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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., Carleton University, 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 Regional Planning We accept t h i s thesis as conforming to the required standard THE UNIVERSITY OF BRITISH COLUMBIA A p r i l 1987 ©Margaret P a t r i c i a Eberle, 1987 In presenting this thesis in partial fulfilment of the requirements for an advanced degree at the University of British Columbia, I agree that the Library shall make it » freely available for reference and study. I further agree that permission for extensive copying of this thesis for scholarly purposes may be granted by the head of my department or by his or her representatives. It is understood that copying or publication of 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) ABSTRACT Local B.C. communities facing hardship in the context of global restructuring and reduced demand for primary resource commodities, have increasingly turned to community based economic development (CBED) to strengthen their l o c a l economies. These community based strategies d i f f e r from place to place 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 desirable development, u t i l i z i n g l o c a l resources, and under some form of l o c a l c o n t r o l . However there are numerous obstacles to undertaking CBED, one of which i s a lack of financing. Credit 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 participants in a process of community based economic development. They possess s i g n i f i c a n t f i n a n c i a l resources, and share with CBED a common philosophy of economic self- h e l p , and an orientation towards the l o c a l community. The pote n t i a l for c r e d i t union p a r t i c i p a t i o n in community based economic development i s the subject of th i s t h e s i s . A three part methodology was followed with p a r t i c u l a r reference to major aspects of the issue. 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 pointed to the importance of financing, management advice and l o c a l capacity to develop in the CBED process. The experience of CBED organizations in obtaining assistance from chartered banks and federal government programs such as Local Employment Assistance Development (LEAD) demonstrates that there are s i g n i f i c a n t gaps in support. An alternative such as the cred 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 cooperative 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 factors presently act to constrain such p a r t i c i p a t i o n . There are two fundamental obstacles to c r e d i t union p a r t i c i p a t i o n in CBED. F i r s t l y , there i s a lack of w i l l on the part of cr e d i t unions to become involved in CBED based on declining member commitment to cr e d i t union philosophy. Secondly, cre d i t unions are presently unable to reconcile high l e v e l s of risk inherent in lending for CBED with their non-profit structure. Educating c r e d i t unions as to the potential benefits a r i s i n g from CBED may heighten their interest in p a r t i c i p a t i n g in CBED and there are mechanisms the cr e d i t union can employ to reduce r i s k . Furthermore, c r e d i t unions can play some important non-financial roles in support of CBED, which a l o c a l orientation and cooperative decision-making framework can enhance. The empirical portion of the research documented the CBED i n i t i a t i v e s of Nanaimo D i s t r i c t Credit Union and Vancouver City Savings Credit Union. It demonstrated f i r s t l y , that there i s interest among ind i v i d u a l c r e d i t unions within the c r e d i t union system to par t i c i p a t e in CBED, at least in an incremental way; secondly, that c r e d i t unions have tended to follow a marginal business development strategy in support of CBED in the i r respective communities; and t h i r d l y , there are a number of alte r n a t i v e roles, strategies and i n s t i t u t i o n a l arrangements for doing so. Based on thi s review of the major issues and the experience of two c r e d i t unions currently p a r t i c i p a t i n g in CBED, iv i t appears that c r e d i t unions do hold some pot e n t i a l an alte r n a t i v e source of community c a p i t a l and expertise for community based economic development, but at present appear to lack the philosophical basis for doing so, and furthermore, face some constraints to pursuing a f i n a n c i a l role in CBED. V TABLE OF CONTENTS ABSTRACT i i TABLE OF CONTENTS v LIST OF TABLES ix LIST OF FIGURES x 1. INTRODUCTION AND BACKGROUND Research Questions 2 Defining Community Based Economic Development 4 Community Based Economic Development Strategies 9 The Impetus for Community Based Economic Development 13 De- i n d u s t r i a l i z a t i o n 13 Regional Development Policy 16 Community Development 18 Methodology and Organization 21 2. LITERATURE REVIEW Introduction 24 De f i n i t i o n s 25 Local Economic Development as Community Based Economic Development 28 Critiques of Tr a d i t i o n a l Regional Development Theory 29 Neo-classical Theory 29 Growth Pole Theory 30 Staples Theory 31 Sources of Community Based Economic Development 32 v i Human Resources 33 Local Control 34 Obstacles to Community Based Economic Development 37 Information and Management Advice 38 Financing 38 Local Capacity 39 Summary and Implications for CBED 40 3. PROBLEMS FACING COMMUNITY BASED ECONOMIC DEVELOPMENT ORGANIZATIONS The Experience of CBED Organizations 42 Chartered Bank Lending to CBED Organizations 45 Regional Implications of Bank Lending 53 Government Programs for Community Based Economic Development 57 Local Employment Assistance Development (LEAD) Explained 58 Short Term Job Creation vs. Permanent Job Creation 61 Assessment of the LEAD Program 63 Summary 67 4. CREDIT UNIONS The Credit Union 70 History and Philosophy of Credit Unions 70 Growth of the Credit Union Movement 75 Credit Unions Today 77 Size of the Credit Union System 81 v i i Issues Facing Credit Unions in the 1980s 86 Credit Unions and Community Based Economic Development 89 Nature of Credit Union P a r t i c i p a t i o n in CBED 91 Rationale for Credit Union P a r t i c i p a t i o n in CBED 92 Constraints to Credit Union P a r t i c i p a t i o n in CBED 98 Summary.. 103 5. A REVIEW OF CREDIT UNION EXPERIENCE WITH CBED Introduction - 1 06 Methodology 1 08 Assessment of CBED I n i t i a t i v e s 112 Nanaimo D i s t r i c t Savings Credit Union, 112 Community Ventures Account 113 C o l v i l l e Investments Corporation 116 Vancouver City Savings Credit Union 122 Seed Capital Project 127 E t h i c a l Growth Fund 127 Some Concluding Remarks 131 Typology of I n s t i t u t i o n a l Arrangements 134 6. SUMMARY AND CONCLUSIONS Summary of Findings 136 Conclusions 1 38 Further Research 144 Proposals 1 46 v i i i BIBLIOGRAPHY . 1 49 APPENDIX A. Other Credit 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 Federal and B.C. Government Programs of Use in CBED 163 ix LIST OF TABLES 1. Unemployment Rates by Province 15 2. Source of CBED Financing 46 3. Financial I n s t i t u t i o n s Used Most for Small Business Lending 48 4. S a t i s f a c t i o n with Service Provided by Financial I n s t i t u t i o n 49 5. Chartered Bank S t a t i s t i c s 1973 55 6. Credit Union Growth Canada 1900-1981 76 7. Local Credit Union Loans Outstanding - Canada 78 8. Credit Union Membership P r o f i l e 85 9. CFIB Survey Results by Fi n a n c i a l I n s t i t u t i o n 94 X L I S T OF FIGURES 1. S t r u c t u r e o f T y p i c a l CBED O r g a n i z a t i o n 7 2. C r e d i t U n i o n S y s t e m 82 3. T o t a l A s s e t s o f S e l e c t e d F i n a n c i a l I n s t i t u t i o n s 84 4. I n s t i t u t i o n a l A r r a n g e m e n t s 134 1 CHAPTER 1  INTRODUCTION The purpose of thi s thesis i s to examine the argument that cre d i t unions should play an expanded role in community based economic development (CBED). Credit 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 that would seem to represent a l i k e l y source of funds for CBED because they possess s i g n i f i c a n t f i n a n c i a l resources, share a philosophy of s e l f - h e l p and are 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 obtaining adequate financing for t h e i r endeavours either through government programs or private sources. Furthermore, there i s some concern within 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 are not f u l f i l l i n g t h e i r responsibilty towards the l o c a l community. In fact, several c r e d i t unions in B.C. and elsewhere have recently demonstrated their commitment to the i r respective communities by establishing innovative solutions to community financing requirements. The remainder of thi s chapter i s directed towards explaining the research questions to which t h i s study i s addressed, describing community based economic development, examining the roots of CBED and the context in which i t ari s e s , and f i n a l l y , o u t l i n i n g the research methodology and organization of the thes i s . 2 Research Questions Three l i n e s of inquiry w i l l be followed in order to determine whether there i s a basis for cr e d i t union p a r t i c i p a t i o n in community based economic development. 1) The f i r s t question asks whether community based economic development requires an alternate source of financing such as the c r e d i t union, and uses two approaches to answer t h i s question. F i r s t l y , three common barrie 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 c a p i t a l , both debt and equity; b) a lack of information and management advice; and c) an absence of l o c a l capacity for development. The l a t t e r refers to an ethos of development which provides the necessary w i l l and i n s t i t u t i o n a l linkages for integrated development. Secondly, the record of two s i g n i f i c a n t (or po 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 chartered banks and a federal CBED program c a l l e d Local Employment Assistance Development, in reducing these barriers i s assessed. With respect to the former, two l i n e s of enquiry are followed: what i s the record of the chartered banks in lending to community based economic development groups and what are the implications of regional discrimination on a pr o v i n c i a l basis by chartered banks for CBED? The extent to which both chartered banks and goverment programs are able to reduce the informational and capacity barriers to CBED i s also examined. 2) The second research question asks whether c r e d i t unions are well-suited suited to parti c i p a t e in CBED and to perform 3 s p e c i f i c roles to reduce the barriers to CBED. The relat i o n s h i p between CBED and cr e d i t unions w i l l be examined through a review of the history and nature of cr e d i t unions with p a r t i c u l a r emphasis on philosophy and their l o c a l nature. A review of B.C. credi t union s t a t i s t i c s shows that for the most part they have not played an active role in CBED through new enterprise development, as they are engaged almost exclusively in personal and mortgage lending. What constraints currently operate to 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 in CBED and are these l i k e l y to operate in the future? If there are constraints to their involvement, does the cr e d i t union's philosophy of self-help and cooperation, their l o c a l orientation and their standing as a secure f i n a n c i a l i n s t i t u t i o n provide a good basis for a community based economic development approach? 3) The t h i r d research question asks i f there i s empirical support to demonstrate that c r e d i t unions are capable of playing a role in CBED. What has been the experience of c r e d i t unions pursuing a community based economic- development strategy in the province? To answer this question, evidence concerning two current 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 attention to their goals, strategies, i n s t i t u t i o n a l arrangements, and relationships with other community organizations. Furthermore, t h i s section w i l l attempt to determine i f they have they been successful in removing any of the obstacles to community based economic development, and in meeting their stated objectives. To further test the merits of cr e d i t union p a r t i c i p a t i o n in CBED, four 4 c r i t e r i a for 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 applied to the two examples. A brief account of other c r e d i t unions in Quebec, the U.S. and Spain provides further empirical evidence of cr e d i t union involvement in CBED. It should be stressed at the outset that l i t t l e research has been c a r r i e d out on the potential relationship between credit unions and community based economic development; therefore, t h i s thesis should be viewed as exploratory in nature. Likewise, the disparate nature of the subject area and the fact that numerous f i e l d s of enquiry are pursued, means that i t i s not always possible to do ju s t i c e to each. With t h i s in mind, numerous suggestions regarding related research are presented in the f i n a l chapter. Defining Community Based Economic Development Community based economic development (CBED) i s an ambiguous term possessing numerous meanings. As such i t i s necessary to c l e a r l y define what i s meant by the term as i t i s used here. Community based economic development refers to an integrated approach to development, one which encompasses s o c i a l , c u l t u r a l and economic concerns, and which i s pursued by an organization with some measure of l o c a l community co n t r o l . Thus, the goals of CBED are long term economic v i a b i l i t y 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 desirable economic a c t i v i t y and community control." (Wismer and P e l l 1984) A 1985 Social Planning and Research Council study reported that the s o c i a l values t y p i c a l l y found in CBED organizations in B.C. were 5 expressed through permanent job creation, environmentally sound enterprises and democratic work structures. The term socio-economic development i s often used to describe CBED; i t "suggests that economic actions take place within s o c i a l p r i o r i t i e s , p r i o r i t i e s which are concerned with dignity, l i f e choices, and equity." (Clague 1984) The o r i g i n a l intent of socio-economic development was that income generating a c t i v i t i e s would support s o c i a l aims; however i t i s not clear whether th i s goal has been achieved since many CBED organizations rely on government funding. Local s e l f - r e l i a n c e at the community l e v e l i s often 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 organization, the l a t t e r meaning freedom from government funding for day to day operations. (Highland Resources 1983) The term community based economic development can be better understood be breaking i t down into i t s component parts. Community may be viewed in two ways; f i r s t as a geographically defined area, such as a small town or urban neighbourhood; and secondly, as a community of interest which might cut across several geographical boundaries, but represent people of a common background, profession, sex, or ethnic group. 1 Furthermore, some form of attachment to the community or commonality in s o c i a l action i s usually 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 interest are women's projects such as Emma's Jambrosia in the Kootenays, and native development strategies which might encompass both a geographical community and a community of interest, such as the Nicola Valley Indian Band. 6 Chekki (1979) a geographic community i s : . . . 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 la t ionsh ip to one another, who share common f a c i l i t i e s and serv ices , develop a common psychological 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 i s general ly understood that some form of "common psycholog ica l i d e n t i f i c a t i o n " i s present at the outset or w i l l be developed in the course of the process. The modifier 'community' i s important in the term community based economic development, since community contro l i s an c r i t i c a l component of CBED. The l e v e l of commitment to the community and the degree of l o c a l contro l vary enormously among CBED organizat ions and enterpr i se s . However, some measure of contro l i s necessary in that the notion of community input i s what d i s t inguishes CBED from t r a d i t i o n a l economic development e f f o r t s . The l a t t e r aim to increase economic development in a p a r t i c u l a r area with no concern for the actors involved or the consequences for d i f f eren t segments of the populat ion . An umbrella organizat ion , governed by a board of d i r e c t o r s composed of e lected or appointed community representatives i s the most common form of community contro l in p r a c t i s e . It is usual ly a non-prof i t society with several arms or s u b s i d i a r i e s , some prof i t -making , which f u l f i l l d i f f erent functions re lated to the goals of the community development soc ie ty . The diagram in Figure 1 i l l u s t r a t e s the structure of a t y p i c a l umbrella organizat ion engaged in CBED which i s s i m i l a r to that of the Community Development Corporation (CDC) employed by 7 F I G U R E 1 T Y P I C A L CBED UMBRELLA ORGANIZATION 8 community organizations in the U.S. in the 1960s. The p r o f i t -making arm of the CDC may either own, or f a c i l i t a t e the formation of, small businesses, producer or consumer cooperatives, and other a c t i v i t i e s . The notion 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 'development1 and 'economic development' interchangeably.) In the context of the less developed countries, the term development has evolved over time, but has most commonly been associated with economic growth. According to the neo-classical framework, the appropriate focus for policy i s growth in GNP or per capita income. The benefits of growth are expected to " t r i c k l e down" from those industries or firms which experience r i s i n g incomes to those individuals who exist at subsistence l e v e l s . However, the meaning of development has shifted over time to e x p l i c i t l y include socio-economic objectives such as d i s t r i b u t i o n of income, basic human needs, s e l f - r e l i a n c e and c u l t u r a l development, recognizing that they do not simply occur as a result of economic growth. Dudley Seers (1969; 1977) traced t h i s evolution of the meaning of development quite s u c c i n t l y . In an early a r t i c l e on the subject, he points 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 act u a l l y cause them." Therefore, development does not occur unless inequality, unemployment and poverty decline 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 include s e l f -reliance, both economic and c u l t u r a l , as an ess e n t i a l element. 9 In Friedmann and Weaver's (1979) words: " a cutting or at least severing of the umbilical cord that t i e d a country's fate to the world of the t r a n s n a t i o n a l . " Moreover, according to Seers, t h i s expanded d e f i n i t i o n implies a geographical extension of development studies to a l l countries, e s p e c i a l l y those suffering from chronic i n f l a t i o n and unemployment. Thus, the economic development l i t e r a t u r e which focusses primarily on development at a national scale, exhibits a corresponding tendency toward issues of control and s e l f - r e l i a n c e found in the community economic development l i t e r a t u r e . For the purposes of t h i s thesis, economic development i s defined as a "multi-dimensional process" which involves changing s o c i a l structures, popular attitudes and i n s t i t u t i o n s as well as economic growth. (Todaro 1985) Community Based Economic Development Strategies There are numerous strategies of community based economic development consisting of both formal and informal economic a c t i v i t y such as: new enterprise development, job t r a i n i n g and education, barter or exchange networks, housing and land development and others. New enterprise development i s often the preferred CBED strategy since i t i s believed to address the problem of employment generation better than other economic development strategies. In contrast to beggar-thy-neighbour p o l i c i e s which attempt to entice large firms to relocate, a spate of recent research has demonstrated that i t i s the small firm which i s instrumental in job creation. Evidence provided by 10 Birch (1979) and the Canadian Federation of Independent Business (1982) show that the b i r t h and expansion of small independent businesses have been responsible for a s i g n i f i c a n t proportion of a l l new jobs. Using data for 5.6 m i l l i o n establishments in the U.S. over a seven year period, Birch (1979) found that new establishments, four years of age or l e s s , created half of new employment. Likewise, the CFIB survey of approximately 8000 small, medium and and large businesses found that firms with under 50 employees accounted for 70 percent of employment growth from 1975-1980 and 100 percent from 1975-1982. Thus, while big business provided roughly 30 percent of new jobs between 1975-1980, these were lo s t in the recession of 1980-1982. Clearly there i s a s i g n i f i c a n t trend to small business sector employment growth; however, evidence i s mixed as to the importance of the service sector in t h i s growth and consequently the nature and qua l i t y of jobs created. (Birch 1979; CFIB 1982) Notwithstanding the above q u a l i f i c a t i o n , new enterprise development i s the preferred strategy of most CBED organizations and i s the focus of t h i s t h e s i s . CBED enterprises 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 c u l l e d from the popular CBED l i t e r a t u r e characterizes CBED enterprises as: - small scale - suitable for the s k i l l s and interests of l o c a l residents. - use l o c a l resources 11 - involve the l o c a l community - use labour intensive and environmentally sensitive techniques - aim to replace goods and services currently imported or increase l o c a l value added of export goods. (Calder Action 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 enterprises describes the two ways in which a community or community enterprise may influence the l o c a l economy. One seeks to stem the outflow of cash from a community; the other aims to increase the flow of money into the community. This d i s t i n c t i o n represents a useful way to describe and understand the dynamics of a community economy as outlined by Davis (1986). The m u l t i p l i e r i s a measure of the extent to which a community i s able to respend an increase in l o c a l income. A large m u l t i p l i e r represents a stronger l o c a l economy. Money i s "leaked" from the community in four ways. F i r s t , through government taxes, which may or may not be channelled back into the community in the form of government services or transfer payments. Leakages also occur by way of l o c a l payments for goods imported from other regions or from outside the country. Thirdly, the savings of l o c a l residents invested in term deposits, stocks, pension 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 dividends generated by firms operating within the l o c a l economy but with headquarters outside the community are another 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 savings are subject to community action such as import substitution schemes or strategies to encourage residents to put the i r savings in a l o c a l f i n a n c i a l i n s t i t u t i o n where funds are recycled for another l o c a l borrower. Community action can reduce the outflow of p r o f i t s and dividends through worker or possibly community purchase of externally owned firms. Money flows into the l o c a l economy through the sale of exports, investment and senior government spending. Expanded export production, either through resource extraction or value added processing of raw materials, i s the most l i k e l y method a community can employ to increase the flow of money into the l o c a l economy. The former technique i s es p e c i a l l y useful for small, resource based economies. Attempts to d i v e r s i f y a l o c a l economy away from dependence on a single resource i s probably more suitable for a larger regional economy. Investment, either through the expansion of an e x i s t i n g firm, or the introduction of a new business or plant in the region, generates increased cash flow. Different impacts on the l o c a l economy w i l l occur, however, depending on where the investment originated. Locally based expenditures are l i k e l y to have greater linkage effects than branch plant investments for example. Government spending also increases the flow of money in the l o c a l economy, but with the exception of transfer payments for unemployment insurance and the l i k e , community e f f o r t s are r e s t r i c t e d to lobbying the appropriate agency for increased government expenditures in the 13 area. In summary, the techniques which hold the most promise for community based economic development are import substitution, mobilization of l o c a l savings, increased export production, and l o c a l investment. The role of the c r e d i t union in 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 discussed at length in Chapter 4. The Impetus for Community Based Economic Development The impetus for CBED can be traced to a number of d i f f e r e n t factors, but the three primary ones are: 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 in unemployment; the inadequacies of current regional development p o l i c i e s ; and the concern for community empowerment expressed in community development. De - i n d u s t r i a l i z a t i o n Mounting interest in community based economic development occurs against a background of economic restructuring on a global scale. The prosperity of the post-war period was interrupted in the early 1970s with the o i l c r i s i s , which had disastrous consequences for the i n d u s t r i a l i z e d world. This shock also i l l u s t r a t e d v i v i d l y the interdependence of national economies. Other vast changes in the global economy have meant that for over a decade, the leading i n d u s t r i a l i z e d countries have been plagued with high rates of unemployment due to plant closures and labour substituting c a p i t a l i z a t i o n programs. This problem i s addressed in The De-i n d u s t r i a l i z a t i o n of America. 1 4 (Bluestone and Harrison 1982) Often the main protagonist in t h i s drama i s viewed as the multi-national or trans-national corporation so v i v i d l y described in the following text: Enormous multinational corporations appeared on the horizon and began the herculean task of global market integration. Capital was freed from i t s t r a d i t i o n a l location and able to bring even nation states to their knees by the simple device of threatening to move to some other, more benign business climate. (Friedmann and Forest 1984) This economic restructuring has resulted in a trend toward high unemployment rates across Canada, but some regions have experienced higher unemployment rates than others, especially the t r a d i t i o n a l have-not regions on the periphery. This remains the case today, as unemployment rates range from a high of 14.0 percent in Newfoundland to 6.8 percent in Ontario. (November, 1986) A resource based economy l i k e B r i t i s h Columbia suffers p a r t i c u l a r l y at such times. This i s r e f l e c t e d in an unemployment rate of 13.4 percent in November 1986, compared to 9.4 percent for Canada as a whole. ( S t a t i s t i c s Canada, Catalogue 71-001, December 1986) Table 1 provides detailed information on unemployment rates by province for the l a s t ten years. S t a t i s t i c s describing B.C.'s forest industry are indicative of the employment implications of the current economic s i t u a t i o n . In 1985 log production in the province f i n a l l y reached the pre-recession lev e l s of 1979. However, this growth in output was achieved with a corresponding 26 percent decline in industry employment from 1979. (B.C. Central Credit Union 1986) The extent of the unemployment problem, e s p e c i a l l y in resource towns and r u r a l areas, i s often a motivating factor in TABLE 1 UNEMPLOYMENT RATES BY PROVINCE 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 Newfoundland 13 .3 15 .5 16 .2 15 .1 13 .3 13. .9 16 .8 18 .8 20 .5 21 .3 Prince Edward Is. 9 .6 9 .8 9 .8 11 .2 10 .6 11. .2 12 .9 12 .2 12 .8 13 .2 Nova Scotia 9 .5 10 .6 10 .5 10 .1 9 .7 10. .2 13 .2 13 .2 13 .1 13 .8 New Brunswick 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 B r i t i s h Columbia 8 .6 8 .5 8 .3 7 .6 6 .8 6. .7 12 .1 13 .8 14 .7 14 .2 Canada 7 .1 8 .1 8 .3 7 .4 7 .5 7. .5 11 .0 11 ?9 11 .3 10 .5 Source: 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 just a secondary consequence. In addition to the problem of general unemployment, marginal groups l i k e the young, women, and native people have special unemployment problems which require p a r t i c u l a r attention even at the best of times. A sense of powerlessness i s evident in a community when i t s economic health i s seen to depend on outside forces. This i s espec i a l l y l i k e l y to occur in single industry towns. Native development i n i t i a t i v e s stand out as a good example of people tryin g to take control of their l i v e s a f t e r being severely dependent on government transfer payments for many years. However, non-native groups can exhibit similar dependency relationships with large foreign owned resource companies for example, and consequently look to CBED as a means of reducing th i s dependency. Regional Development Policy Community based economic development i s also a response to the f a i l u r e s of conventional, top-down, s o c i a l .and economic development strategies of various lev e l s of government. Although some federal employment programs are s p e c i f i c a l l y directed towards CBED, most regional development spending has occurred on i n d u s t r i a l development strategies. It i s interesting to note that CBED programs are i n s t i t u t e d through the employment ministry rather than one t r a d i t i o n a l l y responsible for economic development p o l i c y . This r e f l e c t s the recognition that CBED seeks to create long l a s t i n g employment through socio-economic 17 development rather than economic or i n d u s t r i a l development. In 1969, the federal government implemented a coordinated strategy for reducing regional 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 results of which have been less than spectacular. P o l i c i e s were designed to subsidize declining staple industries such as agriculture and forestry, to reinforce labour market operation through mobility subsidies, to encourage private investment with s o c i a l and economic overhead c a p i t a l and i n d u s t r i a l incentives; and to bui l d mega-projects such as the Northeast Coal Project. These were the major tools used by the department to promote i n d u s t r i a l development in the peripheral regions. (Weaver and Gunton 1986) Despite these e f f o r t s , the Economic Council of Canada, in i t s 1977 study of regional d i s p a r i t i e s , concluded that " d i s p a r i t i e s in Canada are sur p r i s i n g l y large; c e r t a i n l y larger than many of us expected and larger than they need to 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 location subsidies to industries in depressed regions were found to have no e f f e c t on a firm's location decision; the move would have been made anyway. Thus p a r t l y in response to the perceived f a i l u r e of previous regional development programs, and the f i s c a l belt tightening in the 1980s, many of the regional i n i t i a t i v e s of the 1960s and 1970s have been abandoned. (Weaver and Gunton 1986) People l i v i n g in communities in depressed regions have l i k e l y recognized the f a i l u r e of p o l i c i e s of this 18 nature to substantially a l t e r their 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 di r e c t forerunner to community based economic development, and i t remains a fundamental aspect of CBED. It i s a strategy of developing group problem solving s k i l l s and ultimately 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 control over l o c a l aspects of a fr u s t r a t i n g and changing world." (Biddle and Biddle 1965) Moreover, community development rests on certain fundamental propositions regarding human values: ...that people are capable of both perceiving and judging the condition of t h e i r l i v e s ; that they have the w i l l and capacity to plan together in accordance with these judgements to change that condition for the better; that they can act together in accordance with these plans; and that such a process can be seen in terms of certain values. (Roberts 1979) The study group approach to c r e d i t union formation advocated by the Antigonish movement corresponds to the process of community development outlined above. According to Coady's (1939) view of adult education, c r e d i t union members would learn the value of cooperation through the organization and operation of a cr e d i t union. They could take part in study groups, and s i t on committees and boards concerned with day to day management. The s o c i a l learning aspect of community development i s emphasized in the following statement: ...for the purposes 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 goal, who have gone through a process of learning about themselves and about their environment and have formulated a group objective. (Roberts 1979) In recent years, with increasing c r e d i t union size and the profes s i o n a l i z a t i o n of management, there are fewer opportunities for members to pa r t i c i p a t e in i t s a f f a i r s . (Thompson 1978) The study group technique has proven less successful today in Canada than in the 1930s and 1940s and in fact the Antigonish movement has turned a large part of i t s attention to less developed countries. Community development p r i n c i p l e s and techniques were f i r s t applied by B r i t i s h c o l o n i a l o f f i c e s in A f r i c a and Asia in the 1930s. Their approach was largely project oriented focussing on s k i l l s development, production of goods and services, and increased technical know-how. (Campfens 1983) While i n i t i a t e d outside the community, th i s technique was dependent on l o c a l adaptation and p a r t i c i p a t i o n . North American e f f o r t s in the 1960s took a broader view of community development. It was meant to empower disadvantaged members of the community, p a r t i c u l a r l y residents of black urban neighbourhoods. Early American anti-poverty programs encompassed job t r a i n i n g and youth recreational a c t i v i t i e s , e s s e n t i a l l y stressing the problems of ind i v i d u a l s . Perry (1984) describes these strategies as irrelevant at best. Limitations of the t r a d i t i o n a l community development model can be traced to: . . . i t s pyschological rather than socio-economic approach to s o c i a l problems...it w i l l improve the psychological l i v e s of the poor but i t w i l l not usually question the economic system which permits the 20 coexistence of poverty and plenty. (Khinduka 1984) Disenchantment with these programs led to a r e a l i z a t i o n that successful community development would have to encompass both the s o c i a l and economic aspects of development from within the community. So, i f the "central credo" of community development is to develop the competence of a community so that i t may confront i t s own problems, i t was f e l t that the approach could be expanded to include both a s o c i a l and economic perspective. The f i r s t experience with the combined s o c i a l and economic approach to community development i s usually viewed as the experiments with "black capitalism" in the U.S. in the 1960s. According to Perry (1984) and others, blacks "shifted their concept of the black community from black c i v i l r ights to the social-economic concept of the black community." This was based on the b e l i e f that blacks could achieve parity with whites through capitalism so that "both parties bargain as equals." (Faux, quoted in Berndt, 1977) In 1972, after several years of experimental programs a community economic development program was created c a l l e d T i t l e VIII of the Economic Opportunity Act. It was held that "through the development of community i n s t i t u t i o n s , the ownership and renovation of community physical assets and the acquisition and development of community business, the quality of l i f e and chances of the individual would improve." (Berndt 1977) The program has since been terminated and community development corporations (CDCs) in the U.S. must now rely on private funds. What has been the eff e c t of CDCs on the poor 21 communities they were intended to help? Evidence i s far from complete due in part to the d i f f i c u l t y in assessing endeavours with multiple objectives. Some hold that while not a foolproof cure for a l l e v i a t i n g urban poverty (Cummings and Glaser 1983) CDCs have nevertheless created tangible benefits, p a r t i c u l a r l y in job t r a i n i n g and employment creation. (Stein 1973) A more c r i t i c a l assessment asserts that these CDCs have f a i l e d to help the poor and instead have benefitted middle-class government administrators. (Berndt 1977) Methodology and Organization Each of the remaining chapters addresses one of the three research questions posed at the outset of this chapter. Chapter 2 presents a review of the ' l o c a l development' l i t e r a t u r e which i s emerging within the regional development l i t e r a t u r e . Both the sources and barriers 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 in l a t e r chapters to propose essential roles for the c r e d i t union in pursuing a strategy of CBED. In Chapter 3 the extent to which two primary sources of f i n a n c i a l support for CBED, chartered banks and federal long-term employment programs, are able to overcome the previously i d e n t i f i e d b a r r i e r s , is assessed. The question of small business financing and regional discrimination is examined in the case of the chartered banks to determine th e i r significance for CBED. The experience of the recent federal Local Employment Assistance Development (LEAD) program in meeting the requirements of CBED 22 i s also examined. Two approaches are used to est a b l i s h a common link between the c r e d i t unions and community based economic development. The f i r s t , in Chapter 4, develops a rationale for cr e d i t union p a r t i c i p a t i o n in CBED through a consideration of credi t union history and philosophy, and their present operation and organization. An elaboration of several constraints to credi t union p a r t i c i p a t i o n in CBED i s then derived to explain an apparent lack of interest on the part of many credi t unions with respect to CBED. Chapter 5 follows a second approach and presents and empirical 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 Credit Union and Vancouver City Savings Credit Union. Both operate small programs in support of CBED which are assessed with a view to determining the type of strategy employed, how well they have met their own objectives, and the i r performance with respect to four proposed c r i t e r i a for evaluating a community development f i n a n c i a l i n s t i t u t i o n ' s performance in CBED. Three other examples of credi t union i n i t i a t i v e s are b r i e f l y described in Appendix A: the caisses d'entraide economique in Quebec; community development c r e d i t unions in the U.S.; and the Caja Laboral Populaire in Spain. They are intended to give the reader a sense of the scope of lo c a l development a c t i v i t i e s undertaken by various cre d i t unions in other places. The various i n s t i t u t i o n a l arrangements used by the c r e d i t unions in support of CBED are then summarized and displayed in a framework or typology. Data for this chapter are 23 drawn from interviews with c r e d i t union staff and board members, l i s t e d in Appendix B, and published material such as annual reports and newsletters. Chapter 6 contains a summary of the preceeding chapters, general conclusions a r i s i n g from the research, suggested avenues for further research and some proposals concerning an expanded role for cr e d i t unions in community based economic development. 24 CHAPTER 2  LITERATURE REVIEW Introduction Community based economic development i s a f a i r l y recent phenomenon, whose special c h a r a c t e r i s t i c s have not yet been synthesized into a coherent theory or framework. The l i t e r a t u r e consists mostly of popular accounts of s p e c i f i c CBED projects and some generalizations a r i s i n g from these. In seeking to discern a rationale for c r e d i t union p a r t i c i p a t i o n in CBED, and in order to i d e n t i f y their possible roles, i t i s f i r s t necessary to understand the sources and barriers to CBED. The treatment of these two themes in the l o c a l economic development l i t e r a t u r e and t h e i r implications for c r e d i t union p a r t i c i p a t i o n is the aim of t h i s chapter. In looking at the sources of l o c a l economic development i t i s p a r t i c u l a r l y important to determine those factors which make i t a l o c a l phenomenon. The predominant explanations in the l i t e r a t u r e 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 several d i s t i n c t b a r r i e r s to community based economic development. The three most important ones for an enterprise development strategy are: 1) a lack of information, 2) d i f f i c u l t y accessing f i n a n c i a l c a p i t a l , and 3) appropriate i n s t i t u t i o n a l mechanisms for community development. 25 Use of the l o c a l economic development l i t e r a t u r e to explicate the sources and barrie r s to CBED i s based on two premises. F i r s t l y , as mentioned above, community based economic development lacks a formal t h e o r e t i c a l perspective which can explain the sources and bar r i e r s to CBED. In i t s absence, i t i s postulated 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 arisen within the broader framework of regional development theory, may offer some insights. Secondly, community based economic development shares with regional development a concern for socio-economic development in a s p a t i a l context. Before proceeding with an examination of these themes, i t i s necessary to sort out some d e f i n i t i o n a l ambiguities. This i s followed by a c r i t i q u e of neoclassical, growth pole, and staples led theories of regional development from a l o c a l development perspective. Def i n i t i o n s 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 generically c a l l l o c a l economic development. Two d i s t i n c t schools of thought p r e v a i l in the regional development l i t e r a t u r e . The p r i n c i p a l difference between the two concerns the d i s t r i b u t i o n of power in economic and s o c i a l relationships, e s s e n t i a l l y a p o l i t i c a l issue. The f i r s t , c a l l e d l o c a l development, approaches the whole notion of development from a Keynesian perspective. It postulates that the mixed market, while imperfectly functioning, forms an adequate st a r t i n g point from which to approach problems of regional imbalance. 26 Accordingly, only a few adjustments need be made from a l o c a l perspective in order to redress some of the inevitable regional imbalances within the nation. This concept of l o c a l development i s more that just a s p a t i a l reduction of regional development; rather i t i s a process in which the impetus for development is found p r i n c i p a l l y within the l o c a l i t y in question, as opposed to being provided from external sources. According to Coffey and Polese (1984), i t s chief proponents, "this view of ' l o c a l ' within the development process necessitates the elaboration of a model which s p e c i f i e s the role of endogenous elements and which can be applied to larger regions as well as to micro-regions." By t h i s d e f i n i t i o n development i s explained as a largely economic phenomenon, meaning "sustained and i r r e v e r s i b l e economic growth" with some oblique reference 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 objectives as the emergence of entrepreneurship, the stimulation of indigenous talents, or the awakening of regional 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 origins of which we do not understand. (Coffey and Polese 1985) Thus Coffey and Polese hold the view that s o c i a l and c u l t u r a l factors account for, or explain economic development rather than serve as the objectives of development. By comparison, t e r r i t o r i a l development provides an expanded d e f i n i t i o n of l o c a l economic development in which the p o l i t i c a l economy perspective plays a central role. Authors using the t e r r i t o r i a l rubric such as Friedmann and Weaver (1979) tend to go beyond the l o c a l development theorists described above and 27 have "based their approach upon the need for fundamental changes in the nature of the exi s t i n g space economy." (Coffey and Polese 1985) Unequal relationships between regions are viewed as the problem which integrated 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 i s used to mean economic s e l f -s u f f i c i e n c y , c u l t u r a l independence and p o l i t i c a l autonomy, and as Friedmann and Forest (1984) point out, concern with the p o l i t i c s of place. The t e r r i t o r i a l perspective has recently re-emerged in the l i t e r a t u r e a f t e r losing importance to more functional doctrines of regional development in the 1950s and 1960s. It i s most commonly applied to t h i r d world development, where the basic conditions for development are postulated as: s e l e c t i v e t e r r i t o r i a l closure, communalization of productive wealth, and equalization of access to the bases for the accumulation of s o c i a l power. (Friedmann and Weaver 1979) A western application of t h i s t e r r i t o r i a l framework l a b e l l e d bioregionalism focuses on the biophysical region as the subject of development, ownership of natural resources at the l o c a l l e v e l , and an ecological perspective on development. The goal of bioregionalism, "to l i v e in place" requires that residents are "aware of the precepts of ecology, economics, physical science and p o l i t i c s . " (Aberley 1985) Therefore, two d i s t i n c t perspectives of l o c a l economic development are discernible within the l i t e r a t u r e , which d i f f e r on the basis of the role of p o l i t i c s , and the role of s o c i a l and c u l t u r a l variables in regional development. The l o c a l 28 development authors hesitate to c a l l for community control of productive resources in a mixed market economy yet recognize the importance of l o c a l ownership. In contrast, t e r r i t o r i a l development e x p l i c i t l y addresses the question of p o l i t i c a l control at the l o c a l l e v e l . Local Economic Development as Community Based Economic Development Based on the foregoing d e f i n i t i o n s then, how well does the l o c a l economic development l i t e r a t u r e approximate what we understand to be community based economic development? Both are concerned with development at a l o c a l l e v e l , using l o c a l resources, i n i t i a t e d , and to some extent, controlled l o c a l l y . The best way of understanding CBED i s as a hybrid of the two d e f i n i t i o n s described above. Community based economic development i s similar to the l o c a l development d e f i n i t i o n in i t s attitude toward l o c a l ownership as consistent with existing patterns of s o c i a l r e l a t i o n s . It shares with t e r r i t o r i a l development a similar range of attitudes towards s o c i a l and c u l t u r a l factors as objects of development as well as sources of development, but in more than an entrepreneurial sense. Consequently, both l o c a l economic development d e f i n i t i o n s share some features with CBED and are useful in i d e n t i f y i n g the sources and ba r r i e r s to endogenous development. Furthermore, both question the adequacy of e x i s t i n g theories of regional development, which i s the subject of the next section. 29 Critiques of T r a d i t i o n a l Regional Development Theory The inadequacy of neo c l a s s i c a l , growth pole and staples theories of regional development i s acknowledged by many regional planners; c r i t i c i s m i s not limited to those advocating l o c a l economic development. (Weaver and Gunton 1982; Economic Councial of Canada 1977) To the extent that t r a d i t i o n a l concepts have been applied in regional development policy the outcomes have not been encouraging. Proponents of l o c a l economic development usually preface their work with a brief c r i t i q u e of regional development theory from a l o c a l development perspective (Coffey and Polese 1984; Friedmann and Forest 1984; Savoie 1986) because: Clearly there seems to be a need for rethinking the regional question and a l l i t e n t a i l s , from the theories of regional science to the role of p o l i t i c s in development. (Weaver 1984) The c r i t i q u e s of neoclassical, growth pole and staples theory are summarized here. Neoclassical Theory The neoclassical approach to regional development i s rejected by the l o c a l development theorists because the assumption of labour mobility i s problematic and i t ignores p o l i t i c a l considerations. Neoclassical theory argues that c a p i t a l and labour w i l l flow to areas where the best marginal returns are to be found and that eventually, t h i s w i l l lead to inter-regional equalization and equilibrium. Savoie (1986) asserts however, that outmigration w i l l not solve the regional adjustment problem because labour w i l l not necessarily possess 30 the s k i l l s required to work in another region. Furthermore, i t is often young and educated people who migrate, and in todays service sector dominated economy, "regional productive capacity is embodied in people." (Coffey and Polese 1985) Provincial 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 place i s very important. Savoie (1986) asserts that the prospect of a pr o v i n c i a l p o l i t i c i a n advocating out-migration to residents of a disadvantaged region is p o l i t i c a l l y unacceptable. In Friedmann and Forest's (1984) formulation (a l b e i t a more r a d i c a l one) outmigration i s not seen as the solution, in fact a p o l i t i c a l l y mobilized population i s viewed as the main protagonist in t e r r i t o r i a l development. Growth Pole Theory Growth pole theory i s a second major t h e o r e t i c a l framework for analyzing regional economic development which, aside from problems of interpretation and implementation, has also been the subject of c r i t i c i s m by the l o c a l economic development th e o r i s t s . It i s predicated on the notion 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 leading regions can be strengthened, eventually re s u l t i n g in benefits for the hinterland (Cameron 1970), or simulated in peripheral areas with propulsive industries. (Myrdal 1957) Growth pole p o l i c i e s are concerned with s p a t i a l concentration of resources so as to r e a l i z e economies of agglomeration, infrastructure and maximize linkages. P o l i c i e s to locate propulsive industries in designated growth centres through infrastructure subsidies, 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 poles. Coffey and Polese (1985) are concerned that the two competing goals of this approach, s p a t i a l equity and e f f i c i e n c y are incompatible and indeed c o n f l i c t . Also of concern from a l o c a l development perspective i s the fact that the growth pole concept does not give s u f f i c i e n t consideration to the location of linked investment. They point out that: The extent and nature of in t e r f i r m linkages, in the form of sub-contracts and in t r a - f i r m flows, are greatly influenced by the location and behaviour of head o f f i c e s of multi-branch corporations. Investments or i g i n a t i n g outside of the region often generate a much lower l e v e l of linkage e f f e c t s . Since the growth pole concept r e l i e s on intra-region m u l t i p l i e r and inter-industry linkage e f f e c t s , t h i s i s an important c r i t i c i s m . Staples Theory Staples theory i s the t h i r d major framework for analysing regional development. Based on Innes' (1956) analysis of Canadian economic history i t holds that successive exports of staple resources from hinterland regions have characterized Canadian development. The exploitation of staple products in which a region has comparative advantage leads to an inflow of labour and c a p i t a l . If growth i s to be sustained after staple exports decline i t i s important that the necessary backward, forward and f i n a l demand linkages have developed to lead to d i v e r s i f i c a t i o n of the region's economic base. If the necessary linkages do not develop, then the region i s said to be in a 32 'staples trap'. Staples theory does correspond with l o c a l economic development as i t incorporates s o c i a l , c u l t u r a l and p o l i t i c a l factors in i t s account of economic history. In Weaver and Gunton's (1982) view: Canadian development theory, in the hands of Innes, emphasized factors such as discrepencies in power between metropolis and hinterland, the consequences of external control, 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 disequilibrium and c r i s i s . . . One of the po l i c y implications of staples theory i s to reduce external ownership of staples industries in order to reduce c a p i t a l leakages from the region. Local development theorists would disagree with the assumption implied by staples theory that the source of economic development depends primarily upon the a v a i l a b i l i t y and marketability of a region's natural resources. It i s a p a r t i a l explanation, but according to Coffey and Polese and others, comparative advantage can also be based on indigenous enterprise, entrepreneurial a b i l i t y and so on. In fact, as we move to an examination of the predominant sources of community based economic development, one of which i s human resources, the basis for the l a s t assertion w i l l become clearer. Sources of Community Based Economic Development Theories of l o c a l development d i f f e r from the three preceding theories of regional development in the emphasis placed on two factors; human resources and l o c a l ownership as sources of community based economic development. While they are 33 not the only f a c t o r s r e s p o n s i b l e f o r l o c a l economic development, they are what d i s t i n g u i s h e s i t from other r e g i o n a l development t h e o r i e s . As we s h a l l see, each has p a r t i c u l a r i m p l i c a t i o n s f o r understanding the b a r r i e r s to economic development. Human Resources Human resources, meaning the s k i l l s , know-how, e n t r e p r e n e u r i a l s p i r i t and i n i t i a t i v e of the l o c a l p o p u l a t i o n , are c r i t i c a l to an understanding of community based economic development. According t o C o f f e y and Polese (1985) "the stock of en t r e p r e n e u r s h i p and accumulated knowledge embodied i n i t s p o p u l a t i o n " are at l e a s t as important t o development as the more c l a s s i c a l f a c t o r s of labour and c a p i t a l . C l a s s i c a l models e x p l a i n i n g economic growth leave a l a r g e r e s i d u a l f a c t o r which may be a t t r i b u t e d to t h i s type of c u l t u r a l or s o c i o l o g i c a l element. The l o c a l development t h e o r i s t s c i t e the development of p l a c e s l i k e Taiwan, where l i m i t e d p h y s i c a l resources d i d not i n h i b i t development, i n support of t h e i r argument. However, t h i s type of comparison which i n c l u d e s both h i g h wage and low wage c o u n t r i e s i s not the best form of evidence. Friedmann and Weaver and other t e r r i t o r i a l i s t s go beyond c o n s i d e r a t i o n s of e n t r e p r e n e u r i a l s p i r i t and t e c h n i c a l a b i l i t y to s t r e s s c u l t u r a l 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 to Boothroyd and Anderson's (1984) reading of the t e r r i t o r i a l i s t view, n a t i v e Indian c u l t u r e would be seen as a source of s t r e n g t h upon which to base an i n t e g r a t e d development s t r a t e g y . A c t i n g to r e i n f o r c e the c o n t e n t i o n that human resources are 34 a s i g n i f i c a n t factor in development i s the increasing share of Western economies c l a s s i f i e d in the service sector. Compared to the semi-skilled labour required for blue-collar occupations in the manufacturing sector, the knowledge based industries of the service sector require a s u f f i c i e n t l y trained workforce: It w i l l be necessary to treat these investments [in human c a p i t a l ] as comparable to the purchase of machinery i f we are to provide the s k i l l s necessary for continued growth within the service industries. (Vaughan 1980) Furthermore, investment in human c a p i t a l or education i s viewed as generally supportive of both the economic and s o c i a l aims of development. From t h i s perspective, p o l i c i e s which attempt to counter the "brain drain" e f f e c t s of out-migration, increase s k i l l l e v e l s , stimulate l o c a l entrepreneurship and c u l t u r a l independence would appear to be the instruments of community based economic development. However, incorporating investments in 'soft' objectives such as human resources have not been dominant in regional development work and consequently are "the basis of many of the challenges facing a l o c a l development approach." (Coffey and Polese 1985) Local Control A range of terminology i s used in the l i t e r a t u r e to describe what varies from l o c a l private ownership of small businesses, to community owned businesses, to community development corporations, to worker cooperatives, to self reliance, to selective t e r r i t o r i a l closure. Frequently however, l o c a l control i s taken to mean small business development, which 35 is l o c a l l y owned, and i n i t i a t e d or supported by a community contr o l l e d development organization l i k e a CDC. The concern for l o c a l "control" as a source of development has three dimensions: decentralization, p a r t i c i p a t i o n in economic planning and decision-making, and the linkages associated with l o c a l l y c o n t r o l l e d 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 recurring theme in regional development planning. It arises in policy formulation and implementation in the Canadian federal system because "any agency dealing with problems designed in a s p a t i a l context w i l l invariably clash with an organizational system in which most other departments are concerned with sectoral issues..." (Lithwick 1986) Sectoral issues are most commonly dealt with on a ce n t r a l i z e d basis. In regional development theory, the predomimant paradigm has been a functional one, focussing on p a r t i c u l a r industries or sectors of the regional economy. E a r l i e r more decentralized " t e r r i t o r i a l i s t " development strategies l i k e the TVA were replaced by functional regional planning doctrines in the 1950s. Subsequent regional development e f f o r t s have tended to adopt th i s notion of functional planning. Community based economic development corresponds to a theory of development where decisions concerning the l o c a l economy are made at the l o c a l l e v e l wherever possible; decentralizaton in the context of CBED means development from below or grass-roots development. The role assigned to government in CBED i s limited, in fact Friedmann and Forest (1984) reject central resource a l l o c a t i o n by the state in their 36 conception of t e r r i t o r i a l development. Even economists and public policy s p e c i a l i s t s who have long favoured government intervention for promoting regional economic development are rejecting c e n t r a l l y planned and implemented programs. The role of government in a decentralized CBED strategy i s one of funding l o c a l groups to pursue their own i n i t i a t i v e s within a broader economic development policy framework. Decentralization may or may not require absolute p o l i t i c a l control over regional resources, c u l t u r a l and economic space. At a minimum, i t implies 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 in economic, s o c i a l and c u l t u r a l a f f a i r s . This i s not just to avoid corporatist tendencies in public sector intervention, but also to build a p o l i t i c a l base or popular support for new developmental i n i t i a t i v e s . It can be related to the r i s e of public p a r t i c i p a t i o n in urban planning 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, frequently aided by some form of community based organization c a l l e d a community development corporation (CDC). The l a t t e r represents the community through a board of directors and commonly has a mandate to plan for or i n i t i a t e l o c a l economic development or to act "as catalysts for l o c a l projects and i n i t i a t i v e s . " (Coffey and Polese 1985) The question of ownership and control 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 inte r f i r m linkages. Backward linkages, which refer to inputs into the production process, and forward linkages, which aris e from the processing of l o c a l resources, provide another argument for 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 , rather than externa l ly c o n t r o l l e d f irms. (Gunton 1982) A recent study by Polese (1982) shows that i n t r a f i r m service transact ions are large ly po lar ized by head o f f i c e s , making those regions lacking contro l functions net importers of business serv ices . Furthermore, the l o c a l development theor i s t s would agree with staples theor i s t s who bel ieve that external 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 reinvested in the region and dampens the development of indigenous entrepreneuria l t a l e n t . Obstacles to Community Based Economic Development What are the obstacles to community based economic development implied by the c e n t r a l ro le of human resources and l o c a l contro l? Given the emphasis placed on the promotion of l o c a l entrepreneurship as a strategy of CBED in much of the l i t e r a t u r e , i t i s appropriate to focus on the b a r r i e r s to l o c a l entrepreneurship as they apply to the c r e d i t union. These are considered under the headings: information and management advice , f inancing , and l o c a l capac i ty . 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 sca le . This i s an important issue with respect to community based economic development, but i t i s beyond the scope of th i s t h e s i s . 38 Information and Management Advice Residents of rural and remote communities often do not have the same easy access to information as do their counterparts in urban areas. Costs of obtaining information, both in terms of time and money are s i g n i f i c a n t l y higher and thus act as potential barriers to l o c a l economic development. Quite simply, inhabitants of a lagging region rarely possess the necessary information on how the 'system' works, on how to get assistance from exi 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 far away in the large c i t i e s and moreover, do not speak the same 'language'. (Coffey and Polese 1985) This i s where the community development organization referred to in the previous section f i t s i n . It can act as an information broker to provide technical and f i n a n c i a l information as well as advice on good management pra c t i s e s . Information i s frequently required for the l o c a l entrepreneur to access available sources of financing such that the two are often inseparable. Financing The 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 necessary element for the development process. The most severe shortage of c a p i t a l i s long-term equity or venture c a p t i t a l , but debt financing is also a problem. In the case of debt c a p i t a l , i t i s access to f i n a n c i a l c a p i t a l which i s problematic for the small firm, rather than the cost of borrowing. This stems from the fact that c a p i t a l i s generally only a small part of the cost of doing business, less than ten percent for most small firms. (Daniels 1979) These small firms face special barriers in 39 gaining access to f i n a n c i a l c a p i t a l , both debt and equity, primarily because their requirements are r e l a t i v e l y small. According to Daniels and Kieschnick (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 differences in the rate of return and r i s k . " These barriers are attributed to c a p i t a l market imperfections and a concentration of assets in a small number of large 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 equity markets. Consequently, most small ventures are financed with personal savings, loans from friends and r e l a t i v e s , and short term commercial debt. Thus we have major national problems in developing new industry, new products and small industry in any location l e t alone in those communities of greatest concern to us... The problems in r a i s i n g c a p i t a l for p r o f i t a b l e minority businesses and commercial enterprises e s p e c i a l l y in declining neighbourhoods, are even more extreme. (Daniels 1979) Local Capacity Recognizing that an abundance of information and f i n a n c i a l c a p i t a l i s not necessarily a s u f f i c i e n t stimulus to community based economic development, the l o c a l development l i t e r a t u r e turns to the less tangible, but equally important role of l o c a l capacity. Capacity refers to the aspirations, s k i l l s , networks and systems which individuals and groups use to make changes in their environment. "Capacity i s a quintessential development concept, demanding a long-run perspective." (Bearse 1982) If human resources are to be accorded a central role in community based economic development as the l i t e r a t u r e suggests, then the building of l o c a l capacity is a necessary c o r o l l a r y to 40 development. The chief shortcoming of the l o c a l economic development l i t e r a t u r e i s i t s f a i l u r e to explain t h i s process and correspondingly, to suggest a possible strategy to deal with i t . In some cases, the role of capacity building i s limited to that of creating potential entreprenuers (Coffey and Polese 1985); but community developers refer to the more general notion of building group capacity 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 capacity building i s probably the community development l i t e r a t u r e referred to in Chapter 1. To the extent that the lo c a l economic development l i t e r a t u r e does recognize a broader scope for capacity building 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 implications. This i s a common f a i l i n g of regional development theories in general; economic determinism usually p r e v a i l s . Coffey and Polese (1984) lament thi s l i m i t a t i o n of regional science and suggest that their model of l o c a l development w i l l "furnish an opportunity to more f u l l y open" regional science to other d i s c i p l i n e s . Summary and Implications for CBED An examination of the l o c a l economic development l i t e r a t u r e y i e l d s some important insights into the process of CBED and i t s distinguishing features. F i r s t of a l l i t i s often described as a business development strategy occurring at the l o c a l l e v e l , using l o c a l resources, with some element of l o c a l c o n t r o l . Clearly CBED d i f f e r s from other regional development theories 41 due to an emphasis on human resources and l o c a l control as sources of development. Consequently, p o l i c i e s to stimulate CBED should focus on the development of human resources and l o c a l c o n t r o l . These special c h a r a c t e r i s t i c s of CBED imply a set of three related barriers to CBED: 1) lack of knowledge, 2) l i m i t e d access to financing and 3) lack of l o c a l capacity to develop. In contrast to economic development p o l i c i e s which support infrastructure investment, location subsidies and the l i k e , CBED requires that informational, f i n a n c i a l and capacity barriers be removed. The cr e d i t union would seem to be i d e a l l y suited to handle the f i n a n c i a l requirements of CBED and to some extent the provision of information and management advice, and some capacity building. The geographically based c r e d i t union operates under the control of i t s members who are residents of the common bond. However, before turning to the c r e d i t union's role in a l l of t h i s , the record of the chartered banks and federal LEAD program in performing these functions i s examined in the next chapter. 42 CHAPTER 3 PROBLEMS FACING CBED ORGANIZATIONS The preceding chapter made three of the potential barriers facing CBED e x p l i c i t : information, financing and l o c a l capacity. The purpose of thi s chapter i s to document the extent to which these barriers e x i s t , and whether chartered banks and federal government employment programs are able to contribute to reducing these obstacles. This w i l l demonstrate the need for an alter n a t i v e i n s t i t u t i o n such as the cr e d i t union to play both a f i n a n c i a l and a developmental role in the community. Community based economic development organizations and enterprises report numerous d i f f i c u l t i e s in i n i t i a t i n g and maintaining a process of community based economic development. Strandberg (1984) places them into two categories consisting 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 equity or debt financing. The second category includes technical, managerial and organizational functions, and tr a i n i n g . A t h i r d category of barriers to an e f f e c t i v e community development process are those involving a lack of l o c a l capacity or "a sense of power or control over economic events." (Jackson 1984) The Experience of CBED Organizations Existing community based economic development organizations have frequently stated their problems with respect to financing. For example, a 1983 study of CBED organizations revealed that 43 the majority f e l t funding uncertainty was a major problem in their continued operation. (Highland Resources 1983) In fact, i t is possible that a lack of adequate financing i s the primary external obstacle to community economic s e l f - h e l p . (Jackson 1984) Since s e l f - r e l i a n c e i s a goal of the CBED process, obtaining access to c a p i t a l i s c r i t i c a l . CBED organizations hold the unenviable position of being i n e l i g i b l e for t r a d i t i o n a l sources of small business financing such as banks because of the integration of s o c i a l , c u l t u r a l and often environmental objectives; yet s i m i l a r l y are i n e l i g i b l e for grants and subsidies to s o c i a l service agencies and charitable organizations. Many CBED organizations are profit-making but no t - f o r - p r o f i t , meaning that any surplus i s invested to meet the needs of the organization's objectives, not d i s t r i b u t e d among the members. This dilemma positions CBED organizations outside of the t r a d i t i o n a l public sector - private sector dichotomy; instead they are better c l a s s i f i e d within the t h i r d sector, incorporating some of the strategies of each in one hybrid organization. The d i f f i c u l t i e s are compounded for cooperatives which rely on borrowing and government assistance to complement membership fees and membership c a p i t a l . Often however, members cannot fi n d the equity required for their share of membership c a p i t a l and seek to borrow t h i s as well. 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 organization arise for two reasons; 1) the profit-making a c t i v i t i e s are 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 non-profit making a c t i v i t i e s and 2) the non-profit 44 a c t i v i t i e s are inable to generate s u f f i c i e n t funding from external sources such as government or private foundations to meet their requirements. Community based economic development groups often suffer from a lack of both information and management s k i l l s to carry out their development work. CBED s t a f f and board members require some knowledge of business, preferably community business, to as s i s t them in day to day a c t i v i t i e s . However, in the f i r s t instance, since many CBED organizations are instigated by s o c i a l workers and community service organizations, outside managerial s t a f f with a business background are hired. This i s less than sa t i s f a c t o r y since they often have l i t t l e knowledge of, or commitment to the CBED approach. If the cooperative form i s used, s p e c i a l i z e d assistance pertaining to management styles and organizational forms i s required. Fortunately various cooperative development agencies o f f e r some support for fl e d g l i n g cooperatives such as the Cooperative College of Canada, which has o f f i c e s in several regions across Canada including B.C. and the Coady In s t i t u t e in Nova Scotia. It i s more d i f f i c u l t to explain the problems associated with a lack of l o c a l capacity to undertake a community based economic development e f f o r t ; however in many cases, development i s frustrated by a situ a t i o n where a community has been dependent on outside corporations or government to provide for i t s welfare. This chapter begins by examining the record of private banks and a federal government program designed to as s i s t CBED c a l l e d Local Employment Assistance Development or 45 LEAD in overcoming the above mentioned obstacles. It concludes that CBED organizations do indeed require alternative sources of f i n a n c i a l , informational and capacity building support. Chartered Bank Lending to CBED Organizations The CBED popular l i t e r a t u r e often c i t e s the i n a c c e s s i b i l i t y of bank financing for small 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 discrimination against remote, economically disadvantaged regions in the West, as a major barrier to economic development. (Ross no date; Wismer and P e l l 1982) The nature of these allegations w i l l be examined focussing on two major issues. F i r s t l y , what i s the extent and nature of chartered bank financing of CBED and what, i f any, are the problems? Secondly, since CBED often takes place in economically depressed regions, what are the regional implications of bank financing and what does th i s mean for CBED? Only a small percentage of CBED organizations and enterprises receive financing from chartered banks at t h i s time and very l i t t l e has been written concerning their experience with 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 financing used by 53 CBED organizations surveyed on the matter in 1982, revealing a heavy reliance on government funding. The respondants were not asked however, to indicate the amount or proportion of t o t a l financing received 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 Financing Source Number Banks Loans 13 Credit Union Loans 5 Federal Government 42 P r o v i n c i a l Government 34 Municipal Government 13 Fee for Service 18 Revenue from Business 19 Church, Foundation G i f t 6 Personal G i f t 10 Corporate 6 Sale of Stock 2 Membership Fees 17 Rents 13 Others 12 Source: Highland Resources. Community Based Development in  Canada 1983. Does the present lack of support by banks suggest that they are an inappropriate source of financing for CBED or i s there some potential? The previous discussion regarding the multiple objectives of CBED organisations and the d i s t i n c t i o n between p r o f i t and non-profit making a c t i v i t i e s suggests there may be a role for banks in financing small businesses which represent the p r o f i t making arm of community development corporations. Since CBED enterprises often take the form of a small business, the experience of the t r a d i t i o n a l small business in gaining access to bank financing i s relevant. 1 The d i s t i n c t i o n between small business development and 'Small business commonly refers to any business with annual sales of less than $2 m i l l i o n . However, CBED enterprises are often at the very low end of t h i s scale. 47 enterprise development strategy of CBED can be a d i f f i c u l t one to draw and can be approached in the following manner. The l a t t e r implies a broader set of objectives than that of small business development per se. The small businessperson wants a rate of return on his or her investment, as does the banker or investor supplying c a p i t a l to the business person. Neither party i s concerned that the enterprise create jobs, purchase l o c a l inputs, provide job training to marginal employees or provide a needed community service. These concerns do however define the community's perception of socio-economic development so that CBED possesses multiple objectives, only one of which i s a rate of return. Each community, through a community organization such as a CDC determines the objectives i t wishes to pursue and the strategy to be followed. However, achieving a rate of return may predominate in the sense that i t i s a pre-condition for the other objectives which comprise socio-economic development. Choice of the small business creation strategy of CBED requires that only those small businesses which enable community objectives 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 financing source of small business in Canada according to a 1985 Canadian Federation of Independent Business (CFIB) survey. Eighty-six percent of i t s 64,000 small and medium-sized businesses reported doing most of their banking with a chartered bank as i l l u s t r a t e d in Table 3. 48 TABLE 3 Fin a n c i a l I n s t i t u t i o n s Used Most for Small Business Lending Percent Financial I n s t i t u t i o n s 1982 1985 Big Five Chartered Banks 85.4 78.1 Credit Unions and Coops 10.0 10.5* Other Chartered Banks 6.0 8.1 Other 3.0 2.3 Trust and Finance Cos. 0.4 1.0 * The c r e d i t union figure i s skewed by the large share of business lending ca r r i e d out by caisses populaire in Quebec. Source: Canadian Federation of Independent Business. 1985  Banking Survey 1985. S i m i l a r l y , banks claim that small business i s an important part of their lending p o r t f o l i o , accounting for almost 25 percent of the Canadian d o l l a r volume of the banks t o t a l business lending p o r t f o l i o in 1985. (Grant 1986) Despite high lev e l s of use however, the business community has also repeatedly c r i t i c i s e d the chartered banks charging that small business loans are inadequate, their terms are bad, rates of interest are higher than for larger businesses, and that small business owners are faced with excessive security demands. A lack of bank competition, inappropriate bank procedures and the s p e c i f i c attitudes and c a p a b i l i t i e s of the bankers themselves are held responsible for this poor performance. (Hatch 1982) In fact, the CFIB (1982; 1985) has made a point of monitoring the record of f i n a n c i a l i n s t i t u t i o n s in r e l a t i o n to the small business sector, undertaking frequent surveys of the small business community i t represents. Table 4 i s a sample of 49 the findings from the 1985 Banking Survey regarding the l e v e l of s a t i s f a c t i o n by small and medium sized business with business lending by f i n a n c i a l i n s t i t u t i o n s . It should be noted that the highest l e v e l s of d i s s a t i s f a c t i o n were recorded in the two Western most provinces; in B.C. 40.3 percent of small businesses surveyed were d i s s a t i s f i e d , followed by Alberta with 34.1 percent. TABLE 4 S a t i s f a c t i o n with Services Provided by F i n a n c i a l I n s t i t u t i o n Percent Highly S a t i s f i e d Reasonably S a t i s f i e d Somewhat Strongly D i s s a t i s f i e d National Results 17.0 54.7 18.4 9.8 Royal Bank * 17.2 55.2 18.2 9.4 Bank of Montreal * 10.5 50.9 18.2 9.4 Other Chartered Banks 23.5 50.3 15.5 10.6 Trust and Finance Cos. 34.2 49.7 7.5 8.5 Credit Unions, Coops 23.3 61.9 10.4 4.3 * The highest and lowest ranked of the 'Big Five' chartered banks respectively. Source: CFIB. 1985 Banking Survey. 1985 Compounding the above mentioned s i t u a t i o n i s the fact 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 larger firms. There are few firms a c t i v e l y involved in small business equity financing because the amounts required by small businesses are t y p i c a l l y lower than floor investment l e v e l s . Debt financing i s often the only a l t e r n a t i v e . Do chartered banks r e s t r i c t t h e i r small business lending in the above mentioned ways? A study which s p e c i f i c a l l y undertook 50 to investigate these charges found that: a) banks tend to charge higher rates of interest on small business loans and b) banks i n s i s t on personal guarantees and personal c o l l a t e r a l from the p r i n c i p a l s of small firms, more so than with large firms. (Hatch 1982) While these findings appear to support the i n a c c e s s i b i l i t y hypothesis of the small business community, the study goes on to state that the above mentioned banking practices are reasonable. The authors: f e e l that the higher loan rates are j u s t i f i e d by the additional risks and administrative costs in lending to small firms. The c o l l a t e r a l difference seems to result from the c h a r a c t e r i s t i c that bankers would at t r i b u t e as being most unique to small business, namely, the fundamental importance of the owner-operater in shaping the company's success. (Hatch 1982) The presence of a high r i s k element in small business loans was not proven conclusively; in fact according to the study, "within a s p e c i f i c r i s k class, small firms pay more than large firms for their operating and term c r e d i t s . " (Hatch 1982) It did determine that bankers appear to believe that small businesses are more risky. At any rate, the study goes on to state that i f risk i s not the c u l p r i t , i t i s the additional administrative e f f o r t required that i s to blame. However, the study did not possess adequate information on loans that were turned down by the branch manager as "unbankable" before a formal application was made. In f a i l i n g to capture information on the large number of loan turn downs at 51 the i n i t i a l stage of consultation between the business person and banker, the study minimizes the extent of biases against small business. 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 size with the Small Business Loans Act and the creation of special small business (or independent business) d i v i s i o n s at chartered banks. In recognition of the special problems faced by small business in obtaining access to. c r e d i t , the federal government created the Small Business Loans Act (SBLA) in 1961. Chartered banks and other i n s t i t u t i o n a l lenders may use the Act to provide term loans to small business for the purchase of s p e c i f i e d fixed assets with the additional backing of a government loan guarantee. The Act i s meant to provide 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 for a loan. However, SBLA loans represent only a f r a c t i o n of a l l business lending by volume, about one percent, for reasons which are explained below. The chartered banks accounted for the largest share, approximately 90 percent in 1982 and 1983. Credit unions represented only 4 percent of SBLA loans. (Hatch 1982) Figures show that a large proportion of lending under the Act i s for new business although t h i s i s not e x p l i c i t l y intended. The program does not appear to be e n t i r e l y successful according to a recent study c a r r i e d out by the University of Western Ontario. (Hatch, Wynant and Grant 1985) Roughly 50 percent of SBLA loans would have been made in the absence of the program, and SBLA loans made by the chartered banks are only 52 modestly r i s k i e r than conventional bank loans. The study also found evidence that the program i s not well understood by the lending community or small business owners. (Hatch, Wynant and Grant, 1985) Furthermore, one chartered banker stated that only ten percent of his 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 in terms of security requirements, terms and amount borrowed, b) the interest rate i s too low for a term loan and c) the bank had experienced d i f f i c u l t y in c o l l e c t i n g on bad loans from the government. (Brian Hann, Manager Independent Business, Royal Bank, December 1986) This review of the SBLA reveals i t i s problematic and p o t e n t i a l l y not f u l f i l l i n g i t s objectives with respect to small business lending. Most of the discussion here has focussed on the chartered bank as a f i n a n c i a l resource, i t s most l i k e l y r o l e . However, there are some instances where banks have recognized the value of combining management advice and other information to the c l i e n t in order to complete the loan. Rather than viewing the excess time and e f f o r t required as a barrier to small business lending and c i t i n g the t r a d i t i o n a l 'high transactions cost' argument, some have i n s t i t u t i o n a l i z e d t h i s assistance with the formation of separate d i v i s i o n s to handle small business loans. The need for management advice arises because small business often lack s k i l l s in key management areas and do not have adequate experience in small business management. These spe c i a l i z e d small business loan departments may be viewed as: a) a decentralization of loan authorization authority, and b) an 53 attempt to provide further security for small business loans. In the absence of contrary evidence, the chartered banks appear to have l i t t l e interest in the development of l o c a l capacity for long term development; their contribution i s primarily f i n a n c i a l and to a lesser degree in providing management advice. Chartered banks have not a c t i v e l y pursued lending for CBED, but do have a somewhat better record with respect to small business. Banks look for an acceptable rate of return on their loans and do not include broader objectives such as increased l o c a l employment among their goals thus l i m i t i n g their potential as a source of support for CBED. Regional Implications of Bank Lending Apart from the issues related to bank financing of small business, a perception that chartered banks discriminate against the West in t h e i r lending a c t i v i t i e s also motivates the search for alternative financing by CBED organizations. In r e f e r r i n g to a B.C. NDP government proposal in 1975 to establish B.C. Savings and Trust, a p r o v i n c i a l l y owned f i n a n c i a l i n s t i t u t i o n , Benson (1978) described the proposal not as an isolated incident but rather as an "expression of a long-standing and widespread d i s a f f e c t i o n for existing f i n a n c i a l i n s t i t u t i o n s . . . " In fact, the Bank of B r i t i s h Columbia was created out of similar sentiment in the 1960s. This long-standing d i s a f f e c t i o n , p a r t i c u l a r l y for chartered banks head-quartered in the East, i s d i f f i c u l t to substantiate in a useful way owing mainly to a lack of data. (Benson 1978; Federal Government 1973) Hence, only a 54 review of the leading issues and the i r significance for CBED w i l l be undertaken here. The claim that banks "drain" c a p i t a l from the West for use in the further 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 the East i s i l l u s t r a t e d by the following statement. The chartered banks stimulation of development of Central Canada appears to have been done at the expense of the other regions of Canada. By mobilizing Western Canada savings and transferring them to Central Canada, the banks, in e f f e c t , have reduced the development potential of the West. (Western Economic Opportunities Conference 1973) An additional c r i t i c i s m , which i s in some respects linked to this a l l e g a t i o n , holds that a lack of bank competition exists i s Canada which results in higher interest rates than are j u s t i f i e d and less f l e x i b i l i t y in lending policy which may be refl e c t e d in regional discrimination. (Federal Government 1973) However, an examination of the issues surrounding the competition debate are beyond the scope of t h i s paper. The Western Economic Opportunities Conference in 1973 provided a forum for the discrimination debate. However, much of the debate then was based on limited and inadequate data as i t is today. In fact, i t was only a f t e r t h i s conference that the banks began to supply figures for assets and l i a b i l i t i e s of the system on a prov i n c i a l basis. The federal government's position was a moderate one, stressing the e f f i c i e n c y of the branch banking system, while recognizing the "lack of responsiveness" resu l t i n g from the location of corporate head o f f i c e s in Toronto and Montreal. (Federal Government 1973) The Canadian Bankers Association produced s t a t i s t i c s purporting to document the 55 contribution made to the West in terms of employees, number of branches, and loans; evidence that would "show that far from 'draining resources' from the West, the chartered banks in fact support Western Canada disproportionately..." (Canadian Bankers Association 1973) With the exception of di r e c t o r s , the above proportions were greater than the West's share of population as i l l u s t r a t e d in Table 5. TABLE 5 Chartered Bank S t a t i s t i c s 1973 B r i t i s h Columbia Western Canada number percent of Canada number percent of Canada Population 2,291,000 10.4 5,865,000 26.6 Bank Branches 744 11.3 1 ,974 30.4 Bank Employees 13,068 12.2 28,500 27.2 Bank Directors 36 12.9 69 24.7 Source: Canadian Bankers Association. The Banks and the West. Special e d i t i o n of the CBA B u l l e t i n . Vol 16 No 2 July 1973. This data addresses the contention that chartered banks tend to discriminate against peripheral regions because their head o f f i c e s are located in the East. By extension, the most s i g i f i c a n t aspect of this argument implies that lending decisions are made at head o f f i c e . If however, lending decisions are made at the l o c a l l e v e l , either at the branch or 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 i s sparse and often contradictory. The Chartered Bankers Association (1973) v i r t u a l l y admitted some v a l i d i t y to t h i s assertion in a b r i e f to the above-noted 56 conference: "a continuous process of decentralization of authority has been going on for some years..." However, i t does appear that small loan amounts are approved at the branch l e v e l . (Brian Hann, Royal Bank interview December 15, 1986; Benson 1978) In addition, the Bankers Association prepared a study a l l o c a t i n g t o t a l domestic assets and l i a b i l i t i e s of Canadian banks on a p r o v i n c i a l basis for the f i r s t time. These figures showed that adjusted assets exceeded l i a b i l i t i e s in each of the Western provinces (or loans exceeded deposits) in every Canadian province except Ontario. John Benson (1978) argues that testing for discrimination in the manner followed by the Canadian Bankers Association 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 deposits i s largely outside the a b i l i t y of the banks to con 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 intermediaries, r e f l e c t the structure of the economy and the nature of i t s balance of payments with other provinces and countries. Thus, B r i t i s h Columbia which i s demonstrated to have a current account d e f i c i t , receives less from outside the province than residents pay out of province for goods and services. The controversy surrounding the discrimination debate i s exacerbated by d e f i n i t i o n a l differences. Does discrimination occur when bank customers in di f f e r e n t regions receive 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 national practises followed by banks result in "fortuitous or incidental geographical impact?" (Benson 1978) 57 The issue has not been resolved. In fact, i t was recently resurrected with the sale of the Bank of B.C. Nevertheless, the perception of regional discrimination by the chartered banks towards the West p e r s i s t s . Even a Royal Bank executive admits that i f he were not a banker who "knows for a fact" that discrimination does not occur, he would assume the existence of discrimination just by virtue of the fact that the head o f f i c e s are located in the East. (Brian Hann, Royal Bank, December 15, 1986) From t h i s review of the major issues in the discrimination debate i t i s clear that analyses are hindered by a lack of information, but while the evidence i s not conclusive, there i s a widely held perception regarding the existence of discrimination within the banking system. When th i s perception is coupled with the chartered bank's apparent lack of interest in CBED i t i s clear that CBED organizations must seek the resources they require elsewhere. Government programs are more l i k e l y to respond to the mix of s o c i a l and economic objectives inherent in CBED. Government Programs For Community Based Economic Development The Highland Resources (1983) survey found that the most frequently c i t e d source of funds among CBED groups surveyed were federal and p r o v i n c i a l government programs as demonstrated in Table 2. Use of federal government programs outnumbered p r o v i n c i a l government programs and Canada Employment and Immigration Commission programs were most frequently used. A str i n g of CEIC employment programs have been directed at CBED 58 since the early 1970s beginning with the Local Employment Assistance Program (LEAP). While these programs were commonly used, the survey also found that 57 percent of those who do receive government assistance f e l t that federal government programs did not meet their organization'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. Clearly then, government support of CBED both in terms of general a p p l i c a b i l i t y and financing i s problematic. Local Employment Assistance Development or LEAD, the most commonly used program according to a recent study (SPARC 1984), w i l l be the subject of th i s section. 1 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 successful in eliminating barriers to community based economic development and to consider some of the weaknesses of the program. Local Employment Assistance Development (LEAD) Explained The LEAD program was established by Canada Employment and Immigration Commission in September, 1983 and was replaced by the Community Futures program in 1986. It was designed 'Numerous government programs aimed at economic development, regional development, job creation and small business development exist at any point in time, many of which prove useful to CBED groups. However, they are too numerous to be explored in d e t a i l here. Appendix B provides a l i s t i n g of federal and B.C. Government programs as well as a brief summary of each. For more information, consult Nielsen, Carol and Nancy McLeod, Community Economic Development 1986 Resource Directory  for B r i t i s h Columbia, Vancouver: SPARC, 1986. 59 s p e c i f i c a l l y t o d e a l w i t h s t r u c t u r a l unemployment i n d i s a d v a n t a g e d r e g i o n s of t h e c o u n t r y by i n c r e a s i n g t h e number of permanent j o b s . Under t h e terms o f t h e LEAD pro g r a m , o n l y s m a l l c o m m u n i t i e s w i t h a p o p u l a t i o n under 50,000 were e l i g i b l e , p r o v i d i n g t h a t t h e r e was: a) an unemployment p r o b l e m more s e r i o u s and p e r s i s t a n t t h a n i n o t h e r l o c a l i t i e s , b) p o t e n t i a l f o r i n c r e a s e d employment and c ) d e m o n s t r a t e d c a p a c i t y f o r p l a n n i n g a n d e c o n o m i c d e v e l o p m e n t . F u r t h e r m o r e , any o r g a n i z a t i o n r e p r e s e n t i n g community d e v e l o p m e n t i n t e r e s t s was e l i g i b l e t o a p p l y f o r f u n d i n g u n d e r t h e LEAD p r o g r a m . LEAD p r o v i d e d f u n d i n g t o meet i t s o b j e c t i v e s t h r o u g h LEAD c o r p o r a t i o n s and LEAD p r o j e c t s . The f o r m e r were c h a r g e d w i t h a s s e s s i n g . p o s s i b i l i t i e s f o r new employment c r e a t i o n i n t h e p r i v a t e s e c t o r and p r o v i d i n g t e c h n i c a l c o n s u l t i n g t o l o c a l b u s i n e s s e s a n d e n t r e p r e n e u r s . They c o u l d a l s o i n v e s t i n l o c a l b u s i n e s s t h r o u g h t h e p r o v i s i o n o f d e b t f i n a n c i n g , e q u i t y o r l o a n g u a r a n t e e s . T h u s , t h e LEAD c o r p o r a t i o n was s t r u c t u r e d t o a d d r e s s two o f t h e t h r e e major b a r r i e r s t o CBED i d e n t i f i e d i n C h a p t e r 2. The t h i r d , l o c a l c a p a c i t y t o d e v e l o p , was a p r e - c o n d i t i o n f o r e l i g i b i l i t y r a t h e r t h a n an o b j e c t i v e o f t h e LEAD c o r p o r a t i o n . E a c h c o r p o r a t i o n was i n c o r p o r a t e d a s a n o n - p r o f i t s o c i e t y g o v e r n e d by a l o c a l b u s i n e s s - o r i e n t e d b o a r d o f d i r e c t o r s . S e p a r a t e f u n d i n g was a v a i l a b l e f o r b o t h t h e p l a n n i n g and o p e r a t i o n a l s t a g e o f LEAD c o r p o r a t i o n s . I n t h e c a s e o f a LEAD 60 corporation, the planning stage could not exceed 12 months and could be approved for operational funding for an i n i t i a l period of up to f i v e years, subject to annual review. The LEAD project consisted of three components: a planning project to analyse the community's economic posit i o n ; an infrastructure project to b u i l d physical c a p i t a l such as roads or a harbour; and an enterprise project which would support new business ideas. In each of the above components, an important consideration of the funding process was that the proposed a c t i v i t i e s would not occur without LEAD funding and therefore would not compete with the private sector or cause workers at e x i s t i n g businesses to be l a i d off as a r e s u l t . LEAD corporations and projects were expected to hire unemployed people and each component was e l i g i b l e for a maximum funding period ranging from one to f i v e years. 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 Futures. (CEIC 1986) Community Futures i s a component of the new Job Strategy announced in 1985; however, Community Futures did not become operative u n t i l 1986. It i s quite similar to i t s predecessor LEAD, but d i f f e r s in that i t i s only available in communities designated by Employment and Immigration Canada and does not provide c a p i t a l to purchase buildings and equipment, as did i t s predecessor. There are f i v e programs options from which a s p e c i a l l y established Community Futures Committee may choose: the Self-Employment Incentive to provide income support while a new business i s established, Business Development Centres to 61 perform the functions of LEAD corporations, Purchase of I n s t i t u t i o n a l Training, Relocation Assistance and a Community I n i t i a t i v e s Fund for projects not covered by other Community Futures program options. The inclusion of relocation assistance i s not p a r t i c u l a r l y consistent with the objectives of CBED. Another Job Strategy program, c a l l e d Innovations i s also used to fund CBED. It i s a f l e x i b l e program which provides f i n a n c i a l assistance for p i l o t and demonstration projects which test new solutions to labour market problems. Short Term Job Creation vs Permanent Job Creation Commitment of expenditures by the federal government in the past on structural employment programs such as LEAD have been small in comparison to short term job creation i n i t i a t i v e s . For example, from the 1971 to 1979 f i s c a l years, almost $2 b i l l i o n were spent on federal d i r e c t job c r e a t i o n . 1 Of that, $1.5 b i l l i o n was used to support short term employment such as Winter Works and Canada Works, while only $175 m i l l i o n was allocated to programs with e x p l i c i t long term objectives such as LEAD. (CEIC 1983) If long term employment development expenditures are compared to a l l labour market expenditures excluding unemployment insurance in 1985-86, only 4.8 percent of the funds were allocated to the LEAD-Community Futures Program. (CEIC 1986) Short term job creation has been a consistent strategy of 1This figure does not include tax expenditure programs designed to create jobs in the private sector. 62 the federal government in the face of high unemployment rates for many years. Job creation was f i r s t introduced in the 1930s with Relief Camps and Job Corps. Then, in the 1950s the Winter Works Program, a federally-funded, municipally delivered seasonal job creation program was i n i t i a t e d . Short term job creation continues to be used today to allow participants to qu a l i f y for Unemployment Insurance; however, the 'UIC - welfare - make work - UIC shuffle' i s not a long term employment development strategy. For example, an Economic Council (1976) study found that most of the 250,000 jobs created through the Local I n i t i a t i v e Program were indeed temporary and that participants returned to government income support. It i s ir o n i c that these programs are viewed as 'temporary' when they are continually re-introduced under d i f f e r e n t names. Short term job creation i s evidently a long term employment policy of the federal government. LEAD was not the f i r s t community oriented employment program of the federal government. Some early government job creation programs of a c y c l i c a l and seasonal nature such as the Local I n i t i a t i v e s Program (LIP) and Opportunities for Youth (OFY) were designed as community based strategies: Participants w i l l have opportunities to work on non-p r o f i t projects of a meaningful nature, to test their aspirations, to develop s k i l l s and contribute to the so c i a l fabric of t h e i r communities. (CEIC, 1984 quoted in Strandberg 1984) However, these projects d i f f e r e d from CBED in that they were again only temporary jobs. The Local Employment Assistance Program (LEAP), introduced 63 in 1973, began the trend towards involvement of the chronically unemployed and concern for the creation of long term jobs situated in small entrepreneurial settings. LEAP projects had a large t r a i n i n g component, received funding for up to three and a half years and were not r e s t r i c t e d to small r u r a l communities. Local Economic Development Assistance (LEDA) a j o i n t program of CEIC and DREE, was launched in October, 1980 as a further innovation in the search for an alternative to short-term job creation. It was a departure from public sector job creation in favour of employment in small business enterprises in distressed communities. In i t s e l i g i b l i t y c r i t e r i a and objectives, LEAD i s remarkably similar to i t s forerunner, LEDA. Assessment of the LEAD Program What has been the experience of CBED organizations with respect to the LEAD program? A detailed evaluation of the program has not been made available to t h i s date, 1 so information in this section i s derived from informal reviews of LEAD in the l i t e r a t u r e and personal interviews with those involved in the program. According to information from Employment and Immigration Canada to March 31, 1986, over 5500 ful l - t i m e and about 2000 part-time jobs were created by 73 LEAD corporations since the inception of the program, at an average 'Maureen Casey, CEIC, Community Futures, Ottawa, personal communication December 1, 1986. An evaluation of a sample of LEAD corporations i s underway, to be made available some time in Spring, 1987. 64 cost of $3700 per job. This includes corporation loans, loan guarantees and equity p a r t i c i p a t i o n . (CEIC 1986) Only a small proportion of jobs created were for women, v i s i b l e minorities and the disabled. (CEIC 1986) There were 13 LEAD corporations in operation in B.C. in 1986. One of the major c r i t i c i s m s of the LEAD program centers around i t s tendency to frustrate the objective of many CBED organizations to become s e l f - f i n a n c i n g . The o r i g i n a l intent of the LEAD corporation component of the program was that the community development corporation would be able to support i t s operations through income from commmunity investments aft e r a f i v e year period. Although the program was terminated after three years most of the LEAD corporations have subsequently transferred into the new Community Futures program. Even so, the disruption and more importantly, uncertainty generated within the organization by frequent program changes i s alarming. Several 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 in the LEAD corporation component funding formula acted to i n h i b i t the attainment of s e l f - s u f f i c i e n c y according to the Alberni Clayquot Development Society (1984). Features such as a pre-determined funding l e v e l per year and quarterly disbursements, resulted in delays, excessive paperwork and more importantly, contradicted some of the advantages of a community-based organization, such as quick 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 was f e l t to be unduly r e s t r i c t i v e and suggests a lack of commitment to permanent job creation 65 through community based economic development. Greg MacLeod holds that the government places more r e s t r i c t i o n s on CBED organizations than on private corporations. "It gives money to Dome Petroleum and l e t s them use their i n i t i a t i v e and imagination." (Forget Commission Report 1986) The findings of an interim evaluation of the planning stage of the LEDA corporation provide some valuable insights into the LEAD program, given the s i m i l a r i t y of the two programs. (CEIC 1982) One of the fundamental questions raised in t h i s evaluation concerned the a b i l i t y of a LEDA corporation to accommodate a wide spectrum of community aspirations, which often include s o c i a l and c u l t u r a l objectives as well as economic ones. It was concluded that the structure and budget of the program were not equipped to include s o c i a l and c u l t u r a l objectives. Rather, the LEAD program focussed on f i n a n c i a l and technical assistance for small private sector ventures, primarily in support of the l a t t e r ' s economic objectives. The LEDA evaluation also questioned the strength of community commitment to a CBED program in which the i n i t i a l impetus, the lure of funding, comes from above. While i t i s up to the community to respond to the c a l l for proposals (in most cases) the motivation for CBED can in part be attributed to the existence of the program i t s e l f . The Community Futures program i s even worse in t h i s respect as communities are designated by the Minister in the absence of community input. Therefore, one of the essential sources of community based economic development i d e n t i f i e d in Chapter 2, l o c a l control i s absent in this i n i t i a l 66 s t a g e . The s h o r t p l a n n i n g h o r i z o n a l l o c a t e d t o t h e LEDA c o r p o r a t i o n ( t h r e e y e a r s ) was a l s o deemed i n s u f f i c i e n t by t h e s t u d y i n l i g h t o f t h e l o n g t e r m n a t u r e o f c o m m u n i t y b a s e d e c o n o m i c d e v e l o p m e n t . I t was e s t i m a t e d t h a t f i v e y e a r s r e p r e s e n t s o n l y t h e s h o r t t o medium t e r m i n a CBED p r o c e s s . I n g e n e r a l , t h e d i f f i c u l t i e s a s s o c i a t e d w i t h l o n g t e r m c o m m u n i t y b a s e d employment e f f o r t s t y p i f i e d by LEAD c a n be s u m m a r i z e d a s f o l l o w s : 1. Community d e p e n d e n c y e x a c e r b a t e d by r e l i a n c e on o u t s i d e r e s o u r c e s . 2. P r o g r a m r e g u l a t i o n s f r e q u e n t l y d i s t o r t c o m m u n i t y p r i o r i t i e s a n d u n d e r m i n e l o c a l c o n t r o l . 3 . P r o g r a m s do n o t accommodate a w i d e s p e c t r u m o f c o m m u n i t y a s p i r a t i o n s ; f o c u s on b u s i n e s s d e v e l o p m e n t . 4. P r o g r a m s i m p o s e d f r o m a b o v e r a t h e r t h a n f r o m t h e c o m m u n i t y i t s e l f . 5. S h o r t t e r m p e r s p e c t i v e . C l e a r l y , t h e s e p r o b l e m s a r e p e r s i s t e n t i n v a r i o u s g o v e r n m e n t e f f o r t s t o s u p p o r t c o m m u n i t y b a s e d e c o n o m i c d e v e l o p m e n t . T h e r e e x i s t s a b a s i c d i l e m m a f o r t h o s e i n v o l v e d i n c o m m u n i t y b a s e d e c o n o m i c d e v e l o p m e n t : g o v e r n m e n t s u p p o r t i s e s s e n t i a l , b u t t h e b u r e a u c r a c y a n d r e g u l a t i o n s a c c o m p a n y i n g s u c h s u p p o r t c o n f l i c t w i t h t h e o r g a n i z a t i o n ' s b a s i c g o a l o f s e l f - s u f f i c i e n c y . 67 Summary In examining the role of the c r e d i t union in supporting CBED, primarily in f i n a n c i a l terms, i t i s important to understand the li m i t a t i o n s and strengths of current CBED funding sources. An understanding of these help to delineate the requirements of CBED which cred i t unions should attempt to address. To summarize, there are s i g n i f i c a n t gaps in the respective a b i l i t i e s of chartered banks and government programs to overcome the three barriers to CBED. A useful way of characterizing the non-relationship of chartered banks with CBED is i l l u s t r a t e d in the following manner. The f i r s t objective of CBED i s l o c a l economic development using business techniques and tempered by s o c i a l and c u l t u r a l considerations. Chartered banks do not share these concerns and thus do not p a r t i c i p a t e in lending for community based economic development to any great extent. However, chartered banks are adequate small business lenders who provide information and management advice to their small business c l i e n t s , some of whom may exist as a result of CBED. Furthermore, their operations have l a i d them open to claims of regional discrimination, so that, at the very least, the banks have no regional perspective consistent with that of CBED. There are three s i g n i f i c a n t features of government community based economic development programs which deserve comment. F i r s t l y , long-term employment creation programs such as LEAD are currently an important funding source for many CBED organizations, perhaps due to the lack of alt e r n a t i v e s . However, 68 federal expenditures on long-term job creation in disadvantaged regions and elsewhere are inadequate in comparison to monies spent on short-term job creation. Thirdly, government programs such as LEAD aim to f i l l the f i n a n c i a l and management advice requirements of CBED, but suffer from some serious l i m i t a t i o n s stemming from government delivery of a program to an organization 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 w i l l now be examined to determine i t s potential for partipating in CBED. 69 CHAPTER 4 CREDIT UNIONS Having investigated the nature of the problems confronting CBED groups in their dealings with chartered banks and federal employment creation programs, i t i s now useful to examine the potent i a l role of the cr e d i t union in addressing these needs. Credit unions are unique f i n a n c i a l i n s t i t u t i o n s which have undergone tremendous change in terms of size, membership, operation and philosophy since th e i r inception at the turn of the century. The small informal c r e d i t union of the early days has been replaced by the small bank with a s o c i a l conscience. In fact, there i s a good argument for dismissing the cr e d i t union as just another 'near bank'.1 At the same time, i t i s possible to hypothesize that credit unions are well-suited to par t i c i p a t e in CBED for three reasons. F i r s t , as f i n a n c i a l i n s t i t u t i o n s , they possess an asset base and infrastructure which could provide a substantial source of funds or vehicle for c o l l e c t i n g or managing pools of money in a i d of CBED. Secondly, cre d i t unions are cooperative organizations with an organizational structure which i s responsive to the membership, or 'community', and a philosophy of self - h e l p . Thirdly, c r e d i t unions often 'Near banks are deposit taking businesses incorporated under federal l e g i s l a t i o n other than the Bank Act, 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 right to describe themselves as banks or their business as banking. They are however engaged in offering many of the same services as banks, and in thi s way, they are in the business of banking. 70 possess a common bond based on geography such that they are l i k e l y to take a l o c a l perspective in their dealings. The purpose of t h i s chapter i s to examine these assertions to determine whether cred i t unions are well-suited to play a role in community based economic development. The f i r s t part of the chapter looks at the history, philosophy, growth, the nature of current a c t i v i t i e s and some of the issues c r e d i t unions face in the 1980s. The second part examines the c h a r a c t e r i s t i c s of cr e d i t unions which make them well-suited for p a r t i c i p a t i n g in CBED and looks at the poten t i a l contribution c r e d i t unions can make to the CBED process. This i s accomplished by reviewing the l i k e l y strategies and roles for credit unions, as well as constraints to their p a r t i c i p a t i o n . The Credit Union History of the Credit Union Movement in Canada The f i r s t Canadian (and North American) c r e d i t union was developed by Alphonse Desjardins in Levis, Quebec in 1901. Called a caisse populaire or people's bank, i t was in part a response to charges of usury witnessed by Desjardins as a parliamentary reporter in the House of Commons. In his words: It was the deplorable revelations brought about by law suits in Montreal and elsewhere, where poor borrowers had been obliged to pay infamous usurers rates of interest amounting to several hundred percent for most i n s i g n i f i c a n t loans, that induced the writer to study c a r e f u l l y t h i s problem with a view to finding out the best possible solution. (Desjardins, 1914 quoted in Neufeld 1972) 71 Additional motivations for the c r e d i t union are c i t e d as a lack of cre d i t for craftsmen and farmers and French nationalism. (Macpherson 1979; Melnyk 1985; Thompson 1978) A further viewpoint at t r i b u t e s Desjardins' motive to the Quebec p o l i t i c a l and r e l i g i o u s philosophy of " l a survivance" which rested on the three p i l l a r s of the Church, the S o i l and the Hearth. "The caisse populaire both buttressed and rested upon these same three p i l l a r s . " (Thompson 1978) Desjardins studied the European cooperative banking movement especially in Germany and I t a l y , and corresponded with several key members including Wolff, a key B r i t i s h cooperator. Many of the p r i n c i p l e s and the organizational framework for the caisse populaire thus originated with these movements. The Schulze - Delitzch cooperative society which originated in Prussia in 1850 was a prime influence. It was an urban loan bank intended to serve the lower middle-class business person. Loans were made on the basis of character rather than c o l l a t e r a l or security, an important p r i n c i p l e in the future of the cre d i t union. While loans were available only to members, deposits (or shares) were taken from the general public, primarily well to do investors. (Neufeld 1972) Today, the Schulze - Delitzch system is a group of commercial banks and small c r e d i t s o c i e t i e s . F r i e d r i c h Raiffeisen of Germany, motivated by usurious loan charges to the rural poor, f i r s t organized a pool of loan c a p i t a l underwritten by wealthy patrons in the 1850s. This e f f o r t f a i l e d because the charitable enthusiasm of his r i c h supporters waned. The bank re-opened in 1864 under a new set of 72 pr i n c i p l e s advocating s e l f - h e l p but with a less progressive attitude toward membership. This was r e s t r i c t e d to those approved by fellow members and with proof of ownership of tangible assets. Today the Raiffeisen bank retains i t s small, r u r a l , cooperative c h a r a c t e r i s t i c s . (Neufeld 1972) The parish based c r e d i t union system organized by Luigi Luzzatti of It a l y in 1865 p a r t i c u l a r l y interested Desjardins. These banks offered limited l i a b i l i t y to members and established a small par value for shares. Several of the p r i n c i p l e s governing early c r e d i t union operations in Canada were introduced here as well; the notion of one member one vote, a willingness to assess a member's reputation for loan security, and establishment of a reserve fund to guarantee against losses. By 1919, the f i r s t c r e d i t union in Milan had almost 25,000 members and 735 similar i n s t i t u t i o n s had been started. (Bergengren 1940) In forming a Canadian "people's bank", Desjardins integrated several of the European approaches to cooperative c r e d i t . For example, from Raiffeisen he took the "bond of association" concept, and from I t a l y , the notion of limited l i a b i l i t y , democratic control and loans based on character. Called the Caisses Populaires de Levis, i t s top p r i o r i t y in lending was to provide loans to families in the order of $15 to $25. Otherwise, the caisse populaire encouraged t h r i f t over c r e d i t . The clergy in Quebec wholeheartedly supported the caisse populaire: The parish provided not only the t e r r i t o r i a l 73 boundaries of the caisses populaire, but also i t s i n s t i t u t i o n a l sub-structure. Given the tremendous power of the church in the s o c i a l l i f e of Quebec, ... the parish was the dominant bond of association. From i t s o r i g i n s in 1900, the caisse populaire movement was blessed from the pu l p i t and a c t i v e l y supported by the clergy. (Thompson 1978) With the help of the clergy, over 150 similar caisse populaires were operating in Quebec by 1907. However, the caisse populaire made minimal progress in expanding outside the province. Desjardins also spent much e f f o r t in t r y i n g to obtain federal c r e d i t union l e g i s l a t i o n , since early c r e d i t unions were unregistered and unincorporated. Federal c r e d i t union l e g i s l a t i o n f a i l e d to pass through Parliament u n t i l a f t e r Desjardins death, but the Quebec Cooperative Syndicates Act became law in 1907, the f i r s t c r e d i t union l e g i s l a t i o n in Canada. The purpose of the caisse populaire according to the Act was to "study, protect and defend the economic interests of the labouring classes." While the caisse populaire proved immensely popular in Quebec, the role of transferring the concept to other regions in Canada f e l l to the Antigonish movement. This Nova Scotia based l i b e r a l Catholic movement had a s i g n i f i c a n t impact on the spread of c r e d i t unions because of i t s emphasis on adult education as a means of s e l f - h e l p . Two of i t s founders, Dr. Moses Coady and Father James Tompkins of St. Francis Xavier University, saw the potential of the c r e d i t union to address the economic in e q u a l i t i e s of the Maritimes. In a chapter e n t i t l e d "The Significance of the Credit Union", Dr. Coady (1939), the philosopher of the Canadian cooperative movement stated that a 74 c r e d i t union: . . . i s an instrument through which the common people can make their money work for them in th e i r own communities. The p r a c t i c a l aspects of cre d i t union operation did not interest Coady, rather, "... the c r e d i t union has intangible values that are probably more important than i t s function as a banking i n s t i t u t i o n . " Furthermore, cre d i t unions were to provide the mechanism through which a f u l l "cooperative program" could be ca r r i e d out. The study group approach employed by the Antigonish movement to spread cooperative development operated in the following manner. Ty p i c a l l y , an organizer would enter a community and using whatever contacts could be found, c a l l a public meeting to assess the community's strengths and weaknesses. A study club would be organized, and a series of meetings would occur which would usually result in a number of cooperatives being established to overcome the p a r t i c u l a r d i f f i c u l t i e s i d e n t i f i e d . The f i r s t c r e d i t union in A t l a n t i c Canada was formed in 1932. Bergengren, an American schooled in cre d i t union ways by Desjardins, was invited to prepare l e g i s l a t i o n governing c r e d i t unions which culminated in the Credit Union Act of Nova Scotia, 1932. It described the cre d i t union as: ...[being] organized for the two-fold purpose of promoting t h r i f t among i t s members and creating a source of cre d i t for members at legitimate rates of interest for provident and productive purposes. Thus i t was that most of the early information about c r e d i t unions came from the Maritimes rather than Quebec. The same held 75 true for the expansion of c r e d i t unions into the West. P r a i r i e farmers became interested in c r e d i t unions during the depression, when banks were forced to close. Lack of access to cr e d i t became a problem and with a long-standing t r a d i t i o n of grain handling and consumers cooperatives, the c r e d i t union provided the solution. Indeed, " P r a i r i e people view cooperation as a way of l i f e . . . " (McGuinness 1976) Saskatchewan credit union l e g i s l a t i o n was enacted in 1937. The f i r s t B r i t i s h Columbia cr e d i t union, c a l l e d the Common Good Cooperative Association Credit Union, opened in Burnaby in 1936 with the help of the UBC Extension Department. Growth of the Credit Union Movement After the Depression, many caisses populaires and cre d i t unions were chartered, as were a number of c r e d i t union centrals. According to McGuinness (1976) Canada began a twenty year period of c r e d i t union expansion in the 1940s unmatched by any other country in the world. Table 6 shows the dramatic growth pattern of credit unions in Canada, in terms of membership, number of cre d i t unions, number of cre d i t unions and branches, average membership and membership as a share of population. U n t i l the 1960s cr e d i t unions could s t i l l be described as small t h r i f t and c r e d i t associations with about 600 members per c r e d i t union. (CFDP 1982) The table shows however, that by 1981 t h i s had increased to an average of over 2000 members per c r e d i t union. The 1960s proved to be the watershed for credit unions in a number of ways: they began to expand TABLE 6 CREDIT UNION GROWTH CANADA 1900 - 1981 Number of Average Number of Credit Unions Membership per Membership as Year Membership 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 existing c r e d i t unions rather then creating new l o c a l s ; the number of c r e d i t unions was highest in 1965 when consolidation began; and c r e d i t union assets grew faster than t o t a l f i n a n c i a l intermediary assets up to 1967. (Neufeld 1972) Credit Unions Today Credit unions are d i s t i n c t from banks and other f i n a n c i a l i n s t i t u t i o n s in that they are owned and controlled by members, on a one-member, one-vote basis. .Another distinguishing feature of the cr e d i t union i s the common bond of association. This bond defines c r e d i t union membership and may be organized on a geographic basis, along occupational or professional l i n e s , or on ethnic or r e l i g i o u s grounds. In Canada, with.the exception of Ontario, the geographical common bond p r e v a i l s . However, the effectiveness of democratic control and the strength of the common bond of association today i s questionable. For example, in B.C. a cr e d i t union with a geographic common bond may admit members from outside the bond "who in the opinion of the directors may be conveniently served by the credi t union." (B.C. Credit Union Act, 1985) This i s termed a p a r t i a l opening of the bond, as opposed to a closed bond. Some associational or professional common bonds are not e n t i r e l y closed e i t h e r . Early 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 providing consumer cr e d i t in small amounts to members. However, with the increasing 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 f i n a n c i a l i n s t i t u t i o n s , providing a wide range of options for the member to the point where c r e d i t cards and automated t e l l e r machines are commonplace. The introduction of the c r e d i t card i s interesting in i t s e l f 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 . Credit unions are primarily mortgage and consumer lenders as shown in Table 7; f u l l y 53 percent of loans are made for r e s i d e n t i a l mortgages and 26 percent for personal loans in Canada. TABLE 7 Local Credit Unions Loans Outstanding (thousands of dollars) Canada Loans Third Quarter 1986 Percent Non-mortgage Personal Farm Commercial, Industrial and Cooperatives Other 8,809,084 1 , 127,408 2,758,443 484,077 25.9 3.2 7.8 1.4 Mortgage Residential Farm Commercial, Industrial and Cooperatives Other 18,809,100 1,184,212 -1 ,829,516 371,341 53.2 3.3 5. 1 1.0 Total Loans 35,373,181 100.0 Source: S t a t i s t i c s Canada. Financial I n s t i t u t i o n s . 61-006. Third Quarter, 1986. Credit unions are chartered 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 Credit Union Act governs the types of investments permitted, rates of interest and statutory reserve requirements. Credit unions function as autonomous organizations 79 owned and controlled by the members, each having their own charter and governed by a board of dir e c t o r s made up of volunteers elected from the membership. In the case of a small c r e d i t union, a credi t committee i s formed to evaluate loan applications. A large-credit union on the other hand, might allow the board to appoint a cr e d i t committee, or increasingly, a professional loans s t a f f . Depending on the size of the cr e d i t union, the board delegates r e s p o n s i b i l i t y for day to day operation to the manager. Obviously, the composition of the board of directors w i l l determine the philosphy under which the cre d i t union operates. Local cr e d i t unions are part of a large federation of cre d i t unions around the world through various regional, national and international organizations. The f i r s t l e v e l i s the pr o v i n c i a l central c r e d i t union, which i s formed by ind 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 voluntary trade association of the c r e d i t unions. It i s charged with r e s p o n s i b i l i t y for providing services to member l o c a l s and generally carrying out planning, administration and research for the credi t unions. A board of 15 directors governs B.C. Central Credit Union, each a member of a B.C. credit union or cooperative and chosen on a regional basis. Voting at B.C. Central meetings i s proportional to c r e d i t union membership, whereas previously, conventional cooperative wisdom had ensured that each cre d i t union had one vote regardless of siz e . The Credit Union Deposit Insurance Corporation (CUDIC) i s the second regulatory and administrative body in the province of 80 B.C. CUDIC p r o v i d e s 100 p e r c e n t d e p o s i t p r o t e c t i o n t o l o c a l c r e d i t u n i o n s . The p r o v i s i o n s of the C r e d i t Union A c t p e r m i t the CUDIC t o e x e r c i s e c o n t r o l s over the o p e r a t i o n s of i n d i v i d u a l c r e d i t u n i o n s and among o t h e r 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 of i n t e r e s t and the d e c l a r a t i o n of d i v i d e n d s . F u r t h e r m o r e , CUDIC may a c t t o p l a c e 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 f o r one of two r e a s o n s . In the f i r s t c a s e , the l o c a l c r e d i t u n i o n may r e q u e s t s u p e r v i s i o n i f i t f o r e s e e s t r o u b l e a r i s i n g , or CUDIC may suggest s u p e r v i s i o n on the b a s i s of r e g u l a r i n s p e c t i o n and m o n i t o r i n g . The second s c e n e r i o o c c u r s when t h e c r e d i t u n i o n cannot meet i t s t a t u t o r y r e s e r v e a c c o u n t . In t h i s c a s e the c r e d i t u n i o n w i l l be p l a c e d under s u p e r v i s i o n . The f i v e members of 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 under the a u t h o r i t y of the M i n i s t r y of Consumer and C o r p o r a t e A f f a i r s . A t h i r d t i e r o r g a n i z a t i o n c a l l e d the Canadian C o o p e r a t i v e C r e d i t S o c i e t y (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 a r e p r o v i n c i a l c e n t r a l c r e d i t u n i o n s ( t h r o u g h which i n d i v i d u a l l o c a l c r e d i t u n i o n s a r e r e p r e s e n t e d ) , o t h e r f i n a n c i a l c o o p e r a t i v e s , and p r o d u c e r , consumer and m a r k e t i n g c o o p e r a t i v e s . I t was formed 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 o r g a n i z a t i o n s ; i t i s e s s e n t i a l l y the c e n t r a l bank of the c o o p e r a t i v e movement. I t s a r e a s of r e s p o n s i b i l i t y a r e the p r o v i s i o n of l i q u i d i t y t o t h e c r e d i t u n i o n system and l o a n s t o member o r g a n i z a t i o n s . Together w i t h the p r o v i n c i a l c r e d i t u n i o n c e n t r a l s , i t i s r e q u i r e d t o meet minimum l i q u i d r e s e r v e 81 requirements of the Cooperative Credit Association Act under which the CCCS i s chartered. As such, the p r o v i n c i a l centrals are e l i g i b l e for l i q u i d i t y assistance from the Canada Deposit Insurance Corporation. In addition, CCCS also provides administrative, educational and management support to members, and represents Canada at the international l e v e l . A f i n a l t i e r in the credi t union system i s the World Council of Credit Unions (WOCCU) which i s based in Madison, Wisconsin, and overseas cooperative extension and education around the world. Currently about 38,000 cr e d i t unions in 77 countries are associated through WOCCU. The diagram in Figure 2 represents the organizational structure of the c r e d i t union system. Size of the Credit Union System It i s d i f f i c u l t to generalize about c r e d i t unions for purposes of description for two reasons. F i r s t l y , c r e d i t unions are diverse, independent, l o c a l i n s t i t u t i o n s with d i s t i n c t boards of directors and memberships. Secondly, because of this independence and autonomy, information regarding key credit union c h a r a c t e r i s t i c s i s often not available on an aggregate basis. There i s an incredible d i v e r s i t y of cred i t unions across the country. In fact, there are over 3100 c r e d i t unions and caisses populaires with a t o t a l membership of approximately 9.5 m i l l i o n people. These organizations d i f f e r quite considerably in terms of size and nature of operation. For example, some 82 FIGURE 2 ORGANIZATIONAL STRUCTURE OF B.C. CREDIT UNION SYSTEM WORLD COUNCIL OF CREDIT UNIONS 83 small r u r a l c r e d i t unions s t i l l operate on a part-time basis and only provide basic services. But these small c r e d i t unions account for a steadily declining share of t o t a l c r e d i t union membership and assets. On the other hand, Vancouver City Savings Credit Union i s the largest c r e d i t union in Canada and the second largest in the world. It has over 20 branches, assets of over $1.4 b i l l i o n in 1986 and o f f e r s an array of f i n a n c i a l services to i t s members. To speak of c r e d i t unions as a uniform ent i t y i s therefore, misleading. The strength of c r e d i t unions also varies by province. Both Saskatchewan and Quebec have the highest credit union penetration, with 30 percent of t o t a l bank and near bank assets. In Quebec, the Confederation des Caisses Populaires currently has more than 4 m i l l i o n members and more locations than a l l branches of the major chartered banks. In the A t l a n t i c provinces, Ontario and Alberta, c r e d i t unions account for only 10 percent of t o t a l bank assets. (CFDP 1982) However, to put the cre d i t union in i t s proper perspective, i t i s important to note that the combined assets of a l l Canadian cr e d i t unions (roughly $41 b i l l i o n ) are s t i l l smaller than the assets of the Toronto Dominion Bank, the smallest of the Big Five chartered banks. Based on 1981 data, Canadian c r e d i t unions ranked fourth in terms of t o t a l assets after chartered banks, trust companies and l i f e insurers as i l l u s t r a t e d in Figure 3. Although Table 6 shows that over 40 percent of the Canadian population are members of credit unions, a seemingly large share, surveys show that only a t h i r d of credit union members 84 FIGURE 3 TOTAL ASSETS OF SELECTED  FINANCIAL INSTITUTIONS (Canada 1981 - b i l l i o n s of do l l a r s ) 310 300 50 40 30 20 10 LEGEND 1. Chartered Banks 2. Trust Companies 3. L i f e Insurers 4. Credit Unions 5. Mortgage Loan Cos, 6. Others 1 2 3 4 5 6 Source: S t a t i s t i c s Canada Credit Unions Catalogue 61-209 1983 85 see the c r e d i t union as their main f i n a n c i a l i n s t i t u t i o n . Often cred i t unions supplement the services a member receives at a bank. Who are cre d i t union members? At the outset, c r e d i t union membership was comprised c h i e f l y of blue c o l l a r workers and farmers not well-served 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 years. A nationwide study in 1979 which interviewed 1600 people evenly divided between cr e d i t union members and non-members, showed that c r e d i t union members have s l i g h t l y higher than average incomes and are better educated than the average person. The results of t h i s survey are shown in Table 8 below. TABLE 8 Credit Union Membership P r o f i l e Percent Members Non-Members ANNUAL HOUSEHOLD INCOME Under $8,000 6 12 $8,000 - 14,999 19 24 $15,000 - 29,999 40 28 Over $30,000 24 10 EDUCATION Grade School 9 1 3 High School 51 52 Technical School 14 1 2 University 23 20 Source: Canadian Cooperative Credit Society. Image-Awareness- Attitude Study 1979 quoted in CFDP 1982. However, one must be careful not to generalize membership even on the basis of this data; c r e d i t unions are extremely diverse, 86 varying quite dramatically according to common bond. For t h i s reason, i t i s perhaps most appropriate to describe c r e d i t union membership as representative of the community as a whole. For geographically defined cre d i t unions t h i s would mean that membership most l i k e l y corresponds to the demographics of the area in question. In the case of i n d u s t r i a l or occupational credit unions on the other hand, membership would probably be more similar to early 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 cr e d i t unions and the most professionalized operations in the country according to Thompson (1978). Credit unions range in size from 26 to 160,000 members and most have assets in the range of $5 to $50 m i l l i o n compared to the rest of Canada where the greatest proportion range between $1 and $25 m i l l i o n in assets. ( S t a t i s t i c s Canada 61-209, 1983) In 1985 there were 134 cred i t unions in B.C. with a t o t a l of 315 locations. Issues Facing the Credit Union in the 1980s Based on the previous review of the history, growth and nature of the cre d i t union, i t i s clear that credit unions have changed s i g n i f i c a n t l y over the years in a manner that i s less consistent with the self help philosophy, and more consistent with i t s function as a banking i n s t i t u t i o n . A major research undertaking of the cooperative movement under the auspices of the Cooperative Future Directions Project was published as Patterns and Trends of Canadian Cooperative Development in 1982. 87 A similar study was c a r r i e d out by the National Task Force on Cooperative Development in 1984. These reviews represent a desire on the part of the movement to evaluate the tremendous growth rates of the past decades and examine the implications for the future. According to the Cooperative Future Directions report, the previously described growth has had several implications for cred i t unions. F i r s t l y , for most members, growth has meant an extension in the range of services a v a i l a b l e . Credit unions have thus been able to compete e f f e c t i v e l y with other f i n a n c i a l i n s t i t u t i o n s , ensuring the survival of the cr e d i t union in the f i n a n c i a l marketplace. Secondly, there has been a decline in member p a r t i c i p a t i o n . The t h i r d implication relates to the second, in that there has been a decline in the meaningfulness of the bond of association. Both of these can be attributed in part, to the lack in member commitment which i s addressed l a t e r in this chapter. There has also been an increasing d i f f e r e n t i a t i o n between small and large 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 . This has been i n s t i t u t i o n a l i z e d in B.C. where voting at B.C. Central Credit Union meetings i s now proportional to membership, re s u l t i n g in a si t u a t i o n where a few large c r e d i t unions can dominate the proceedings. This move i s contrary to the cooperative p r i n c i p l e that gives one member one vote. Another c r i t i c i s m aimed at cr e d i t unions has to do with their f a i l u r e to f u l f i l l the broader s o c i a l goals for which they were f i r s t chartered. For instance, the B.C. Credit Union Act allows c r e d i t unions to "provide programs and services to i t s members 88 as in the opinion of the directors may a s s i s t the members to meet their 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 housing. (Part 1, Section 2 1985) Credit unions do contribute to community events, provide scholarships and a host of other service a c t i v i t i e s ; but i t i s not clear to what extent t h i s d i f f e r s from the donations made by other corporations. As part of the cooperative movement c r e d i t unions are supposed to have a r e s p o n s i b i l i t y for educating their members in cooperative p r i n c i p l e s . A knowledgable membership i s f e l t to be the basis for a cooperative i n s t i t u t i o n of any kind. In Thompson's (1978) view, th i s emphasis is not re f l e c t e d in credit union l e g i s l a t i o n or in practice. Factors such as those outlined above mean that many of the ch a r a c t e r i s t i c s which distinguished cre d i t unions from banks in the past have largely disappeared. However, some c r e d i t union supporters do not view these issues as problematic The continued growth of the credit union, and i t s role as an alte r n a t i v e to the chartered banks s a t i s f i e s many. Therefore, while the above views are not shared by a l l within the credit union system they are largely indicative of the debate occurring in some quarters. For those who believe credit unions should maintain their distinctiveness 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 broader s o c i a l perspective in the i r operations, community based economic development provides a l o g i c a l framework for guiding the actions of a credit union board concerned with s o c i a l as well as economic issues. 89 Credit Unions and Community Based Economic Development While l i t t l e has been written e x p l i c i t l y l i n k i n g c r e d i t unions with community based economic development, both the cr 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 potential common interest in CBED. Frequently the li n k i s c i t e d as a means of renewing the c r e d i t union commitment to s o c i a l change which i s seen to have diminished with increasing size 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 often refers to the c r e d i t union in i t s search for al t e r n a t i v e means of financing. (SPARC 1985; Wismer and P e l l 1982) As we have seen, a number of issues have arisen within the cre d i t union system regarding the role of the cred i t union. Rod Glen, past president of B.C. Central Credit Union, placed these issues within the context of the community: Credit unions have to go beyond the simple deposit-and-loan business and play th e i r proper role as a pool of c a p i t a l for the community, as much as a mine or a forest or people, (quoted in Thompson 1978) If Glen believed that credit unions should adopt a central role in financing cooperative development, he would be disappointed. According to Melnyk (1985) each sector of the cooperative movement has tended to focus on a single economic issue such as cre d i t or consumption or housing, rather than developing a cooperative commonwealth. This "pragmatic unifunctionalism" has resulted in a business-like attitude to cred i t on the part of cre d i t unions and there has not been a t r a d i t i o n of financing cooperative development. (CCEC i s a notable exception.) Thus, to the extent that one of the 90 strategies of CBED i s cooperative ownership of business, c r e d i t unions have tended to be less than supportive. Instead, c r e d i t union services are directed largely to the private sector with l i m i t e d focus on cooperatives and non-profit organizations. This i s consistent with community based economic development but Axworthy (1981) recommends a more active approach. He asserts that c r e d i t unions have to maintain their d i s t i n c t i v e n e s s from other f i n a n c i a l i n s t i t u t i o n s through their actions: To improve the commmunity requires better housing and more and better employment. This e n t a i l s investment in land, lending money to small builders, to cooperative home-building associations, and to m u n i c i p a l i t i e s , and providing management and f i n a n c i a l services to those who need i t . In addition, c r e d i t unions on t h e i r own account should be involved in the building and renovation of housing for their members and in creating employment opportunities by their investment and lending p o l i c i e s . This can be accomplished by the establishment of subsidiary or related associations involved in production or services and by investment and lending to community-based small businesses or worker cooperatives. Credit unions should make management and f i n a n c i a l advice available to such organizations, a s s i s t i n g them through incorporation and with any operational d i f f i c u l t i e s they might face... Credit unions have a unique r o l e . They must seize the opportunity. Axworthy expands the scope of credit union a c t i v i t i e s to include management advice as well as f i n a n c i a l services. He also points to the need for subsidiary organizations to carry out some of the community development a c t i v i t i e s . The next section examines more cl o s e l y the question of credit union strategies and roles in community based economic development raised by Axworthy's statement. 91 Nature of Credit Union P a r t i c i p a t i o n in CBED As previously mentioned, CBED consists of an integrated approach to development, one which emphasizes s o c i a l , c u l t u r a l , and economic goals, and operates with some measure of community control. 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 part in l o c a l economic development in two ways. The f i r s t involves reducing the outflow of l o c a l savings from the community. Money invested in a l o c a l c r e d i t union can then be channelled into the l o c a l area and re-invested in mortgage or personal loans to another c r e d i t union member. Thus the strategy i s one of mobilizing l o c a l savings for 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 rather than 'leaked' to a borrower in another region or part of the country. While t h i s is an important cre d i t union function, and indeed one of the early motivations for cre d i t union formation, i t i s the second which i s of interest here. The second way a cre d i t union may influence the amount of economic a c t i v i t y occurring in the l o c a l economy i s through i t s lending decisions in support of l o c a l business, housing development and the l i k e . Loans to CBED groups, businesses, or cooperatives which produce goods or services for export or to replace imports, both increase the inflow and reduce the outflow of money from the l o c a l economy respectively. A business development strategy implies three d i s t i n c t roles for the credit union which could address the b a r r i e r s to CBED. They are a) lending, b) mangement advice and c) building l o c a l capacity. These w i l l be considered after the following discussion of the 92 rationale and constraints to c r e d i t union p a r t i c i p a t i o n in CBED. Rationale for Credit Union P a r t i c i p a t i o n in CBED There are three c h a r a c t e r i s t i c s of c r e d i t unions which p o t e n t i a l l y make them suitable to p a r t i c i p a t e in CBED. F i r s t l y , c r e d i t unions are non-profit f i n a n c i a l i n s t i t u t i o n s in the business of making loans and accepting deposits, ostensibly with the f i n a n c i a l resources, expertise and physical infrastructure to provide assistance for CBED. Secondly, c r e d i t unions share a similar philosphy with community based economic development, one of self-help and mutual aid. This philosophy i s complemented by the p r i n c i p l e s of cooperation which guide the c r e d i t union and mean the c r e d i t union i s subject to community contro l . Thirdly, 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 a b i l i t y to set independent p o l i c i e s to suit the needs of their membership. The following section examines these c h a r a c t e r i s t i c s . The t o t a l loan p o r t f o l i o of the B.C. c r e d i t union system stood at $4,949 m i l l i o n in 1985, comprised of personal, mortgage and to a lesser degree, business loans. (B.C. Central Credit Union 1986) If B.C. c r e d i t unions directed just 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 in Canada for 1985-86. Thus, the c r e d i t union represents a p o t e n t i a l l y large, untapped pool of f i n a n c i a l support for community based economic development e f f o r t s . A c r e d i t union i s also able aid community based economic development e f f o r t s in other ways such as through the use of i t s 93 savings and deposit-taking infrastructure. Thus even i f the credit union loan p o r t f o l i o i s not the source of funds, i t may be hel p f u l in managing the funds. An example of t h i s i s provided in Chapter 5. Secondly, the philosophy of the Antigonish model of economic se l f - h e l p and cooperation long associated with c r e d i t unions i s remarkably similar to that of the CBED movement. Credit unions were founded with the express intent of furthering the economic interests of the working class through the mobilization of member savings for member use. The process, according to Coady, was one of economic s e l f - h e l p and mutual a i d through adult education which could best be achieved through cooperation. Similar goals have been expressed in the popular CBED l i t e r a t u r e outlined e a r l i e r , with i t s emphasis on broadly defined socio-economic development, community control and i t s origins in community development. Ultimately, the s i m i l a r i t y between the two can be expressed as their combined interest in both s o c i a l and economic objectives, implemented through a grass roots, s e l f - h e l p strategy. However, while the cr e d i t union philosophy of the 1930s was consistent with that of CBED, i t i s less so today. This is a constraint to cr e d i t union p a r t i c i p a t i o n to CBED which w i l l be considered in the following section. However, a re v i v a l in t r a d i t i o n a l c r e d i t union philosophy which i s supportive of CBED i s occurring in some quarters. This i s demonstrated by some innovative cre d i t union i n i t i a t i v e s in B.C. Which are documented in Chapter 5. In fact, c r e d i t union philosophy appears to have subtly 94 s h i f t e d from Coady's vis i o n of an a l l embracing cooperative 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 service. The range of services available has steadily expanded as has i t s q u a l i t y . This strategy has produced some benefits for the cre d i t union in that members and non-members perceive c r e d i t unions as f r i e n d l i e r places to bank than the Big Five. (Credit Union Way 1984) Of the few small businesses that currently use a cre d i t union, a 1985 CFIB survey shows that c r e d i t unions are more successful than banks in meeting their needs. As shown in Table 9, in the section of the survey e n t i t l e d " d e t a i l s of bank service", respondents gave cr e d i t unions the highest ratings on such questions as - knowledge of l o c a l market, understanding of the business sector, and having enough time for your business. Thus, the reputation of the c r e d i t union among the small business sector would seem to provide a basis for further 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 Results by F i n a n c i a l I n s t i t u t i o n (percent) Details of National Credit Trust Royal Bank Service Results Unions Companies Bank Know Local Market 52.8 69.5 50.3 53.6 Understands Business Sector 53.4 68.0 51.3 55.6 Enough Time for Your Business 73.5 78.9 75.9 76.0 High Enough Lending Limit 55.6 67.7 40.3 56.8 Source: CFIB. 1985 Banking Survey. Toronto: 1985. As one manifestation of the 'service' philosophy, c r e d i t unions 95 have been a b l e to expand the range of s e r v i c e s o f f e r e d through an i n t e n s i v e search f o r i n n o v a t i v e s o l u t i o n s to member needs. A long l i s t of f i n a n c i a l products were f i r s t i n t r o d u c e d by c r e d i t unions and then c o p i e d by the f i n a n c i a l i n d u s t r y , i n c l u d i n g automated t e l l e r machines, d a i l y i n t e r e s t savings accounts, weekly payment mortgage, r e c o g n i t i o n of 100 percent of the women's income i n f a m i l y l o a n s , open mortgages with e a r l y non-pe n a l t y pre-payment and so on. C l e a r l y , c r e d i t unions have f r e q u e n t l y been at the f o r e f r o n t of change and e x h i b i t a p r o p e n s i t y to innovate, at l e a s t at the l e v e l of day to day o p e r a t i o n s . As 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 s , c r e d i t unions s t i l l o f f i c i a l l y s u b s c r i b e .to c e r t a i n b a s i c c o o p e r a t i v e p r i n c i p l e s l a i d down by the Rochdale Pioneers i n the mid-nineteenth c e n t u r y : democratic c o n t r o l , v o l u n t a r y and open membership, l i m i t e d i n t e r e s t on investment shares, patronage refunds, continuous e d u c a t i o n , cash t r a d i n g , and c o o p e r a t i o n among c o o p e r a t i v e s . In s p i t e of the f a c t t h at c r e d i t unions have i n p r a c t i s e s t r a y e d from adherence to a l l these p r i n c i p l e s , such as cash t r a d i n g and continuous education, the democratic s t r u c t u r e remains i n t a c t . C r e d i t union members c o n t r o l the board of d i r e c t o r s and t h e r e f o r e c r e d i t union p o l i c y . I f the needs of the members are c o n s i s t e n t with those of CBED, and members demonstrate the w i l l to p a r t i c i p a t e i n CBED, then i t i s p o s s i b l e f o r the c r e d i t union to accommodate CBED. Furthermore, community members have the o p p o r t u n i t y t o i n i t i a t e a c r e d i t union i n t h e i r l o c a l i t y . While t h i s was once a 96 v i t a l grass-roots strategy for achieving control of community c a p i t a l , one consistent with the philosophy of CBED, very few c r e d i t unions have been formed in recent years due to high start-up costs, and competition among f i n a n c i a l i n s t i t u t i o n s . In the l a s t 10 to 12 years, sixteen c r e d i t unions were formed in B.C. but only one or two have survived. (G. Rubio, B.C. Central Credit Union, personal communication, A p r i l 2, 1987) Thus, with these obstacles to creating new cre d i t unions in mind, i t i s more l i k e l y that existing c r e d i t unions w i l l be the primary source of support for CBED. However, the value of specialized community development c r e d i t unions should not be under-emphasized. While credit unions are c r i t i c i s e d as being unstable for th e i r reliance on one l o c a l market area, there are also pos i t i v e aspects of this parochialism such as: knowledge of the l o c a l economy and the credit union's d i r e c t r e l a t i o n s h i p to the health of the l o c a l economy. Credit 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 structure, c r e d i t unions are in a good position to carry out programs to achieve l o c a l objectives. Community based economic development requires 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 this knowledge. A small, l o c a l l y c ontrolled c r e d i t union has s u f f i c i e n t f l e x i b i l i t y to accommodate various strategies. Credit union managers and boards of directors are perceived by business people to have a deeper understanding of the l o c a l area than o f f i c i a l s of other f i n a n c i a l i n s t i t u t i o n s as reported 97 in Table 9. There are several possible reasons for t h i s . F i r s t l y , the board i s elected from within the common bond of association, be that geographic or otherwise. Secondly, the o f f i c e s of the cre d i t union are located within the bond of association so that decision-making i s car r i e d out l o c a l l y . Thirdly, the manager and the s t a f f of c r e d i t unions are not required to move throughout the system as frequently as are their counterparts in banks so that they are more l i k e l y to be personally acquainted with th e i r members as attested by the cred i t union study which showed that cr e d i t unions are perceived as more people oriented when compared with banks and trust companies. (Credit Union Way 1984) However, i t i s not known i f , or to what extent, these c h a r a c t e r i s t i c s of c r e d i t unions actually influence their behaviour in a manner favourable to CBED. Furthermore, a r e s t r i c t i o n within the Credit Union Act i s intended to prevent c r e d i t unions from carrying on business outside the province, but t h i s provision i s not s t r i c t l y enforced. (Credit Union Act, RS Chap 79, Part 1, Section 6 1985) Even more than a knowledge of the l o c a l economy, the cre d i t union might be expected to have a large stake in the o v e r a l l health of the l o c a l economy. Possessing a membership drawn only from a s p e c i f i c region or group of people means that the credit 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 in the continued economic health of the area. If a c r e d i t union can influence the l o c a l economy through i t s p o l i c i e s and lending decisions then doing so i s of mutual interest for both the community and the credit union. A stable, healthy l o c a l economy 98 i s l i k e l y to enhance the securi ty of the c r e d i t union's personal and mortgage loan p o r t f o l i o for instance. By contr ibut ing to community based economic development through i t s lending dec i s ions , the c r e d i t union may foster economic d i v e r s i f i c a t i o n in the l o c a l economy. As such, the 'extreme parochial i sm' (Thompson 1978) of the c r e d i t union may serve as an impetus and ra t iona le for i t s involvement in community based economic development. This i s not to say that the l o c a l bank branch does not operate with the same intent ions , but rather that the c r e d i t union depends on a v iab le l o c a l community for i t s continued existence, whereas a bank is not u l t imate ly so dependent. This suggests that the motivation to strengthen 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 union. Constraints to Cred i t Union P a r t i c i p a t i o n in £BED Despite the existence of several a t t r ibutes which make c r e d i t unions l i k e l y candidates for CBED, to date they have not acted to become involved in CBED to any great extent. CBED groups rare ly use the c r e d i t union as a source of f inancing , much less often than banks according to the Highland Resources (1983) survey resu l t s in Table 2. A considerat ion of the constra ints 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 contribute to an understanding of th i s s i t u a t i o n . An account of a recent experience at a B . C . Central Credi t Union annual general meeting reveals some of the problems associated with CBED from a c r e d i t union perspect ive . At th i s meeting l o c a l c r e d i t unions defeated a motion proposing that a research program be c a r r i e d out by 99 B.C. Central on the subject of credi t union p a r t i c i p a t i o n in CBED. Its defeat was attributed not to the concept of CBED in general, but rather, to the notion of centralized action. Local cred i t 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 c r e d i t union, in i t s own way. There are several good reasons beyond th 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 their t r a d i t i o n a l spheres of a c t i v i t y into CBED. The f i r s t has to do with the question of r i s k . Can a small, non-profit cre d i t union afford to assume the added risk associated with lending for CBED? These enterprises are often marginal small businesses employing the hard to employ and located in depressed ru r a l areas or inner c i t y neighbourhoods which are c h a r a c t e r i s t i c a l l y high risk lending propositions from the point of view of the lender. Combine t h i s added risk dimension of CBED with the fact that cred i t unions are t r a d i t i o n a l l y highly conservative f i n a n c i a l i n s t i t u t i o n s and the prospects for credi t union f i n a n c i a l p a r t i c i p a t i o n in CBED are limited. This i s true in the absence of a mechanism to reduce l e v e l of ris k in lending to CBED. David Ross addressed the question of risk in lending to CBED organizations from the credit union's perspective and has proposed a useful way of distinguishing CBED on the basis of three r i s k categories: 1 1) those CBED enterprises with normal 1David Ross, Presentation to Vancouver City Economic Conference, Annual General Meeting, 1986. Savings Credit Union Vancouver, A p r i l 5, 100 small business ri s k c h a r a c t e r i s t i c s ; 2) those which might produce a lower rate of return but which are s t i l l feasible from the point of view of r i s k ; and 3) those which are non-profit and require an outright donation of some kind. If c r e d i t unions were to assume added risk in financing CBED, should there be compensation in the form of higher reward which would secure member deposits. This could be accomplished by taking an equity position in CBED enterprises such that the cred i t union i s compensated for i t s risk-taking through a return on equity. Other methods of reducing r i s k are through government loan guarantee programs and providing management advice with each loan. Further research regarding innovative ways to reduce ri s k in lending for CBED i s required. The second fundamental constraint to cre d i t union involvement in CBED i s posed by a lack of philosophical commitment to cred i t union ideals or a sense of community obligation on the part of todays c r e d i t union members which may prevent c r e d i t unions from taking an active role in CBED. According to Melnyk's (1985) typology of cooperatives in Canada, cre 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 in the 'systems' phase of development. In th i s phase, the missionary zeal of the 'Utopian' and 'movement' phases i s replaced with a more business-like approach. Concommitent with a business-like approach i s an unfortunate change in the nature of commitment from an ideological commitment, which focuses on a visi o n for the future, to a u t i l i t a r i a n one, resulting from the p r a c t i c a l benefits of cre d i t union membership. These are 101 Ranter's (1972) terms to explain the nature of relationship between people and organizations. Thus, the w i l l to par t i c i p a t e in CBED i s less l i k e l y to develop in such circumstances. Changing member commitment can be i l l u s t r a t e d by some figures from a recent survey which found that only 30 percent of cre 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 attributes of a f i n a n c i a l i n s t i t u t i o n , factors such as convenience, c o n f i d e n t i a l i t y , and security ranked above the importance of l o c a l l y made p o l i c i e s , community involvement and customer influence on management. (Credit Union Way January 1984) In fact, one B.C. cr e d i t union manager estimates that only 10 percent or less of t h e i r members join for ideological reasons: "The whole philosophy i s b a s i c a l l y transparent for lo t s of members." (Richard Wilson, personal communication, Richmond Savings Credit Union, October 17, 1986) Part of the hesitation in expanding c r e d i t union a c t i v i t i e s to include CBED i s due to the fact that c r e d i t unions are regional lending i n s t i t u t i o n s and are perceived to be less stable than national 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 nearly one in fi v e c r e d i t unions operates under the supervision of the Credit Union Deposit Insurance Corporation, t h i s i s a s i g n i f i c a n t constraint. This r a t i o represents an unusually high proportion of cr e d i t unions under supervision compared to previous periods but i t i s expected that the number peaked in 1986 and w i l l begin to decline shortly. (Superintendent of 102 Credit Unions, Ministry of Consumer and Corporate A f f a i r s , Conversation A p r i l 10, 1987.) The branch banking system on the other hand, i s able to draw on deposits from regions across the country and i s not r e l i a n t on one or two sectors of the economy. The subject of the v i a b i l i t y of regional banking has received much attention of late with the collapse of three western Canada regional banks. It i s argued that the demise of the Northland and Canadian Commercial Banks prove that regional banking i s not viable and that confidence in regional banking has been undermined. (Alberta Report, October 14, 1985) Contrary opinion asserts that the Northland and Canadian Commercial Banks were badly managed and thus their f a i l u r e does not necessarily r e f l e c t negatively on the v i a b i l i t y of regional banking. (Richard A l l e n , personal communication, B.C. Central Credit Union, October 20, 1986; Estey Commission Report 1986) To the contrary, the longevity and growth of the cre d i t union system to date i s proof that regional banking can work. Previous r e s t r i c t i o n s on lending practises may be another contributing factor to c r e d i t union i n e r t i a in making CBED related business loans. Before 1971 cre d i t unions in B.C. were r e s t r i c t e d from making business loans under the terms of the Credit Union Act. Fortunately new c r e d i t union l e g i s l a t i o n introduced in 1971 allows c r e d i t unions freedom in granting loans up to a sp e c i f i e d amount. Beyond that amount, loans must be approved by the Credit Union Deposit Insurance Corporation (CUDIC) the industry's insuring and regulatory agency. Owing in part to their reliance on personal and mortgage 1 0 3 loans, c r e d i t union managers and loans o f f i c e r s often do not have the expertise required to evaluate CBED proposals. In addition, because many managers receive their t r a i n i n g in a chartered bank before moving to the cr e d i t union, they lack the philosophical grounding important for evaluating projects with both economic and s o c i a l perspectives. Aside from c r e d i t union s t a f f , the board i s often c r i t i c i z e d for a lack of f i n a n c i a l expertise necessary to evaluate business proposals a r i s i n g through CBED organizations. Volunteer boards should not be dismissed altogether because of a lack of technical expertise; rather their knowledge of the c r e d i t worthiness of individual members can contribute a great deal to a loan assessment. In recognition of the tra i n i n g requirements of st a f f and board members, the Credit Union Deposit Insurance Corp. and B.C. Central Credit Union have developed training programs and established small business lending p o l i c i e s which might remove some of the barrie r s to business lending. However, there are no CBED tr a i n i n g programs in place. Summary Based on t h i s consideration of the credit union's s u i t a b i l i t y for p a r t i c i p a t i n g in CBED, i t appears that there are several problem areas which tend to l i m i t c r e d i t union p a r t i c i p a t i o n . F i r s t l y , the prospects for credi t union p a r t i c i p a t i o n in CBED are limited by a lack of w i l l . While early cre d i t union philosophy was consistent with CBED, todays credit union members are not committed to the credit union for 104 philosophical reasons and do not expect the c r e d i t union to use their deposits to develop the l o c a l economy. Consequently, the li k e l i h o o d that the cr e d i t union w i l l act a l t r u i s t i c a l l y to partic i p a t e in CBED i s limited. If on the other hand, i t can be demonstrated that there i s benefit to be gained by cr e d i t union members through community based economic development, the chances are increased. This may be achieved by educating c r e d i t union members and directors as to the nature and potential benefits which may result from CBED. The democratic nature of the c r e d i t union i s what makes i t unique in r e l a t i o n to other f i n a n c i a l i n s t i t u t i o n s and therefore a t t r a c t i v e to community based economic development groups. A cooperative decision making framework means the credi t union i s subject to community control and thus able to respond to the needs of the l o c a l community. F i n a l l y , the mutual benefit gained from a strong l o c a l economy further strengthens the link between cr e d i t unions and CBED. Financial p a r t i c i p a t i o n by c r e d i t unions in CBED i s further limited by high levels of r i s k associated with lending to CBED. There are a number of ways in which ri s k can be reduced for credit unions lending to CBED groups; through government support such as loan guarantees and insurance, innovative f i n a n c i a l mechanisms, by taking an equity position in CBED enterprises, and by providing management advice in conjunction with loans. Each of these either reduces the risk element of the loan or compensates the credit union for i t s added r i s k . Therefore, the constraints posed by excess ri s k are not insurmountable; indeed further investigation of alternative mechanisms for reducing 105 ri s k should be undertaken. The c r e d i t union can perform other roles in support of CBED, such as that of a f a c i l i t a t o r or catalyst for CBED in the community, providing management advice to CBED organizations, and by making cred i t union f a c i l i t i e s available for CBED a c t i v i t i e s . To date, the greatest indicator of the c r e d i t union's s u i t a b i l i t y to par t i c i p a t e in CBED i s the fact that several cr e d i t unions are currently doing so; thi s i s the subject of Chapter 5. 106 CHAPTER 5 A REVIEW OF CREDIT UNION  EXPERIENCE IN COMMUNITY BASED ECONOMIC DEVELOPMENT Introduction The previous chapter referred to the fact that several c r e d i t unions in B r i t i s h Columbia and in other j u r i s d i c t i o n s across the country and indeed around the world have taken considerable action in the name of community based economic development. The purpose of t h i s chapter i s to provide some empirical support for the argument that c r e d i t unions should p a r t i c i p a t e in community based economic development by presenting an i l l u s t r a t i v e sampling of the nature of cre d i t union p a r t i c i p a t i o n in CBED both in B r i t i s h Columbia and elsewhere. Due to geographical considerations, the focus of t h i s chapter w i l l be on two B r i t i s h Columbia c r e d i t unions which are currently engaged in CBED; Nanaimo D i s t r i c t Savings Credit Union and Vancouver City Savings Credit Union. However, a brief description of c r e d i t union i n i t i a t i v e s operating in Quebec, the United States and Spain i s included in Appendix A to show the breadth of cre d i t union a c t i v i t y in support of CBED. The f i r s t B r i t i s h Columbia case i s Nanaimo D i s t r i c t Savings Credit Union, a medium-sized c r e d i t union with 18,000 members located in Nanaimo on Vancouver Island. While t r a d i t i o n a l l y active in community a f f a i r s , Nanaimo D i s t r i c t Savings Credit Union is currently taking part in 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 in some d e t a i l l a t e r in the chapter. Vancouver City Savings Credit Union (VanCity) on the other hand, i s a large urban based c r e d i t union with 21 branches across the Lower Mainland. The programs of interest at VanCity are the Seed Capital Project and E t h i c a l Growth Fund, both introduced within the l a s t two years. The rationale for choosing these cre d i t unions i s twofold. F i r s t l y , aside from Community Congress for Economic Change or CCEC, they are the only two B.C. c r e d i t unions with spec i a l i z e d programs in place for community based economic development. 1 That i s not to say however, that other cre d i t unions are not pursuing the same or similar objectives in the course of their everyday operations without using the term CBED. Secondly, Nanaimo and VanCity both draw their membership from a geographic common bond, the most prevalent common bond in B.C. and in most provinces (at least in terms of membership.) The difference in size between the two cr e d i t unions allows for an appreciation of the scale of a c t i v i t y possible in each case. The purpose of thi s chapter i s to determine i f the examples described herein indicate that ex i s t i n g c r e d i t unions are capable of becoming 'CCEC i s a small Vancouver c r e d i t union whose objectives give p r i o r i t y to the f i n a n c i a l needs of cooperative organizations such as housing coops, consumer coops and other non-profit organizations. Although CCEC i s a good example of a cr e d i t union following the pr i n c i p l e s of CBED, i t has not been chosen as a case for detailed study because i t does not represent a l i k e l y model for exist i n g c r e d i t unions. Rather i t would require that a new cr e d i t union be formed, and a corresponding h o l i s t i c commitment to CBED. 108 involved in CBED. Therefore, i t i s useful to concentrate on the models suited to the untapped potential of existing c r e d i t unions, as t y p i f i e d by Nanaimo and VanCity cre d i t unions. Methodology The methodology adopted here involves 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 cr e d i t unions in support of CBED. These w i l l be analysed against a framework for the evaluation of alte r n 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 s derived from Fisher's (1983) normative framework. This i s an i n s t i t u t i o n a l perspective based on the notion that alternative s p e c i f i c a t i o n s of property rights a f f e c t the nature of the outcomes 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 useful when applied to the c r e d i t union since i t makes e x p l i c i t the "powers, r e s p o n s i b i l i t i e s , rights and l i a b i l i t i e s of those affected by or involved in the productive process." (Fisher 1983) Orthodox economic assessment techniques are inappropriate because the s o c i a l benefits to individuals and communities are d i f f i c u l t to quantify. As such, the outcomes as well 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 against a set of s o c i a l value c r i t e r i a developed in the next section. Since the programs in question have only recently been implemented i t i s too early to perform a comprehensive evaluation of these i n i t i a t i v e s . Instead the purpose of t h i s chapter i s to document the i n i t i a t i v e s , comment b r i e f l y on their 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 observations regarding the strategies followed, relationships with other community organizations, 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 for t h i s chapter: personal interviews and correspondence with s t a f f and board members of both c r e d i t unions, l i s t e d in Appendix B; and published information contained in annual reports, internal documents, newsletters, newspapers and magazines. The four broad s o c i a l value c r i t e r i a postulated by Fisher are as follows: 1) individual growth and development 2) equality and cooperation in s o c i a l relationships 3) s o c i a l and b i o l o g i c a l continuity 4) expansion of knowledge and free inquiry An appropriate set of c r i t e r i a for evaluating a cr e d i t union involved in CBED w i l l now be developed from the above general s o c i a l value c r i t e r i a . Derived from the requirement of individual growth and development, the f i r s t c r i t e r i o n i s a test of the program's a b i l i t y to meet economic objectives such as increasing the amount of wealth or economic a c t i v i t y in the community through job creation and economic d i v e r s i f i c a t i o n . This must be done in a manner that ensures the cr e d i t union's continued economic v i a b i l i t y . The credi t union w i l l remain useful as an actor in the community development process only i f i t i s able to remain solvent. This c r i t e r i o n may be compared to that of e f f i c i e n c y in conventional economic analysis where the 110 aim i s to produce the maximum value of output using cost minimizing techniques of production and considering market demand. The number of jobs created and the dol l a r value of increased economic a c t i v i t y are used to test for t h i s c r i t e r i o n . The second c r i t e r i o n implies that equity should be a consideration in the a l l o c a t i o n of cr e d i t union investments such that d i s p a r i t i e s in income and wealth are reduced among individuals and among regions. If job creation i s the tool or strategy employed then i t should be directed to those most in need. Furthermore, development should create good jobs; a l l jobs are not equally s a t i s f a c t o r y . Clearly, the quality of job, which depends of the l e v e l of pay, s k i l l s required, length of employment as well as the actual nature of the job, have a bearing on i t s d i s t r i b u t i v e e f f e c t s . The p r i n c i p l e of cooperation inherent in the second s o c i a l value c r i t e r i o n and which Fisher applies to community reinvestment statutes and public banks in the United States, i s im p l i c i t in the operations of a cr e d i t union. Credit unions are by d e f i n i t i o n cooperative i n s t i t u t i o n s owned and controlled by their membership. Therefore, the extent to which the cooperative model i s promoted as a form of business enterprise by the cr 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 equity. The t h i r d c r i t e r i o n holds that the locus of credi t union a c t i v i t y in CBED should be the l o c a l community. The p r i n c i p l e impetus for CBED in many communities i s loss of l i v e l i h o o d and a determination to remain in the community. Therefore, community 111 economic development should aim to replace l o s t jobs. A broader interpretation of the word community could also be applied to the c r e d i t union's community development a c t i v i t i e s . It would attempt to determine i f the programs or p o l i c i e s directed at CBED help to b u i l d a sense of s e l f reliance among community residents in the economic sphere. Assessing t h i s type of effect is d i f f i c u l t as the CDC l i t e r a t u r e points out (Cummings and Glaser 1983; Mier and Wiewel 1983), nevertheless, I w i l l attempt to comment on t h i s c r i t e r i o n in each case. F i n a l l y , i n s t i t u t i o n a l arrangements that provide greater exposure to f i n a n c i a l and other information useful in the community economic development process are preferred over those that do not. Educating community members and building l o c a l capacity to engage in community based economic development are p o t e n t i a l l y useful roles for 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 considered in assessing the programs i n s t i t u t e d by Nanaimo and Vancouver c r e d i t unions. B r i e f l y , they are considerations of 1) e f f i c i e n c y , 2) equity and cooperation, 3) community, and 4) education. The c r i t e r i a represent a broad perspective on the role 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 not i n t e r n a l l y consistent c r i t e r i a . It i s l i k e l y that the objective 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 of equity and community. This does not l i m i t their usefulness, but rather helps to c l a r i f y the trade-offs inherent in any undertaking with multiple objectives. The following section describes the p a r t i c u l a r programs undertaken by each c r e d i t union, then seeks to assess 1 12 each program in l i g h t of i t s own objectives and the c r i t e r i a set out above. Assessment of Community Based Economic Development I n i t i a t i v e s Nanaimo D i s t r i c t Savings Credit Union Nanaimo D i s t r i c t Savings Credit Union has been active in the community since i t s formation in 1946. Past involvement included leasing furniture and equipment to the l o c a l community college and providing premises for the consumer cooperative. In fact, two branches of the c r e d i t union are situated on the same premises as Hub Co-op. The c r e d i t union appears to be well integrated into the l o c a l community, as evident by the monthly meeting of the cred i t union, Hub Co-op, Creduco Services (the insurance arm of the c r e d i t union) and Greater Nanaimo Housing Corporation, a wholly owned subsidiary 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 relationship with C o l v i l l e Investments - are further evidence of this longstanding commitment, in spite of the fact that the c r e d i t union has been under supervision by the CUDIC for several years. Faced with dim economic prospects since the early 1980s the c r e d i t union decided to take some decisive action in support of community based economic development together with other community groups. The l o c a l economy i s dependent on the forestry industry which has suffered a great loss in employment in the l a s t seven years. The current unemployment rate on Vancouver Island remains high 113 at 14.7 percent in January 1987. Community Ventures Account The Community Ventures Account i s a revolving loan fund set up at the c r e d i t union, which was sponsored by Malaspina College and another community organization, to reduce youth employment and to contribute to the economic health of the l o c a l area. The account i s funded by credit union members who can choose to accept a reduction in the rate of interest paid on their deposits in savings accounts-and term investments. The remainder i s then assigned to the Community Ventures Account which i s administered by a non-profit society c a l l e d the Nanaimo Community Ventures Society. It i s comprised of representatives of the Kiwanis Club, Malaspina College and the cre d i t union. The College and Kiwanis Club are responsible for the provision of business advisory support to individual applicants and the c r e d i t union looks after the accounting of the fund. Members of a l l three organizations s i t on the board which makes lending decisions. Students (or others) aged 15 to 24 are e l i g i b l e for assistance from the fund, although exceptions are possible for older students. The CVA began accepting deposits in September 1984; the f i r s t loans were to be made in the spring of 1986. However, by the end of February 1987 only $3000.00 had been contributed to the CVA, primarily from the Malaspina Student Association, i t s faculty association and various community organizations. With thi s amount the CVA has not been able to finance any projects 1 14 although there are plans to fund one or two student projects in the summer of 1987. The general public has not been very responsive to fund r a i s i n g e f f o r t s on behalf of the Community Ventures Account. Informal attempts by CVA st a f f to determine the reason for an apparent lack of community support found two general reactions. F i r s t l y , some residents expressed the view that young people do not need additional help since they are already the target of many government programs. The second reason put forward i s the be l i e f that the economic sit u a t i o n w i l l improve shortly, so these measures are unnecessary. The society i s currently investigating some alte r n a t i v e strategies to raise money for the Community Ventures Account. The manner in which Nanaimo Credit Union has chosen to structure the Community Ventures Account does not pose a threat to the f i n a n c i a l s t a b i l i t y of the cr e d i t union or i t s depositers (members). Rather i t i s a very conservative, tentative i n i t i a t i v e in this respect. Money i s raised from credit union members v o l u n t a r i l y for the purpose of developing the l o c a l economy, rather than from the cr e d i t union's loan p o r t f o l i o or retained earnings. This contribution i s similar to a charitable donation, although i t does not receive the favorable tax treatment of a donation which was considered infeasible at the time the Account was created. The option also exists for members to simply make a straightforward donation to the CVA. The fund's objectives are consistent with the equity c r i t e r i o n since i t aims to reduce youth unemployment in the region. This group is disadvantaged in two ways. F i r s t , in 115 Nanaimo as elsewhere, unemployment f a l l s disproportionately on the shoulders of those aged 15 to 24 years. Secondly, young people borrowing for business purposes experience even greater d i f f i c u l t y than adults in gaining access to debt financing since their personal equity lev e l s are low. So, in the sense that youth employment in the region i s increased, the program w i l l contribute to a more equitable 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 goal to promote cooperative enterprises. CVA funds are r e s t r i c t e d to youth businesses in the Nanaimo Regional D i s t r i c t , where they would contribute to the region's employment base, at least temporarily. If one were to take the meaning of the term community further so as to mean a sense of "commonality in action," the analysis becomes more d i f f i c u l t . The Community Ventures Account is.an extremely small scale, low v i s i b i l i t y project which has not, as of yet, had any appreciable impact on the community or i t s morale. I n s t i l l i n g young people with the "entrepreneurial s p i r i t " i s an i m p l i c i t objective of the CVA, somewhat consistent with the educational c r i t e r i o n set out above. Experience gained from a summer business venture may very well prove to be a long term investment in human resources. It does not f u l f i l l the broader conception of capacity building which i s concerned with a c o l l e c t i v e rather than individual education in economic decision-making, beyond that of small business. However the lack of funds and corresponding i n a b i l i t y to make any loans so far, make i t d i f f i c u l t to guage the impact of the CVA on the community. 116 Summary - Community Ventures Account There are several useful- insights to be gained from Nanaimo's brief experience with the Community Ventures Account. F i r s t l y , i t i s an extremely small scale operation whose impacts on the community are not l i k e l y to be large, even i f or when loans are made. Many community based economic development e f f o r t s are similar in th i s respect; they are small i n i t i a t i v e s tackling extremely large, longstanding and complex economic and s o c i a l problems. Furthermore, in the case of the Community Ventures Account, the question begging to be asked i s , can the existing method of r a i s i n g money sustain the experiment? Would some proven 'successes' increase the rate of contributions? In terms of i n s t i t u t i o n a l structure, partnering with other community groups would appear to be a good way of tapping additional expertise and e l i c i t i n g broader community support for the project. Small cred i t unions l i k e Nanaimo are not l i k e l y to have the s t a f f , in terms of time or expertise, to carry out a l l of the tasks associated with community based economic development. The Community Ventures Account also i l l u s t r a t e s the common tendency of CBED to target groups which t r a d i t i o n a l l y have d i f f i c u l t y in entering the labour force, in th i s case youth. C o l v i l l e Investments Corporation (CIC) Nanaimo D i s t r i c t Savings Credit Union works on an informal basis with C o l v i l l e Investments, a subsidiary of a l o c a l employment society, to lend to small business to stimulate l o c a l 1 17 economic development. C o l v i l l e Investments i s an investment fund which seeks to encourage private sector employment through f i n a n c i a l and technical assistance, but on a much larger scale than the Community Ventures Account. The c r e d i t union's involvement i s i n d i r e c t ; i t considers the recommendations made by C o l v i l l e on behalf of loan applicants in i t s loan approval process. In addition, C o l v i l l e w i l l sometimes guarantee a credit union loan to a prospective small business, enabling the c r e d i t union to make a loan which otherwise might not have been feasible from the c r e d i t union's perspective. The relationship works the other way around as well; the c r e d i t union w i l l d i r e c t a potential business c l i e n t to C o l v i l l e for advice and counselling. C o l v i l l e Investments was established in 1980 as a subsidiary of Nanaimo Community Employment Advisory Society (NCEAS). The l a t t e r ' s objectives include "development of a strategy which would result in a more stable, d i v e r s i f i e d l o c a l economy providing increased employment opportunities." (NCEAS 1986) NCEAS is a community development corporation largely funded by the Employment and Immigration Commission through LEDA, LEAD and now the Community Futures Program. The NCEAS has two arms, one p r o f i t making, the other non-profit. Its non-p r o f i t employment development a c t i v i t i e s generally focus on environmental issues, such as the Nanaimo River Salmonid Enhancement Program. C o l v i l l e i s a p r o f i t seeking organization, but any p r o f i t s accruing to C o l v i l l e as a result of i t s investments must be re-invested to further i t s objectives. 118 C o l v i l l e i s governed by an eight member board of d i r e c t o r s . Since there i s no formal r e l a t i o n s h i p between the c r e d i t union and C o l v i l l e , there are no c r e d i t union staff 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 for assistance, although these are not i n f l e x i b l e . F i r s t l y , the enterprise receiving assistance must be located within Nanaimo Regional D i s t r i c t and secondly, the proposed project must demonstrate potential for commercial v i a b i l i t y and job creation. If the proposal i s for f i n a n c i a l assistance of some kind, a number of additional 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 that the applicant must have been rejected by conventional lenders. The remainder are t y p i c a l investment c r i t e r i a . (NCEAS 1986) The types of assistance provided by CIC include counselling, market analysis, r e f e r r a l to other l o c a l resources, assistance with preparation of f i n a n c i a l statements, f e a s i b i l i t y studies, and loan proposals, c a p i t a l on an equity or debt basis, and follow up counselling such as accounting and marketing. What has C o l v i l l e been able to accomplish with the credit union's assistance over the l a s t six years in terms of new businesses and employment generation? According to the NCEAS annual report, as of March 31, 1985, CIC had helped to create 342 f u l l and part-time jobs through investments of $717,000 since 1980. In 1984-85 most of the jobs created were in the service sector and 14 out of 22 firms that received loan funds were existing businesses. The t o t a l cost per job (including 119 monies levered in from other sources such as the cr e d i t union) was $11,650.00. No figures are available to show the cre d i t union's d i r e c t involvement with CIC. If outside sources are not included, the t o t a l cost per job was only $3058.00. This l a t t e r figure represents government monies allocated to CIC for the purpose of investment and administration costs. The d i r e c t benefits which accrued to the l o c a l community from 1984-1985 investment of $298,900 were considerable, when money levered in from other sources t o t a l l i n g $1,177,000 i s included. Approximately $2.7 m i l l i o n in l o c a l expenditures are estimated to have resulted from t h i s investment according to CIC, an estimate comprised of l o c a l wages, materials, and overhead costs associated with running a business, but excludes the cost of imported materials. 1 From a business or e f f i c i e n c y perspective, the organization has been quite successful in i t s investments, achieving a debt-loss r a t i o lower than the industry norm. This may well be attributed to the l e v e l and q u a l i t y of technical assistance provided by C o l v i l l e . (Alberni-Clayquot Development Society 1984) The strategy whereby the c r e d i t union coordinates i t s resources with those of a community group i s a good one. From the c r e d i t union's perspective, the r i s k normally associated with small business lending i s reduced by the assistance provided by C o l v i l l e to the entrepreneur and in some cases, a 1The figure of $2.7 m i l l i o n is derived from the 1984-85 NCEAS annual report and i s based on projected f i r s t year revenues and expenses of firms i n i t i a t e d through CIC a c t i v i t i e s . 120 loan guarantee. Also, c r e d i t union s t a f f time devoted to business loans i s substantially reduced. Given the interest demonstrated by Nanaimo and D i s t r i c t Savings Credit Union in CBED, i t would seem that there i s scope for an expanded working rel 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 in support of CBED. C o l v i l l e has been quite successful in meeting i t s own objectives concerning job creation in the private sector according to the figures presented e a r l i e r . However, the proportion of jobs created in the service sector i s of some concern since these tend to be low wage, part-time or temporary in nature. CIC f a c i l i t a t e s the formation and expansion of what may be termed marginal businesses. This i s due to the requirement that f i n a n c i a l assistance be li m i t e d to those rejected by conventional f i n a n c i a l i n s t i t u t i o n s , consistent with the equity c r i t e r i o n . It i s l i k e l y based on the assumption that small businesses experience d i f f i c u l t y in gaining access to financing as i l l u s t r a t e d in Chapter 3. Furthermore, in r e s t r i c t i n g loans to those who would not be served otherwise, the society's p o l i c i e s are contributing to a more equitable d i s t r i b u t i o n of income in the region through expanded employment opportunities. The locus 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 , consistent 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 record in educating the community towards s e l f - r e l i a n c e in economic matters is unclear, however the solutions i t promotes are highly 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 Credit Union's involvement with CIC provides an example of i n d i r e c t c r e d i t union p a r t i c i p a t i o n in CBED. C o l v i l l e i s the lead agency in t h i s case; the c r e d i t union plays a secondary or support r o l e . A combination of federal funds through Community Futures, c r e d i t union loans and community group support has contributed to expanding the volume of economic a c t i v i t y in the Nanaimo area p o t e n t i a l l y on a much larger scale than the c r e d i t union (or community group) could achieve separately. The pai r i n g of public investment through CIC and private investment through Nanaimo Credit Union would appear to be a good model for other c r e d i t unions to follow. The investment strategy followed by CIC r e f l e c t s the prev a i l i n g ethos of "entrepreneurship" more so than one of community-based economic development per se. As mentioned previously, CIC supports businesses which would not receive financing in the conventional sense, but when provided with business counselling to supplement the financing can achieve posit i v e r e s u l t s . Emphasis i s on the individual business person - to t h i s point there have been no cooperatives or community type businesses aided by CIC. This might be attributed to the fact that cooperative businesses require a d i f f e r e n t sort of counselling expertise than t r a d i t i o n a l businesses. Perhaps this might be an opportunity for the c r e d i t union to play a more active role in association with CIC. 1 22 Vancouver City Savings Credit Union Vancouver City Savings Credit Union has also directed 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 c r e d i t union policy beginning in 1983. In 1983 and in subsequent board elections, the "Action Slate" comprised of team of a c t i v i s t s including some NDP MLAs, assumed control of VanCity's board of d i r e c t o r s . They contended that the cr e d i t union was straying from i t s o r i g i n a l mandate es p e c i a l l y in making loans for speculative real estate ventures outside the province. Loans were subsequently r e s t r i c t e d to the Vancouver area. Philosophical issues aside, the move was also a pragmatic one since the credi t union was losing money in i t s a c t i v i t i e s elsewhere; three times as many problem loans originated outside the GVRD than within GVRD boundaries. U n t i l 1984 VanCity's asset base r e f l e c t e d that of the cre d i t union system as a whole - heavily biased towards r e s i d e n t i a l and to some extent commercial mortgages. In 1986, almost 90 percent of VanCity's lending was secured by mortgages, both r e s i d e n t i a l and commercial. Personal loans account for si g n i f i c a n t portion of assets as well, just less than 10 percent. Since 1984 however, VanCity has slowly expanded i t s business lending, but i t remains a fra c t i o n of other lending, about 2 percent. (Vancouver City Savings Credit Union 1987) Vancouver City Savings Credit Union has a reputation as a highly innovative and trend setting c r e d i t union. Numerous now commonplace f i n a n c i a l services were f i r s t offered by VanCity, such as the f i r s t d a i l y interest savings account in Canada. At 123 the same time, (or perhaps because of this) i t i s the largest c r e d i t union in Canada with 21 branches across the Lower Mainland, and almost one quarter of the entire asset base of the c r e d i t union system in B.C. Furthermore, VanCity was recently named as one of the top one hundred employers in Canada for ' s p i r i t ' by the Financial Post. (Innes, Perry and Lyons 1986) It received 'very good' ratings according to the following c r i t e r i a : benefits, job security, atmosphere, job s a t i s f a c t i o n , communications and personal development. VanCity also garnered alot of attention with i t s unsuccessful attempt to purchase the assets of the Bank of B r i t i s h Columbia. In a c r e d i t union newsletter, the rationale behind the move was explained. Our concern was that the province and community we serve would lose 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 decision making authority was a good thing for a l l of us here in B.C. We were also concerned about a potential loss of jobs. (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 for l o c a l people" theme in i t s advertising using the slogan "Where money works for people in B.C." However, VanCity's "progressive" actions have been viewed with dismay by some cr e d i t unions. They fear that their goals do not coincide with those of VanCity. Since VanCity dominates the B.C. c r e d i t union system in terms of sheer size they worry that any fal s e move on VanCity's part could prove damaging for the whole movement. 124 Seed Capital Project In contrast to the Nanaimo c r e d i t union's j o i n t p a r t i c i p a t i o n in CBED with other community groups, VanCity pursues these goals independently. It i n i t i a t e d the Seed Capital Project on a p i l o t basis in January 1986, making $500,000 available in the f i r s t year for loans to small businesses meeting certain c r i t e r i a . The c r e d i t union's stated objectives are to: stimulate the l o c a l economy, encourage employment generation, and encourage new businesses that would otherwise not get a s t a r t . A fourth i s ten t a t i v e l y included, that being support for three cooperative enterprises. (David Cox, VanCity, personal communication, May 7, 1986) Each loan i s capped at $150,000 so that VanCity can reach those small businesses not well 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 . Its target group d i f f e r s from that of the t r a d i 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 in that loans are made to persons without the requisite personal equity, but who have completed a new business program at a community college or university. In doing so VanCity i s e s s e n t i a l l y recognizing an investment in human resources as equity. Loans are made to businesses located in the GVRD and which are engaged in export or import replacement. Furthermore, one job must be created for each $20,000 to $30,000 invested by VanCity. The program i s implemented in house by a former venture c a p i t a l i s t , who plays a key role in the loan approval process and in providing management advice to the applicants. A committee of the board of directors approves each loan. 125 As of December 1986 eight business projects had been financed under the program, creating a t o t a l of 21 large l y f u l l -time jobs at approximately $10,000 to 15,000 per job. (David Cox, VanCity, personal communication, March 19, 1987) An additional $500,000 i s allocated for the second year of the Seed Capital Project. Although the intent of the program i s to provide f i n a n c i a l assistance, several applicants received a considerable amount of business counselling even though the decision was made not to fund these p a r t i c u l a r proposals. Most of the firms financed are t r a d i t i o n a l small businesses, but one of the i n i t i a t i v e s funded i s p a r t i c u l a r l y innovative. It involves construction of street huts for handicapped coffee vendors, under a jo i n t arrangement with the Federal Business Development Bank (FBDB). From a f i n a n c i a l perspective, VanCity's loans have proved to be secure, at least at this early date. There have been no loan losses in the f i r s t year of the project's operation although two of the eight are experiencing some d i f f i c u l t y . The prospect of losing some of the $500,000 allocated for the f i r s t year of the program i s a real one. But with the advantage of large si z e , VanCity feels that the r i s k i s not a c r i t i c a l one for the f i n a c i a l s t a b i l i t y of the c r e d i t union. The primary role of education in the Seed Capital Program is i n s t r u c t i v e . Education i s used as a proxy for an actual equity investment in the company. This r e f l e c t s the emphasis placed on human resources in the l o c a l development l i t e r a t u r e . Furthermore, t h i s mechanism substantially increases the access 126 of Seed Capital financing to those without the f i n a n c i a l resources to put up some personal equity, meeting the equity c r i t e r i o n . However, l i m i t i n g applicants to graduates of enterprise education programs has proven to be too r e s t r i c t i v e . Measures are being taken to investigate a l t e r n a t i v e s . Another promising feature of the Seed Capital Project i s i t s goal of funding three worker cooperatives the f i r s t year. However, although several queries were made regarding worker cooperatives, none have been funded. Again the tendency for CBED to be reduced to purely small business development i s evident, es p e c i a l l y where no government funds are involved. 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 introducing a loan guarantee fund for credit union programs of t h i s nature was raised in the l e g i s l a t u r e recently. While the status of t h i s proposal in unclear, past experience with loan guarantee programs, esp e c i a l l y the Small Business Loans Act (SBLA) reviewed in Chapter 3 reveal some potential problems with t h i s approach. VanCity's common bond encompasses the entire Lower Mainland from the Sunshine Coast to Hope. Although Seed Capital monies are r e s t r i c t e d to businesses in 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 in building l o c a l capacity to develop. Residents of such a large area w i l l not l i k e l y experience an enhanced sense of control over economic matters as a consequence of th i s project. Rather, an advertising campaign of the kind described above is more l i k e l y to foster a sense of l o c a l pride. 127 Summary - Seed Capital Project VanCity's Seed Capital Project i l l u s t r a t e s the advantages of large size in implementing an innovative community based economic development program. It i s able to apply a substantial amount of money from retained earnings to the program, however thi s sum represents only a fr a c t i o n of one percent of the credit union's t o t a l loan p o r t f o l i o in 1986. Unfortunately there are very few large c r e d i t unions in Canada with the poten t i a l to carry out a program of this magnitude. What i s clear from this project, as from the C o l v i l l e experience, i s the c r i t i c a l importance of management advice in f a c i l i t a t i n g marginal businesses. The Seed Capital Project Manager even asserts that his role as an advisor is as important to the success of a business as that of the owner. While there was some consideration given to the notion of a business advisory group at the outset, VanCity chose to pursue an independent strategy with the Seed Capital Project. E t h i c a l Growth Fund VanCity's E t h i c a l Growth Fund i s included in t h i s section with some q u a l i f i c a t i o n s . It i s not an i l l u s t r a t i o n of community based economic development in the same manner as the previous examples. Rather, i t can better be characterized as another way in which s o c i a l objectives are applied to economic decision-making in a cr e d i t union or as the "intersection of idealism and shrewd investing." (Equity, October 1986) Nevertheless, the Et h i c a l Growth Fund i s relevant to t h i s discussion because i t 128 has a number of interesting implications for CBED and can in fact be linked with the VanCity's other program, the Seed Capital Project. The same framework for evaluation w i l l be applied 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 in Canadian corporations 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 individual subscriptions into a pool which i s then invested in stocks, bonds, or mortgages by professional money managers. The current cumulative worth of those investments i s expressed as a "unit" value; the investor purchases x amount of units. According to VanCity, the f i v e e t h i c a l c r i t e r i a are commonly held e t h i c a l standards of Canadians. Investments are limited to: * Companies with a registered head o f f i c e in Canada and whose equities 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 progressive i n d u s t r i a l relations with their s t a f f but are not necessarily unionized. * Companies that conduct business only with countries where r a c i a l equality p r e v a i l s . * Companies who produce products or services only for c i v i l i a n s . * Energy companies whose major source of revenue are from non-nuclear energy products. Corporate a c t i v i t i e s are monitored through the media, consultations with special interest groups and through holders 129 of the fund at annual meetings. Written submissions are also i n v i t e d . The ensuing debate concerning the "success" of the fund focuses on whether economic objectives are s a c r i f i c e d when subjected to the foregoing e t h i c a l constraints. 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 sensible investment and that companies which abide by these e t h i c a l standards are l i k e l y to stay healthy in the long run. The other view assumes that any kind of r e s t r i c t i o n on investment w i l l necessarily reduce the return on the fund. Whether t h i s i s actually the relevant question i s debatable. Some people are w i l l i n g to take a reduced return on an investment of t h i s nature for the s a t i s f a c t i o n of knowing that i t meets their e t h i c a l standards. What about the e t h i c a l c r i t e r i a themselves? Are they a reasonable representation of Canadian moral standards and i f so, are they being adequately met? There are some obvious ommissions. For example, there are no environmental r e s t r i c t i o n s on the fund as there are in other s o c i a l l y conscious mutual funds. The issue of human rights abuse i s another possible c r i t e r i a for exclusion from the fund. Among the e t h i c a l mutual funds available in North America, VanCity's would appear to be less r e s t r i c t i v e than most. A sampling of other mutual funds reveals some additional p o l i c i e s : exclusion of companies producing alcohol, tobacco, gambling or gambling products and pornographic material; and one e t h i c a l fund favors companies with worker p a r t i c i p a t i o n . (Pax World Fund Inc., Dreyfus Third 130 Century Fund, Calvert Social 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 available to VanCity members in B r i t i s h Columbia, i t has recently been offered for sale through other c r e d i t unions and investment brokers across Canada. The minimum purchase i s $500 in comparison with an industry norm of $1000 and subsequent purchases may be made in amounts of $100 or more. This enables smaller investors to take part, a bow in the d i r e c t i o n of increased a c c e s s i b i l i t y , and therefore equity. The E t h i c a l Growth Fund c l e a r l y gets top marks as an instrument for educating the public about the p o s s i b i l i t i e s of applying 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 previously viewed as purely f i n a n c i a l decisions. The fund's overwhelming popularity from the outset however suggests that the public didn't need educating, rather there was a latent demand for such an investment vehicle. This point has not been lost on several investment companies in Canada who have since 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 implications of the E t h i c a l Growth Fund for community based economic development? In the sense that i t i s able to raise the general l e v e l of awareness regarding the s o c i a l aspects of economics, an important p r i n c i p l e of CBED, the E t h i c a l Growth Fund is s i g n i f i c a n t . The question of the e f f i c a c y of l o c a l l y based strategies in the face of the g l o b a l i z a t i o n of 131 the economy i s also raised. Is i t ultimately possible to r e s t r i c t c a p i t a l flows, either on a geographical basis as with CBED, or on some kind of e t h i c a l basis as with the E t h i c a l Growth Fund? Capital i s extremely mobile among companies and across national boundaries. In fact, in the long run, the whole notion of e t h i c a l investing may be l i t t l e more than "comfortable e t h i c a l posturing." (Equity, October 1986) Mutual funds in general have negative consequences for l o c a l development (often small-scale) because of their role in the ' 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 for large sums of money look for opportunities to invest in large blocks, e f f e c t i v e l y barring small companies from t h i s source of equity c a p i t a l . Community based economic development i s in part an attempt to counteract these tendencies. Does VanCity recognize the contradictory nature of the Seed Capital Project and the E t h i c a l Growth Fund? While the i r goals do not c o n f l i c t , the outcomes do. One way of correcting the problem might be to a l l o c a t e a portion of the E t h i c a l Growth Fund's assets to the Seed Capital fund for the purpose of financing CBED. This strategy was recommended by Dr. Ted Jackson, member of the Canadian Social Investment Study Group. (Globe and Mail, January 2, 1987; Jackson 1984) Some Concluding Remarks The Nanaimo and VanCity experience in employing s p e c i f i c " 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 in several ways. F i r s t of 132 a l l , t h e i r actions in respect of CBED show that there i s some interest in CBED among B.C. credi t unions. Secondly, the two examples demonstrate some of the preferred strategies, roles and relationships with other community organizations, that may employed by a credit union in support of CBED. With the exception of the E t h i c a l Growth Fund, they follow an enterprise development strategy comprised of financing and management advice directed toward marginal businesses, those with l i t t l e or no equity and whose owners or employees are t r a d i t i o n a l l y hard to employ. With respect to meeting their own objectives, the results have been mixed. The Community Ventures Account has been extremely slow off the mark and w i l l possibly need some adjustments before any success i s achieved. When evaluated against the four c r i t e r i a of e f f i c i e n c y , equity and cooperation, community, and education, the s p e c i f i c p o l i c i e s of the two credit unions fare quite well. However, i t i s premature to 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 since they have only been in place for a short time. Credit union e f f o r t s in support of CBED are highly innovative in that they represent attempts by private community based organizations to deal with socio-economic problems in a manner which r e l i e s on l o c a l i n i t i a t i v e . One way of characterizing the role of the Nanaimo and VanCity i n i t i a t i v e s within the credi t union system i s that of exposing the p o s s i b i l i t i e s of credit union p a r t i c i p a t i o n in CBED, and as such they may have a s i g n i f i c a n t demonstration effect on other cre 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 attention to the 'bottom l i n e ' . It i s imperative that 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 i s maintained. As such there i s a marked tendency for the cre d i t unions to take a conservative approach to the whole question of community based economic development. The magnitude of the i n i t i a t i v e s described here i s small in r e l a t i o n to c r e d i t union assets or loans and in terms of jobs created. For example, i t i s not l i k e l y that an e x i s t i n g c r e d i t union 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 assets as does CCEC. The c r i t i c a l role of what is termed management advice in tandem with f i n a n c i a l assistance i s consistent in each of the c r e d i t union strategies outlined above. This function c l e a r l y distinguishes these programs from t r a d i t i o n a l small business loans a v a i l a b l e from most f i n a n c i a l i n s t i t u t i o n s , but are similar to small business development strategies of the Federal Business Development Bank for instance. Furthermore, these c r e d i t unions demonstrate the tendency and u t i l i t y of involving other community organizations in the CBED process. Credit unions are only one among many i n s t i t u t i o n s or organizations which can play a role in CBED. 134 Typology of I n s t i t u t i o n a l Arrangements It is useful to summarize the distinguishing features of the d i f f e r e n t strategies employed by the credit unions reviewed here. The diagram in Figure 4 i s a two dimensional representation 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 horizontal axis depicts the l e v e l of commitment displayed by the c r e d i t union in i t s pursuit of community based economic development. P a r t i a l commitment means that only a portion of the cre d i t union's resources are directed toward CBED usually in the form of a program or project. H o l i s t i c commitment refers to a c r e d i t union such as CCEC in Vancouver whose operations are completely devoted to community based economic development. The v e r t i c a l axis represents the capacity in which the c r e d i t union i s acting, either alone or in concert with another community organization. The c r e d i t union i s c l a s s i f i e d as the lead agency i f i t i n i t i a t e d the program in question. Examples of each are placed in the diagram for i l l u s t r a t i v e purposes. Figure 4 Ins s t i t u t i o n a l Arrangenu ;nts H o l i s t i c Commitment P a r t i a l Commitment Credit Union Acting Alone CDCU, CCEC CEE, CLP Seed Capital Project Credit Union Acting in Concert: Leading Agency Support Agency C o l v i l l e , CVA 1 3 5 A l l o f t h e B.C. examples p r e s e n t e d i n t h i s r e v i e w o f c r e d i t u n i o n s f o l l o w e d what m i g h t be c a l l e d an i n c r e m e n t a l a p p r o a c h t o CBED; p a r t i a l - c o m m i t m e n t o f t h e i r r e s o u r c e s and some r e l a t i o n s h i p w i t h a n o t h e r community o r g a n i z a t i o n . On t h e o t h e r hand, Community C o n g r e s s f o r E c o n o m i c Change (C C E C ) , t h e C a i s s e s D ' E n t r a i d e Economique ( C E E ) , C a j a L a b o r a l P o p u l a i r e ( C L P ) , and t h e Community Development C r e d i t U n i o n (CDCU) w h i c h a r e d e s c r i b e d i n A p p e n d i x A r e p r e s e n t a more h o l i s t i c commitment t o t h e n o t i o n o f CBED. A t p r e s e n t , t h e c r e d i t u n i o n i n i t i a t i v e s r e v i e w e d h e r e a r e i n t h e e a r l y s t a g e s o f d e v e l o p m e n t when v i e w e d f r o m a community d e v e l o p m e n t p e r s p e c t i v e , w h i c h i s n e c e s s a r i l y a l o n g t e r m one. T h e i r i m p o r t a n c e i n t h e l o c a l e c o n o m i e s i n w h i c h t h e y a r e s i t u a t e d has y e t t o be d e t e r m i n e d , b u t t h e y s t a n d o u t a s u s e f u l e x a m p l e s o f t h e p o t e n t i a l f o r c r e d i t u n i o n s t o p a r t i c i p a t e i n CBED. As e x i s t i n g community b a s e d f i n a n c i a l i n s t i t u t i o n s , t h e y c a n p o t e n t i a l l y s e r v e as a v i t a l e l e m e n t i n t h e community d e v e l o p m e n t p r o c e s s . C h a p t e r 6 s y n t h e s i z e s t h e f i n d i n g s p r e s e n t e d h e r e and r e l a t e s them t o t h e l a r g e r q u e s t i o n o f t h e r e l a t i o n s h i p between CBED and c r e d i t u n i o n s . 136 CHAPTER 6 SUMMARY AND CONCLUSIONS This chapter consists of four parts. The f i r s t reviews and summarizes the findings of the previous f i v e chapters. The second part frames these findings into some s p e c i f i c conclusions regarding the role of the cr e d i t union in community based economic development, and discusses some of the larger issues raised by t h i s research. In the t h i r d section, some suggestions regarding avenues for further research are made in l i g h t of the foregoing findings. F i n a l l y , the l a s t section presents a series of proposals addressed to l o c a l c r e d i t unions, B.C. Central Credit Union, and CBED organizations, to enhance the prospects for c r e d i t union p a r t i c i p a t i o n in CBED. Summary of Findings Community based economic development i s an increasingly popular response to the fundamental problems facing Canadian resource communities as a consequence of both structural economic change and inadequate government programs to ameliorate longstanding regional d i s p a r i t i e s and high unemployment rates. Community based economic development is a process of development in a broad socio-economic sense, which i s c a r r i e d out at the lo c a l l e v e l , using l o c a l resources, with some measure of community c o n t r o l . A small business development strategy i s frequently used. Because l o c a l economies are increasingly integrated into the global economic system, global 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 strategy. Nevertheless, theories of l o c a l development id e n t i f y two meaningful sources of community based economic development -human resources and l o c a l ownership of productive enterprises. T y p i c a l l y , three of the s i g n i f i c a n t barriers to CBED which operate to i n h i b i t the f u l l u t i l i z a t i o n of l o c a l resources are a lack of: information, 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 capacity. Chapter 3 looked at the experience of CBED organizations in terms of obtaining financing from banks and federal government employment programs. Chartered banks have not generally been receptive to CBED up to t h i s point in time, but do lend to t r a d i t i o n a l small businesses and provide some management advice of a s t r i c t l y entreprenuerial nature. Government employment programs are better at removing informational barriers to CBED, but the bureaucratic nature of funding delivery frustrates the l o c a l autonomy required by CBED organizations. 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 certain c h a r a c t e r i s t i c s which make them well-suited to pursue a community based economic development strategy. Several attributes such as a cooperative organizational structure and a l o c a l orientation do serve the cr e d i t union in good stead for CBED. However, several serious constraints are associated with c r e d i t union p a r t i c i p a t i o n in CBED: f i r s t l y , members are not motivated by ideological commitment to CBED p r i n c i p l e s ; and secondly, CBED enterprises are regarded as highly risky ventures 138 which c r e d i t unions cannot afford due to their non-profit status. Another constraint is the perceived i n s t a b i l i t y of regional banking. Despite these constraints, some cr e d i t unions have demonstrated the w i l l and the a b i l i t y to p a r t i c i p a t e in CBED. Chapter 5 documented programs in support of CBED operating at Nanaimo D i s t r i c t Savings Credit Union and Vancouver City Savings Credit Union. Notwithstanding the preliminary nature of the research, the two examples were found to contain some useful insights regarding strategy, relationships with other community organizations, 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 to view their role primarily as one of financing CBED by creating innovative ways to replace equity. They have also accompanied th e i r loans with management advice of some sort which seems to be an integral component of the lending process. Each i n i t i a t i v e fared quite well when tested against 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 for the evaluation of a community development f i n a n c i a l i n s t i t u t i o n . A typology of the i n s t i t u t i o n a l arrangements employed by the credit unions was developed to organize some of the alte r n a t i v e arrangements. Prospects for Credit Union P a r t i c i p a t i o n in CBED There are several important conclusions which may be drawn from t h i s examination of the basis for credi t union p a r t i c i p a t i o n in community based economic development. These observations are related to the three research questions put 139 forward in Chapter 1. F i r s t l y , according to the theories of l o c a l economic development described in the l i t e r a t u r e , and the p r a c t i c a l experience of CBED organizations with banks and federal CBED programs, there appears to be substantial scope for an alter n 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 such as the credi t union to perform some v i t a l roles in f a c i l i t a t i n g a process of economic development in the l o c a l community. The objectives of CBED are inconsistent with those of t r a d i 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 such as chartered banks, but banks are receptive to 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 instigated through an enterprise development strategy of CBED. However, the banks l i k e l y w i l l finance only the best loan applicants from the point of view of ris k and rate of return. The importance of federal employment programs as a funding source for CBED organizations suggests that the f i n a n c i a l i n s t i t u t i o n s referred to above are not meeting the needs of CBED. The common emphasis placed on employment creation for marginal groups in society such as women and native people is l i k e l y responsible for t h i s . While government i s better suited than banks to support CBED, funding for permanent job creation through CBED has c l e a r l y not been a p r i o r i t y of the federal employment ministry. Thus, the search for alternative means of financing among CBED groups i s c l e a r l y linked to a lack of commitment on the part of the federal government. This lack of commitment i s also i l l u s t r a t e d by the frequency with which these 140 programs are disbanded and re-introduced under another name, featuring s l i g h t changes in e l i g i b l i t y c r i t e r i a and program regulations. The LEAD program frustrates some of the key p r i n c i p l e s of CBED such as l o c a l control, i n i t i a t i o n from within the community, and socio economic development. The second research question asked i f c r e d i t unions are well-suited to accommodate the p r i n c i p l e s of CBED. Two fundamental constraints presently act to prevent c r e d i t unions from taking an active role in CBED and make them less than well suited to do so. F i r s t and foremost i s the lack 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 cr e d i t union. Credit unions are viewed solely as banking i n s t i t u t i o n s by the i r members and boards, and consequently have exhibited l i t t l e i nterest in CBED to date. Secondly, even i f cr e d i t unions did exhibit the w i l l to par t i c i p a t e in CBED, high leve l s of ri s k associated with CBED enterprises are problematic for thi s non-p r o f i t organization. Should cre d i t unions develop an interest in CBED, reconciling low p r o f i t margins with high lev e l s of ri s k w i l l be of primary importance. There are a number of innovative features which the cr e d i t union could introduce to reduce r i s k or at least be compensated for ris k taking of t h i s nature, which deserve further investigation. However, cr e d i t union p a r t i c i p a t i o n in CBED i s not lim i t e d to f i n a n c i a l involvement. Credit unions can act to provide management advice to 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 chief reason why credit unions are a t t r a c t i v e from the 141 point of view of CBED would appear to l i e in their cooperative, democratic decision making structure. This provides a mechanism whereby member needs can be incorporated into decision making, by virtue of the one-member, one-vote decision rule. In a situation where the c r e d i t union does possess the desire to part i c i p a t e in strengthening the l o c a l economy, the c r e d i t union board can represent these needs. The evidence concerning the advantages of l o c a l control and l o c a l ownership for community based economic development i s not conclusive. However, the cre d i t union does exhibit a f l e x i b i l i t y in p o licy making and corresponding a b i l i t y to adapt to the l o c a l s ituation which arise because of i t s parochialism. However, the c r e d i t union i s s t i l l constrained by the need to reconcile risk and reward in lending to CBED enterprises. The f i n a l research question asked whether there i s empirical evidence to substantiate the assertion that c r e d i t unions are capable of p a r t i c i p a t i n g in CBED and consequently should become involved in their l o c a l community in t h i s way. Credit union interest in the notion of CBED i s not widespread at t h i s time, but there are a number of innovative i n i t i a t i v e s underway in various places. The two c r e d i t union examples presented here are evidence of t h i s , as are the three cr e d i t union i n i t i a t i v e s described in Appendix A. Both B.C. c r e d i t unions demonstrated strong resolve to p a r t i c i p a t e in CBED. This i s v i v i d l y i l l u s t r a t e d by Nanaimo D i s t r i c t Savings Credit Union which was under supervision by the Credit Union Deposit Insurance Corporation 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 exi s t i n g c r e d i t unions (and the d i s t i n c t i o n i s a necessary one), are l i k e l y to pursue a cautious, conservative approach to CBED in 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 operations 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 cr e d i t union i n i t i a t i v e s described in the previous chapter have not had an appreciable impact on the i r respective l o c a l communities and do not represent a s i g n i f i c a n t share of credi t union resources. However, both cre d i t unions are r e l a t i v e l y new to t h i s and a longer term view i s necessary when speaking about CBED. The advantage to thi s approach i s that there are 134 cr e d i t unions in B.C. which ostensibly could part i c i p a t e in CBED in an incremental way without the e f f o r t involved in forming a new cr e d i t union. Despite the cautiousness of these two credi t unions, they are held up as models to the rest of the credit union system in respect of CBED, and are viewed as progressive and innovative. The discussion regarding the role of the c r e d i t union in community based economic development should be placed in the larger context of funding for CBED in general. As we have seen, employment development and economic growth within a regional or l o c a l context can be described as somewhat of a common denominator in CBED, both of which are regarded as the mandates of the federal and p r o v i n c i a l governments. These two levels of government spend inordinate amounts of money on various job 143 creation and regional development schemes, but with limited success. If CBED i s also a public good, then i t i s important to ask why a private i n s t i t u t i o n such as a cr e d i t union should undertake to finance or otherwise support CBED. In thi s case, should CBED be financed through tax d o l l a r s , rather than on the backs of c r e d i t union members? There i s a strong argument for government support for CBED as opposed to private funding through c r e d i t unions. However, given the inadequacy of regional development po l i c y , short-term job creation and CBED programs such as LEAD, the l i k e l i h o o d that government w i l l play a s i g n i f i c a n t role in funding CBED i s limi t e d . Consequently, CBED organizations w i l l have to depend on alternative sources such as the c r e d i t union. There i s scope for government support of cr e d i t union i n i t i a t i v e s in favour of CBED, through a loan guarantee program for example. Furthermore, there are several inte r e s t i n g alternatives for CBED financing beside credit unions, such as labour investment through pension funds, s o c i a l investment by church groups and revolving loan funds. Credit unions should be viewed as only one among many participants in f a c i l i t a t i n g community based economic development. In conclusion, while interest 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 potential barrier to cred i t union p a r t i c i p a t i o n a rises because they do not d i f f e r from banks in their actions and may not regard CBED as their r e s p o n s i b i l i t y . Education may serve to heighten interest in CBED among cr e d i t unions, es p e c i a l l y i f i t can be demonstrated that p a r t i c i p a t i o n is of 1 44 benefit to c r e d i t union members. Credit unions can make a contribution to CBED but i t is l i k e l y that their f i n a n c i a l role w i l l be limited u n t i l some mechanisms are found to mitigate the ri s k associated with lending to CBED enterprises. Other valuable options do exist for cr e d i t union involvement in CBED such as providing management advice, making c r e d i t union deposit-taking f a c i l i t i e s available to CBED groups and acting as a f a c i l i t a t o r in the community for CBED. Suggestions for Further Research One of the functions of preliminary research i s to ide n t i f y areas where further research would be advantageous. It i s possible to id e n t i f y several areas where further research could contribute to understanding the relat i o n s h i p between the credit union and community based economic development. F i r s t of a l l , i t would be ins t r u c t i v e to obtain 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 in CBED throughout Canada, where these a c t i v i t i e s occur, and the type of strategies and i n s t i t u t i o n a l arrangements employed. Of pa r t i c u l a r interest i s the Desjardins Group in Quebec which for instance, just completed the f i r s t ' s o c i a l audit' of i t s operations and provides equity c a p i t a l to cooperatives in the province through a subsidiary corporation. One suspects that a great amount of a c t i v i t y occurs in Quebec which i s b a s i c a l l y barred from view by virtue of the language b a r r i e r . A comprehensive evaluation of a p a r t i c u l a r credit union i n i t i a t i v e undertaken aft e r a sufficent period of time (seven to ten 1 4 5 years), would contribute to greater understanding of the potential impact of c r e d i t union i n i t i a t i v e s in respect of CBED. An interesting question r e l a t i n g to the cre d i t union might ask whether the t y p i c a l c r e d i t union functions as a community development f i n a n c i a l i n s t i t u t i o n in i t s own right by mobilizing l o c a l savings or providing community services? Does the c r e d i t union act to reduce leakages from the community economy in a way that chartered banks do not? Another related empirical question concerns whether cred i t unions do operate in a manner which distinguishes them from other f i n a n c i a l i n s t i t u t i o n s ? A good example would be Nanaimo D i s t r i c t Savings Credit Union; while i t has been unable to achieve much with the Community Ventures Account, i t appears to be integrated into the l o c a l community and cooperative sector in an important way. On a more strategic or operational l e v e l , two additional strands of research would be useful from the point of view of community based economic development in general. The prospect of a spec i a l i z e d loan guarantee fund for CBED lending means that further research 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 useful. In the same vein there are a number of technical and f i n a n c i a l issues raised by the prospect of c r e d i t unions becoming involved in CBED such as matching d i f f e r e n t l e v e l of risk or rate of return with investment and lending options available to cre d i t unions. An understanding of these issues i s c r i t i c a l to expanding the scope of c r e d i t union p a r t i c i p a t i o n in CBED. 146 F i n a l l y , no detailed study of the various long-term employment development programs of Employment and Immigration Canada has been carried out to date or at least made public. There are ostensibly some important questions surrounding the ef f i c a c y and value of these programs from the point of view of community based economic development. F i r s t of a l l , are the exist i n g programs r e a l l y CBED programs at a l l ? Do program requirements mean the projects are doomed to f a i l u r e by unsuitable terms and conditions, and continuous reorganization? Is the employment ministry the appropriate agency for delivery? On a broader l e v e l , i t i s also useful to consider the role of government in CBED. Proposals The proposals outlined below are directed toward three groups or organizations: l o c a l c r e d i t unions, B.C. Central Credit Union and community based economic development organizations in the province. These suggestions are p r a c t i c a l and arise in response to the constraints to c r e d i t union p a r t i c i p a t i o n described in Chapter 4 and weaknesses i d e n t i f i e d in the assessment of Nanaimo and VanCity c r e d i t union i n i t i a t i v e s . 147 Local Credit Unions should: 1) Become familiar with the experiences of other cr e d i t unions involved in CBED, with p a r t i c u l a r attention to strategies, community involvement, and i n s t i t u t i o n a l arrangements. 2) Investigate community organizations in their area that have a mandate for economic development, employment creation or s o c i a l service provision for thei r potential as partners in a CBED program. B.C. Central Credit Union It i s recognized that the i n i t i a t i v e s described below are contingent upon l o c a l c r e d i t union support. 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An Analysis of the  Role of Credit Unions in Capital Formation and Investment in Low  and Moderate Income Communities The National Federation of Community Development Credit Unions and Department of Health and Human Services. Dec 1986. Thompson, R o l l i e . No Ordinary Concern: The Law and Practise of  Credit Unions. Nanaimo: Creduco Services Ltd., 1978. Vancouver City Savings Credit Union. Annual Report 1986, 1985 Vancouver: 1987, 1986. Wolff, H. W. Coop Banking: Its Princi p l e s and Practice. London: P.S. King and Son, 1907. REGIONAL ECONOMIC DEVELOPMENT Anderson, O. And P. Boothroyd. Patterns, Progress and  Development Vancouver: UBC School of Community and Regional Planning. Discussion Paper #4, 1984. 151 Birch, David. "Who Creates Jobs" Public Interest 65 ( F a l l ) : 3-14, 1981. Brookfield, Harold. Interdependent Development London: Methuen and Co. Ltd., 1975. Coffey, William J . And Mario Polese. "Local Development: Conceptual Bases and Policy Implications." Regional Studies Vol. 19, No. 2, A p r i l , 1985. Pp. 85-93. Coffey, William J . And Mario Polese. "The Concept of Local Development: A Stages Model of Endogenous Regional Growth" Papers of the Regional Science Association Vol. 54, 1984. Davis, H. Craig and Lauren E. Davis. The Labor Exchange Trading  System: A Non-Monetary Approach to Community-Based Economic  Development. September, 1986. Economic Council of Canada. Li v i n g Together: A Study of Regional  D i s p a r i t i e s Ottawa: Supply and Services, 1977. Fisher, Peter S. "The Role of the Public Sector in Local Development Finance : Evaluating Alternative I n s t i t u t i o n a l Arrangements" Journal of Economic Issues 17: 13-53, March 1983. Friedmann, John and Clyde Weaver. Te r r i t o r y and Function: The  Evolution of Regional Planning London: Edward Arnold, 1979. Friedmann, John and Yvon Forest. The P o l i t i c s of Place: Towards  a P o l i t i c a l Economy of T e r r i t o r i a l Planning Los Angeles: Graduate School of Architecture and Urban Planning, University of C a l i f o r n i a , 1984. Martin, Fernand. " L'Entreprenueurship et le Developpement l o c a l : Une Evaluation." Canadian Journal of Regional Science. Vol. 9, No. 1, Spring 1986. Pp. 1-23. Myrdal, Gunnar. Economic Theory and Under-developed Regions London: Gerald Duckworth and Co. Ltd. 1957. Redburn, F. Stevens and Terry F. Buss, (eds.) Public P o l i c i e s  for Distressed Communities. Lexington, Mass.: D.C. Heath and Co., 1982. Savoie, Donald J . "Courchene and Regional Development: Beyond the Neoclassical Approach" Canadian Journal of Regional Science Vol. 9, No. 1, Spring 1986, pp. 69-79. Seers, Dudley. "The Meaning of Development" International  Development Review Vol. 19, No. 2, 1977 ( f i r s t pub 1966) Seers, Dudley. "The New Meaning of Development" International  Development Review Vol. 19, No. 3, 1977. 152 Shapira, P h i l i p and Nancey Leigh-Preston. "Urban and Rural Development in the Western United States: Emerging C o n f l i c t s and Planning Issues" Journal of Architectural and Planning Research 1:37-55 June 1984. Weaver, Clyde and Thomas I. Gunton. "From Drought Assistance to Mega-projects: F i f t y Years of Regional Theory and Policy in Canada" in Donald J . Savoie (ed.) The Canadian Economy: A  Regional Perspective Toronto: Methuen Publications, 1986. Weaver, Clyde. Regional Development and the Local Community:  Planning, P o l i t i c s and Social Context Avon: John Wiley and Sons, 1 984. COMMUNITY ECONOMIC DEVELOPMENT: THEORY AND PRACTISE Brodhead, P.D., Micheal Dector and Ken Swenson. Community- Based  Development: A Development System for the 1980's. Technical Study #3. Task Force on Labour Market Development. Ottawa: Supply and Services, 1981. Campfens, Hubert, (ed.) Rethinking Community Development in a  Changing Society. Guelph: Ontario Community Development Society, 1983. Clague, Micheal. Community Economic Development in B r i t i s h  Columbia. Report on a Pro v i n c i a l Seminar Vancouver: Social Planning and Review Council, January, 1985. Cummings, Scott and Mark Glaser. "An Examination of the Perceived Effectiveness of Community Development Corporations: A P i l o t Study" Journal of Urban A f f a i r s Vol. 5 F a l l 1983 pp. 315-330. Daniels, Beldon H u l l . The Mythology of Capital in Community  Economic Development Policy Note P79-2, Cambridge: Department of City and Regional Planning, Harvard University, 1979. Dorsey, Candas Jane and E l l e n T i c o l l . The Nuts and Bolts of  Community Based Economic Development. Edmonton: Edmonton Social Planning Council, 1984. Dykeman, Floyd W. A Return to the Past For a Rural Community- Based Planning and Action Programme For The Future: A Challenge  for Planners Paper presented at the Canadian Institute of Planners Conference. Vancouver: July 1986. Hayton, Keith. "Community Business: A New Role for the Planner" Planning Outlook Vol. 27, Issue (2) 1984, pp. 79-84. Highland Resources Ltd. Community Based Development in Canada:  Organizational Inventory and Needs Assessment Volume 1, Sydney, Nova Scotia: 1983. 153 Jackson, E. T. Community Economic Self-Help and Small Scale  Fisheries Ottawa: Dept. Of Fisheries and Oceans, 1984. Lotz, J . "Community Entrepreneurs" Policy Options Vol. 5 March-A p r i l 1984 pp. 40-42. MacLeod, G. "Profitable Community Development." Policy Options Vol. 6 No. 8 1985 pp. 20-22. MacLeod, Greg. New Age Business: Community Corporations That  Work Ottawa: Canadian Council on Social Development, 1986. Mier, Robert and Wim Wiewel. "Business A c t i v i t i e s of Not-for-P r o f i t Organizations" Journal of the American Planning  Association Vol. 49 No. 3 1983 Nic h o l l s , William and William A. Dyson. The Informal Economy Ottawa: Vanier Institute of the Family, 1983. Nielsen, Carol and Nancy McLeod. 1986 Resource Directory:  Community Economic Development for B r i t i s h Columbia Vancouver: SPARC, 1986. Owen, Thomas. Community Economic Development in Rural Canada:  Handbook for Pr a c t i t i o n e r s . Ottawa: Supply and Services, 1981. Ross, David P. and Peter J . Usher. From the Roots Up: Economic  Development as i f Community Mattered. Croton-on-Hudson: Intermediate Technology Group, 1986. Stinson, A. "Community Economic Development: Review A r t i c l e " Perception Vol. 6 January 1983 pp. 35-6. COMMUNITY AND COMMUNITY DEVELOPMENT Biddle, William W. And Loureide J. Biddle. The Community  Development Process: The Rediscovery of Local I n i t i a t i v e . New York: Holt, Rinehart and Winston, 1965. Chekki, Dan A. (ed.) Community Development: Theory and Method of  Planned Change. New Delhi: Vikas Publishing House, 1979. Cox, Fred M. Et a l (eds.) Strategies of Community Organization (th i r d edition) Itasca: F.E. Peacock, 1984. Lockhart, Alexander and Elizabeth Lockhart. Community: The  Literature Background for A. Lockhart's Planning 514 Lecture, Vancouver: School of Community and Regional Planning UBC. January 21, 1986. Roberts, Hayden. Community Development: Learning and Action Toronto: University of Toronto Press, 1979. 154 Warren, R. Social Change and Human Purpose; Toward Understanding  Action. Chicago: Rand MacNally Publishers, 1977. SMALL BUSINESS AND FINANCIAL INSTITUTIONS Bank of Canada. Bank of Canada Review Ottawa: September, 1986. Bearse, Peter J. (ed.) Mobilizing C a p i t a l New York: E l s e v i e r , 1982. Benson, John N. Pro v i n c i a l Government Banks: A Case Study of  Regional Response to National I n s t i t u t i o n s Vancouver: The Fraser I n s t i t u t e , 1978. Canadian Bankers Association. The Banks and the West: Facts,  Figures and the Future. Vol. 16, No. 2, July 1973. Canadian Federation of Independent Business. A Study of Job  Creation 1975 to 1982 and Forecasts to 1990. Toronto: 1983. Canadian Federation of Independent Business. 1985 Banking Survey Toronto: December 11, 1985. Hatch, James. Bank Financing of Small Business in Canada Executive Summary. London: University of Western Ontario, School of Business Administration, 1982. Hatch, James, Larry Wynant and Mary Jane Grant. Government Loan  Guarantee Programs for Small Business London: School of Business Administration, 1985. BIBLIOGRAPHIES Barbe, N. and J. Sekera. States and Communities: The Challenge  for Economic Action. National Congress for Community Economic Development and Council for Community Development, 1984. Council of Planning Librarians. F i f t e e n Years of Community-Based  Development: An Annotated Bibliography 1968-1983. #156, September 1985. Glasmeier, Amy K. Regional Planning and Economic Development: A  Bibliography Council of Planning Librarians, #112. May 1983. Shapira, P h i l i p . Economic Development Analysis and Planning in  Advanced Industrial Economies: A Bibliography Council of Planning Librarians, #111. June 1983. S t a l l s , Suzanne, Frank Manley and John Volkman. Community  Economic Development: Annotated Bibliography and Resource L i s t . (1st edition) Washington, D.C: National Center for Appropriate Technology, 1979. 155 APPENDIX A  OTHER CREDIT UNION INITIATIVES This section i s intended to give 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 outside B.C. s p e c i f i c a l l y : the caisse e'entraide economique in Quebec, the community development cred i t union in the U.S. and the Caja Laboral Populaire in Spain. These c r e d i t unions d i f f e r from those described in Chapter 5 in that they function almost exclusively to develop the l o c a l economy, much in the same vein as community based economic development. Caisse D'Entraide Economique The caisse d'entraide economique (CEE) originated in Quebec in the 1960s out of a concern for se l f r e l i a n t development in the context of the Quiet Revolution. 1 The CEE were cooperative f i n a n c i a l i n s t i t u t i o n s established to pool the savings of Quebecers l i v i n g in small towns and ru r a l areas for investment in l o c a l l y based enterprises. They were not associated with the Desjardins federation. As with many other CBED e f f o r t s , the CEE employed two strategies; f i n a n c i a l support and networks of "advisors" to a s s i s t residents in forming or expanding 'Owing to the extreme d i f f i c u l t y of obtaining detailed information concerning the CEE in english, t h i s discussion w i l l be b r i e f . 156 businesses. Investment shares c a l l e d " c a p i t a l s o c i a l " provided the vehicle to finance l o c a l economic development. By 1981 there were 77 CEE with 350,000 members and assets worth $1.4 b i l l i o n of which roughly 85 percent consisted of loans made within the l o c a l region. (Bureau de la s t a t i s t i q u e du Quebec, 1986) However, the caisse d'entraide economiques experienced a f i n a n c i a l c r i s i s in 1981, brought about in part by high interest rates. The caisses had been borrowing on a short term basis and lending on a long term basis. Both the p r o v i n c i a l government and the Canadian Deposit Insurance Corporation offered assistance to the caisses and by the end of 1985, several of the caisses had joined the Desjardins system and the remainder were restructured and renamed societe d'entraide economique. The CEE are just one example of an innovative cooperative f i n a n c i a l i n s t i t u t i o n operating in the province of Quebec. The Desjardins Group of caisses populaires also has a number of community development and venture c a p i t a l subsidiaries which are of interest to a consideration of c r e d i t union p a r t i c i p a t i o n in CBED. Community Development Credit Unions Community development c r e d i t unions (CDCU) are another inter e s t i n g system of c r e d i t unions, which, according to a recent study, are performing the important function of savings mobilization in low-income communities in the U.S. (NFCDCU 1986) CDCU are f i n a n c i a l cooperatives serving low-income neighbourhoods which have an e x p l i c i t mandate of community investment and which provide some insight to the consideration 157 of the role of cre d i t unions in community based economic development in Canada.1 There are approximately 400 CDCU in the U.S. with approximately 350,000 members. The impetus for most of these c r e d i t unions, many of which were chartered between 1960 and 1969, was the a n t i - r e d l i n i n g movement and concerns regarding disinvestment which occurred in American inner c i t y neighbourhoods at that time. (Caftel 1978) Interestingly, Community Action Agencies of the War on Poverty program served as sponsors for many limi t e d income cr e d i t unions. (NFCDCU 1986) Most CDCU have assets of less than $500,000, extremely small in comparison to B.C. c r e d i t unions. The CDCU's primary a c t i v i t i e s include basic savings and loans services consisting primarily of personal loans, r e s i d e n t i a l r e a l estate loans, other real estate loans and small business loans. The value of the average outstanding loan in 1984 was $2844. Despite the fact that CDCUs serve a high r i s k population they have not incurred dramatic losses, maintaining a bad debt r a t i o comparable to that of other f i n a n c i a l i n s t i t u t i o n s . (NFCDCU 1986) The study estimated that business loans to t r a d i t i o n a l and non-profit organizations created 16,000 to 17,000 jobs at a cost of $6000 per job from 1981 to 1984. CDCUs are able to pursue community development goals by 1CDCU d i f f e r from regular c r e d i t unions in that they possess a majority of low-income members in their f i e l d of membership which may be defined on an a s s o c i a t i o n a l , occupational or geographic basis. 158 virtue of some innovative p o l i c i e s and programs. F i r s t l y , CDCUs accept non-member deposits, mostly from individuals, churches, corporations and foundations, to expand their deposit base and subsequently to make more loans. These allow the cr e d i t union to withstand the d i f f i c u l t formative period and more s p e c i f i c a l l y to permit larger scale community development e f f o r t s than would otherwise be possible. A CDCU revolving loan fund was recently re-activated by Congress, which w i l l l i k e l y take the form of low-interest deposits in CDCUs and possibly some technical assistance for community economic development. CDCUs are also linked with Community Development Corporations in some communities and have in fact established t h e i r own CDCs in some cases. Caja Laboral Populaire Mondragon i s often referred to in 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 Laboral Populaire (CLP), the cre d i t cooperative associated with Mondragon producer cooperatives in the Basque region of Spain, i s viewed as a model of cre d i t union p a r t i c i p a t i o n in CBED. It was formed in 1959 s p e c i f i c a l l y to c a p i t a l i z e new cooperative enterprises and coordinate technical assistance to potential new enterprises. This was a highly innovative strategy since the history of cooperatives was one of isolated development of consumer, producer and credi t cooperatives. The motto of the CLP was 'Libreta o Maleta' meaning 'savings book or suitcase.' It 159 referred to the fact that by investing in their community, young Basques would not have to emigrate to find work. The Caja Laboral Populaire i s part of a complex system of cooperatives governing a l l aspects of everyday l i f e in Mondragon. Apart from the CLP and worker cooperatives, there i s a highly evolved cooperative education and s o c i a l security system which further support the long-term goals of the Basques. The Caja Laboral Populaire and Mondragon in general have been very successful in achieving t h e i r goals. By the early 1980s over 80 worker cooperatives had been financed creating over 17,000 jobs. Wismer and P e l l (1982) attribute the success of the CLP to the fact that l e g i s l a t i o n allows cooperative banks in Spain to pay higher interest rates on deposits than other f i n a n c i a l i n s t i t u t i o n s . The Caja Laboral Populaire i s unique among c r e d i t unions for i t s integration with other elements of the Mondragon system. Furthermore, the close working relationship between the Management Services D i v i s i o n of CLP and potential producer cooperatives suggests that there i s some connection between the qua l i t y and quantity of management advice and successful worker cooperatives. The Management Services Division of CLP has three main a c t i v i t i e s : promotion, assistance and engineering, for which i t employs economists, engineers, lawyers, urban planners and others. In order to promote the creation of new cooperatives, the CLP puts together bank experts and new coop managers who work together for several years preparing f e a s i b i l i t y studies and the l i k e . Once f i n a n c i a l support i s 160 committed, the CLP further guarantees continuing assistance to the cooperative should i t be required. 161 APPENDIX B LIST OF PERSONS INTERVIEWED All e n , Richard. Chief Economist, B.C. Central Credit Union. Vancouver: Interview October 20, 1986. Back, Ian H. Economist, Community Economic Development Branch, B.C. Ministry of Industry and Small Business Development. V i c t o r i a : Interview June 3, 1986. Cox, David. Manager, Seed Capital Project, Vancouver City Savings Credit Union. Vancouver: Interview May 7, 1986. Gordon, Larry. Communications Co-ordinator Credit Union Central of Ontario. Toronto: Interview by telephone, Feb 10, 1987. Hann, Brian. Manager, Independent Business, Royal Bank. Vancouver: Interview by telephone, December 15, 1986. Jardine, Keith. B. C. Central Credit Union, Vancouver: Interview August 13, 1986. Jessop, John. Social Planner, Vancouver Social Planning Department, Vancouver: Interview by telephone, June 4, 1 9 8 6 . E x e l l , Oksana. Director Provincial A f f a i r s . Canadian Federation of Independent Business. Vancouver: Interview August.12, 1986. Leach, Joy. Member, Board of Directors, VanCity Saving Credit 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 Corporation. Nanaimo: Interview by telephone Feb 10, 1987. McClure, David. Manager, Teachers Credit Union. Vancouver: Interview by telephone, October 9, 1986. Marzari, Darlene. Board Member, Vancounver City Savings Credit Union. Vancouver: Interview December 8, 1986. May, Ken. General Manager, Nanaimo D i s t r i c t Savings Credit Union. Nanaimo: Interview May 31, 1986. Olson, John. Manager, Alberni-Clayquot Development Society. Port Alberni: 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 . Executive Director, National Federation of Community Development Credit Unions, New York: Interview by 162 telephone March 24, 1987 Ruffin, Catherine. Manager, Community Congress for Economic Change (CCEC). Vancouver: Interview by telephone, May 26, 1986. Shantz, Barbara. Director, Community Futures, Employment and Immigration Commission. Vancouver: Interview August 12, 1986. Williams, Bob. Vice Chairman, Board of Directors, VanCity Savings Credit Union. Vancouver: Interview, May 13, 1986. 163 APPENDIX C SUMMARY OF FEDERAL AND B.C. GOVERNMENT PROGRAMS OF USE IN  COMMUNITY BASED ECONOMIC DEVELOPMENT7" (as at September 1986) FINANCIAL SUPPORT Federal Government Programs 1- Canada Employment and Immigration Commission (CEIC) Canadian Jobs Strategy, six program options Community Futures Innovations Job Development Job Entry S k i l l Investment S k i l l Shortage 2- Department of Regional Industrial Expansion (DRIE) Business Improvement Loans Industrial and Regional Development Program Native Economic Development Program Special Agriculture and Rural Development Act 3- Federal 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 Strategies Program Indian Economic Development Fund Provincial Government Programs 'Source: Nielson, Carol and Nancy McLeod. Community Economic  Development 1986 Resource Directory for B r i t i s h Columbia. Vancouver: SPARC, 1986. 1 - B.C. Development C o r p o r a t i o n Low I n t e r e s t Loan A s s i s t a n c e 2- M i n i s t r y of I n d u s t r y and Small B u s i n e s s A s s i s t a n c e to A s s o c i a t i o n s Community O r g a n i z a t i o n s f o r Economic Development Student Venture C a p i t a l Program T e c h n i c a l A s s i s t a n c e B.C. Technology A s s i s t a n c e Program 3- M i n i s t r y of M u n i c i p a l A f f a i r s P a r t n e r s i n E n t e r p r i s e f o r Economic Renewal 4- J o i n t F e d e r a l and P r o v i n c i a l Programs Small M a n u f a c t u r e r s I n c e n t i v e Program Tourism I n d u s t r y Development Sub-Agreement BUSINESS ADVISORY SERVICES  F e d e r a l Government Programs 1 - F e d e r a l B u s i n e s s Development Bank Bu s i n e s s I n f o r m a t i o n C e n t r e C o u n s e l l i n g A s s i s t a n c e f o r Small E n t e r p r i s e s F i n a n c i a l P l a n n i n g Program 

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