No 7-Eleven NYC, Labor, and “Free Markets”

This past Saturday (April 6), the local small-business association No 7‑Eleven NYC (N7E) held an event in Tompkins Square Park. This is how they advertised it:

n7e-tsp-announcement

I didn’t think I was going to be able to make it — I usually have a lot of work to do on Saturdays. As luck would have it, though, my mid-afternoon appointment got cancelled, so I was able to go. This is my review.

I guess the first thing I’d say is that N7E is undisciplined. They were supposed to begin at 1:00pm, but none of them arrived on time. Reverend Billy, an invited guest of theirs, paced back and forth waiting for them. They finally showed up around 1:10, carrying their signs and Wheel of Fortune.

I will discuss their activities in another post (perhaps). Today, I’ll just limit myself to their writings. This is the flier they handed out (I commend them for printing double-sided; at least they don’t waste paper):

n7e-tsp-flier1 n7e-tsp-flier2

Don’t strain your eyes trying to read it; I’ll enlarge the points I want to discuss.

n7e-tsp-flier1-blurb2

This is just deceitful. 7‑Eleven employs between seven and ten people per store (depending on the location), up to three-times more than a bodega.

The labor issue is probably the most significant one when comparing 7‑Eleven with bodegas. I’d like to point out something that happened just last week:

The workers at fast-food restaurants across the city went on strike. This is something that could never happen with bodega workers, for a number of reasons, the most important of which is that bodega workers are fragmented. Concentration of capital can enhance the solidarity of the workers, as more are brought into cooperation with each other by working in bigger firms.

On their web site, N7E’s propagandists insists that, in addition to employing more people, bodegas are, for workers, superior to chain stores, because bodega owners will hire convicted felons. I would love to see the statistics on this claim! However, on a more relevant note, they ignore that bodegas are exempt from most labor and health & safety laws:

  • Unemployment Insurance – Employees are paid in cash, so there is no record of their employment.
  • OSHA Requirements – If you have fewer than 25 employees, your penalty is cut by 60 percent. If your business has fewer than 10 employees, you’re exempt from many requirements that obligate you to report workplace injuries.
  • Discrimination Laws – Federal laws against discrimination in the workplace do not always apply to small businesses. Title VII of the Civil Rights Act of 1964 and Title I of the Americans with Disabilities Act apply to employers with 15 or more employees. The Age Discrimination in Employment Act applies only to employers of 20 or more people.
  • Employee Health Insurance – Beginning in 2014, employers will be expected to pay a “shared responsibility fee” for health insurance coverage under the terms of the Affordable Care Act. Small businesses are exempt from this rule. If your company has fewer than 50 employees, you have no healthcare responsibilities.1

Because bodegas workers are paid in cash, no taxes are withheld, leaving them with a large tax liability at the end of the year, and with no Social Security credits. Bodegas also frequently hire undocumented workers, whose protections are nil. Not only can they be fired for no reason, they are oftentimes threatened with deportation if they raise any objection.

nelp12

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N7E claims that 7‑Eleven’s presence in the neighborhood threatens the “free market”.

n7e-tsp-flier2-blurb1

I’ve already discussed this claim with an N7E ideologue in the Comments section of another blog, but I will point out to them, once again, that rather than it being threatened, this is exactly how the “free market” operates:

    The battle of competition is fought by cheapening of commodities. The cheapness of commodities demands, [all else being equal], on the productiveness of labour, and this again on the scale of production. Therefore, the larger capitals beat the smaller. It will further be remembered that, with the development of the capitalist mode of production, there is an increase in the minimum amount of individual capital necessary to carry on a business under its normal conditions. The smaller capitals, therefore, crowd into spheres of production which Modern Industry has only sporadically or incompletely got hold of. Here competition rages in direct proportion to the number, and in inverse proportion to the magnitudes, of the antagonistic capitals. It always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, partly vanish. [Emphasis mine]

I’m certainly not against fighting the “free market,” but people who know better can see N7E doesn’t know what they’re saying. A real grassroots campaign would be up-front about wanting to subvert the “free market” in their effort to establish the type of neighborhood they desire. They would understand that there’s no way that could be avoided. They would advocate for the people who work in the bodegas, instead of for the owners. They might even want to restrict the number of bodegas, as even they realize there is an over-abundance of them:

n7e-tsp-flier1-blurb1

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The same organization that works to protect the rights of undocumented workers has an unfavorable assessment of bodegas as places to shop, as well:

nelp23

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So this was an assessment of parts of their most current flier. I addressed their main fallacies. In the second bullet-point on page two, they claim that there is a ban in New York City on the sale of sodas over 16 ounces, which isn’t true, but isn’t worth the time to refute at any length.

I shot some video of the event. I have to watch it again to see if I want to comment on it. I might just upload it to YouTube and post a link to it.

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1Small Business Exemptions
2Good Food and Good Jobs for Underserved Communities
3Unregulated Work in the Grocery and Supermarket Industry in New York City

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Suburbanity

As I wrote in Why This? Why Now?, a big reason for me starting this blog was the sort of things I was reading in the Comments section of EV Grieve’s blog. I was struck by the provincialism displayed in many of the comments, directed at people who may have at one time lived in the suburbs, or visit from the suburbs, or at stores that are associated with the suburbs. At first I thought the commenters were just supercilious, and I’m sure that’s true of some of them, but the more I thought about it, the more I realized that what people were referring to as “suburban” was only incidentally suburban, or rather tautologically suburban.

When the International House of Pancakes opened on 14th Street, commenters railed against it as “suburban”. When it was announced that 7-Eleven would open on Avenue A and 11th Street, it was vilified as “suburban”, and the people who would shop there as suburban, living out their suburban childhoods, turning the dirty Lower East Side into a suburb. Here are some examples:

Commenter:
evg-suburb-120403-comment

Commenter:
evg-suburb-130306-comment

No 7-Eleven NYC meeting announcement:
evg-suburb-130108-n7e-announcement

So what are they opposed to? It has more to do with standardization than with geography. What is referred to as “suburban” is nothing less than the direction that retail-capital took after World War 2. This was the time that franchising grew significantly. Cities were too prohibitive to build in — ground rent was high, zoning and existing structures restricted what was possible — but the interstate highway system allowed for expansion outside of the city. The land they moved into was not only cheap but plentiful. If there had been enough cheap land in the cities in the 1950s, franchises would have developed here, because capital would not have moved to rural areas to seek higher returns.

There’s nothing wrong with critiquing franchising, but to confuse it as “suburban” masks the real driving force.

Capital Devalorization in the Inner City

This follows up on Investment in the Built Environment — Prologue, but I changed the title to “Capital Devalorization in the Inner City”.

The physical deterioration and economic devalorization of inner-city neighborhoods is a strictly logical, “rational” outcome of the operation of the land and housing markets. What follows is a rather schematic attempt to explain the historic decline of inner-city neighborhoods in terms of their institutions, actors, and economic forces involved. We might think of this explanation as a production-side corrective to traditional “filtering” theory. … It is assumed from the start that the neighborhoods concerned are relatively homogeneous as regards the age and quality of housing, and, indeed, this tends to be the case with areas experiencing redevelopment.

When a neighborhood is newly built the price of housing reflects the value of the structure and improvements put in place plus the enhanced ground rent captured by the landowner. But eventually sustained devalorization of neighborhood housing can take hold. This has three sources: advances in the productiveness of labor (allowing a similar structure to be produced at a lower value than was previously possible); style obsolescence; and physical wear and tear.

Clearly, property owners in many neighborhoods succeed in making major repairs and maintaining or even enhancing the value of an area’s housing. These areas remain stable. Equally clearly, there are areas of owner-occupied housing which experience the first stage of devalorization. Homeowners, aware of imminent decline unless repairs are made, may sell out and seek newer homes where their investment will be safer. At this point, after a first or subsequent cycle of use, there is a tendency for the neighborhood to convert toward a higher level of rental tenancy unless repairs are made. And since landlords use buildings for different purposes than owner-occupiers, a different pattern of maintenance will ensue. Owner-occupiers in the housing market are simultaneously both consumers and investors; as investors, their primary return comes as the increment of sale price over purchase price. The landlord, on the other hand, receives his or her return mainly in the form of house rent, and under certain conditions may have a lesser incentive for carrying out repairs so long as he or she can still command rent. Since the transition from owner-occupancy to tenancy is generally associated with a declining market, some degree of under-maintenance could be expected. With sustained under-maintenance in a neighborhood however, it may become difficult for landlords to sell their properties, particularly since the larger financial institutions will now be less forthcoming with mortgage funds; sales become fewer and more expensive to the landlord. Thus, there is even less incentive to invest in the area beyond what is necessary to retain the present revenue flow. This pattern of decline is likely to be reversed only if a shortage of higher-quality accommodations occurs, allowing rents to be raised and making improved maintenance worthwhile. Otherwise, the area is likely to experience a net outflow of capital, which will be small at first since landlords still have substantial investments to protect. Under these conditions it becomes very difficult for the individual landlord or owner to struggle against the economic declining which they have helped to induce. House values are falling and the levels of capitalized ground rent for the area are dropping below the potential ground rent (see Figure 3.2). The individual who did not under-maintain his property would be forced to charge higher than average rent for the area with little hope of attracting tenants earning higher than average income which would capitalize the full ground rent.

newurbanfrontier-3.2
Figure 3.2 The devalorization cycle and the evolution of the rent gap.

Real estate agents exploit racist sentiments in white neighborhoods that are experiencing declining sale prices; they buy houses relatively cheaply, and then resell at a considerable markup to African-American, Latino or other “minority” families, many of whom may be struggling to own their first home. [P]roperty values are usually declining before blockbusting takes place and do not begin declining simply as a result of racial changes in ownership. Once blockbusting has taken place, however, further decline in house values is likely, not just because of the racism of the housing market but also because of the inflated prices at which houses were sold and the consequent lack of resources for maintenance and mortgage payment suffered by incoming families.

Under-maintenance gives way to more active disinvestment as capital depreciates further and the landlord’s stake diminishes: house value and capitalized ground rent fall, producing further decreases in sale price. Disinvestment by landlords is accompanied by an equally “rational” disinvestment by financial institutions, which cease supplying mortgage money to the area. … In addition to mortgage redlining, there is also redlining on the part of homeowner insurance companies, which further induces economic disinvestment. What loans do occur at this stage allow properties to change hands but do little to encourage reinvestment in maintenance so the process of decline can simply be lubricated. Vandalism, sub-dividing of apartments, and refusal to make any repairs soon follow.

When landlords can no longer collect enough house rent to cover the necessary costs (utilities and taxes), building are abandoned. This is a neighborhood-scale phenomenon: the abandonments of isolated properties in otherwise stable areas is rare. Much abandoned housing is structurally sound, which seems paradoxical. But then buildings are abandoned not because they are unusable, but because they cannot be used profitably At this stage of declining, there is a certain incentive for landlords to destroy their own property through arson and collect the substantial insurance payment.

Gentrification is generally preceded by such a cycle, although the process need not occur fully for gentrification to ensue. … The objective mechanism underlying filtering is the depreciation and devalorization of capital invested in residential inner-city neighborhoods. This devalorization produces the objective economic conditions that make capital revaluation (gentrification) a rational market response. Of fundamental importance here is what I call the rent gap.

The rent gap is the disparity between the potential ground rent level and the actual ground rent capitalized under the present land use. As filtering and neighborhood decline proceed, the rent gap widens. Gentrification occurs when the gap is sufficiently wide that developers can purchase structures cheaply, can pay the builder’s costs and profit for rehabilitation, can pay interest on mortgage and construction loans, and can then sell the end product for a sale price that leaves a satisfactory return for the developer.

The process is initiated not by the exercise of individual consumer preferences, but by some form of collective social action at the neighborhood level. The state, for example, initiated much of the early gentrification in the US as a continuation of urban renewal projects, and though it plays a lesser role today, state subsidies and sponsorship of gentrification remain important. More commonly today, with private-market gentrification, one or more financial institutions will reverse a long-standing redlining policy and actively target a neighborhood as a potential market for construction loans and mortgages. All the consumer preference in the world will amount to naught unless this long-absent source of funding reappears; mortgage capital, in some form or another, is a prerequisite.

Three kinds of developers typically operate in recycling neighborhoods: (a) professional developers who purchase property, redevelop it, and resell for profit: (b) occupier developers who buy and redevelop property and inhabit it after completion; and (c) landlord developers who rent to tenants after rehabilitation. … Professional and landlord developers are important … but occupier developers are more active in rehabilitation than they are in any other sector of housing construction. Since the land has already been developed and an intricate pattern of property rights laid down, it is not always easy for the professional developer to assemble sufficient land and properties to make involvement worthwhile. The fragmented structure of property ownership has made the occupier developer, who is generally an inefficient operator in the construction industry, into a plausible vehicle for remaking devalorized neighborhoods.

Gentrification is a structural product of the land and housing markets. Capital flows where the rate of return is highest, and the movement of capital to the suburbs, along with the continual devalorization of inner-city capital, eventually produces the rent gap. When this gap grows sufficiently large, rehabilitation (or, for that matter, redevelopment) can begin to challenge the rates of return available elsewhere, and capital flows back in. Gentrification is a back-to-the-city movement all right, but a back-to-the-city movement by capital rather than people.

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Definitions

House Value
It will be necessary to separate the value of a house from its price. Only in the marketplace is value translated into price. And although the price of a house reflects its value, the two cannot be mechanically be equated since price (unlike value) is also directly affected by supply and demand conditions. Thus value considerations set the level about which the price fluctuates. Now with housing the situation is further complicated insofar as individual houses return periodically to the market for resale. The house’s value will also depend, therefore, on its rate of devalorization through use, versus its rate of revalorization through the addition of more value. The latter occurs when further labor is performed for maintenance, replacement, extensions, etc.

Sale Price
A further complication with housing is that the sale price represents not only the value of the house, but an additional component for rent since the land is generally sold along with the structures it accommodates. Here it is preferable to talk of ground rent rather than land value, since the price of land does not reflect a quantity of labor power applied to it, as with the value of commodities proper.

Capitalized Ground Rent
Ground rent is a claim made by landowners on users of their land; it represents a reduction from the surplus value created over and above cost price by producers on the site. Capitalized ground rent is the actual quantity of ground rent that is appropriated by the landowner, given the present land use. Thus, assuming for the moment an equation between price and value, sale price = house value + capitalized ground rent.

Potential Ground Rent
Under its present use, a site or neighborhood is able to capitalize a certain quantity of ground rent. For reasons of location, usually, such an area may be able to capitalize higher quantities of ground rent under a different land use. Potential ground rent is the amount that could be capitalized under the land’s “highest and best use” (in planners’ parlance) — or at least under a higher and better use. This concept is particularly important in explaining gentrification.

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Neil Smith, The New Urban Frontier (London/New York: Routledge, 1996) 61-71.

A Return From The Suburbs?

In Philadelphia and elsewhere an “urban renaissance” of sorts may well have begun in the 1950s and 1960s, but it was not fueled by any significant return of the middle class from the suburbs. Even at the height of the 1980s gentrification, suburban expansion proceeded apace. This would seem to cast doubt on the traditional cultural and economic explanations of gentrification as the result of altered consumer choices amid economic constraints.

If a dimension of consumer choice certainly remains, consumer sovereignty is more difficult to defend as a definitive explanation for gentrification. The problem is that gentrification is not simply a North American phenomenon but also emerged in the 1950s and 1960s in Europe and Australia, where the extent and experience of prior middle-class (an indeed working-class) suburbanization and the relation between suburb and inner city are substantially different.

If cultural choice and consumer preference really explain gentrification, this amounts either to the hypothesis that individual preferences change in unison not only nationally but internationally — a bleak view of human nature and cultural individuality — or that the overriding constraints are strong enough to obliterate the individuality implied in consumer preference. If the latter is the case, the concept of consumer preference is at best contradictory: a process first conceived in terms of individual consumption preference has now to be explained as resulting from cultural unidimensionality in the middle class — still rather bleak.

[T]he gentrifier as consumer is only one of many actors participating in the process. To explain gentrification according to the gentrifier’s preferences alone, while ignoring the role of builders, developers, landlords, mortgage lenders, government agencies, real estate agents — gentrifiers as producers — is excessively narrow. A broader theory of gentrification must take the role of the producers as well as the consumers into account, and when this is done it appears that the needs of production — in particular the need to earn profit — are a more decisive initiative behind gentrification than consumer preference. … [T]he relationship between production and consumption is symbiotic, but it is a symbiosis in which the movement of capital in search of profit predominates.

Consumer sovereignty explanations have taken for granted the availability of areas ripe for gentrification when this was precisely what had to be explained.

Neil Smith, The New Urban Frontier (London/New York: Routledge, 1996) 55-57.