial  Planning  4- Indian and Northern A f f a i r s Indian Community Human Resources S t r a t e g i e s Program Indian Economic Development Fund P r o v i n c i a l Government  Programs  'Source: N i e l s o n , C a r o l and Nancy McLeod. Community Economic Development 1986 Resource D i r e c t o r y f o r B r i t i s h Columbia. Vancouver: SPARC, 1986.  1-  B.C. Low  2-  Development  Corporation  I n t e r e s t Loan  Assistance  M i n i s t r y of Industry Assistance Community Student  and S m a l l  to A s s o c i a t i o n s Organizations  Venture  Technical  Capital  Assistance  Technology  4- J o i n t  and P r o v i n c i a l  Industry  BUSINESS ADVISORY Federal  Business  Business  Financial  Programs  Incentive  Development  Program Sub-Agreement  Programs Development  Information  Counselling  Renewal  SERVICES  Government  1- Federal  Program  Affairs  Manufacturers  Tourism  Development  Program  i n E n t e r p r i s e f o r Economic  Federal  Small  f o r Economic  B.C.  Assistance  3- M i n i s t r y o f M u n i c i p a l Partners  Business  Centre  Assistance  Planning  Bank  f o r Small  Program  Enterprises  

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