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Friday, March 13, 2009

The Lure of Local: Q&A with Michael Shuman from the Chronogram

We inhabit a world whose dominant mental model is big and global. For most people, “business” means large corporations with customers and facilities around the globe. Two hundred years ago, the typical person never traveled more than 75 miles from their home in his or her lifetime. Today, we think nothing of it if someone zips off to Peru or Thailand for a holiday.

Our century-old Culture of Big carries big risks. Imagine a global economy that was massively interconnected, totally dependent on a commodity with highly volatile pricing and profoundly disruptive geopolitical implications (like, say, oil), and subsidized in a manner that totally disregarded real environmental costs. Sounds pretty precarious, doesn’t it? Yet that is precisely what we have. The Culture of Big has brought us to the verge of a Big Collapse.

Could we be doing it differently? Yes, we could, by replacing “big” and “global” with “small” and “local.” Proponents of this increasingly popular economic strategy envision a web of thriving locally owned small businesses that collectively preserve local character and culture and bring our Main Streets back to life while ensuring the sort of stable, long-term economic foundation that increasingly appears beyond the reach of our top-heavy Culture of Big.

The local-economy meme isn’t new. It got its first big boost from E. F. Schumacher’s Small Is Beautiful in the early 1970s, and received new life from David Korten with works like When Corporations Rule the World (2001) and The Great Turning (2006). Another prominent bearer of the local-economy torch is Michael Shuman, whose books Going Local (2000) and The Small-Mart Revolution (2007) make a compelling case for local economic self-reliance. Shuman recently accepted a position as director of research and public policy for the Business Alliance for Local Living Economies (BALLE), an organization dedicated to building local economies. Earlier this year, I caught up with him to discuss Small versus Big in a time of dramatic change.

What’s the rationale for buying locally?
There are four strong arguments for why locally owned businesses contribute more to the economy than other businesses.

First, local businesses don’t move. They’re reliable generators of wealth for the local community. Local governments often focus on attracting or retaining big corporations, only to find that at some point down the road they flee. Local businesses stick around and generate income for years and often generations.
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Second, local businesses have a higher economic multiplier. What this means is that a dollar spent at a local business tends to circulate in the local economy longer. About six years ago, a study was conducted of economic multipliers in Austin, Texas. When a person spent $100 at a Borders bookstore, $13 stayed in the local economy. When the books were purchased at a locally owned bookstore, $45 out of the $100 recirculated locally. Many similar studies have been conducted and they all point to the same conclusion.

Third, local businesses have a size and character that is consistent with leading theories of what makes a community flourish. People want walkable communities. Megamalls and industrial aren’t compatible with this, but small and home-based locally owend businesses are. Communities built around locally owned businesses are also more appealing to the so-called “creative class,” a term coined by the social scientist Richard Florida to describe knowledge workers and other “creatives.” These people are a key driving force of economic development, and they’re drawn to communities that are diverse, entrepreneurial, and fun to live in—in short, communities with lots of locally owned businesses. In addition, tourists tend to be drawn to local businesses.

Fourth, local businesses have a smaller carbon footprint because their inputs and their markets tend to be more local.

To what extent is the culture shifting in the direction of buying locally? How much traction is the movement getting?

Over the last five years, what began as mostly a public curiosity has turned into a torrent of interest. This is because the main crises afflicting Americans are clearly solvable through greater localization. Take the challenge of unstable oil prices. The more we localize, the less vulnerable we are to unstable Arab potentates.
The sinking US dollar provides another example: imports are becoming more expensive. This means that even in manufacturing, now dominated by China, there is the prospect of local manufacturing becoming competitive again.

Finally, when you come to the financial crisis, which is the mother of all the crises we’ve had in recent years, there’s compelling empirical evidence that local banks have done much better than the global banks. They’ve been more prudent and more ethical.

In my experience it’s pricier to shop at locally owned businesses than at big-box stores and other national enterprises. Does this put a ceiling on the potential of the buy-local movement because it will only attract people with greater discretionary income?

The argument that nonlocal stores have cheaper prices is a total myth. It’s true that big-box stores have some great prices some of the time. However, it’s not the case that across the board, non-local stores always have lower prices. Annual studies of prescription drug prices in Maine find that chain drugstores charge more for drugs than local drugstores. And who would argue that Starbucks doesn’t carry a price premium?

When people learn about the true value of buying locally; that inevitably leads to increased consumption of local goods and services. Once people take into account things like the quality of the product, the reliability of the service, and the tenor of the sales transaction, they start to realize what a poor bargain many of the so-called deals at the chain stores really are.

We’re moving into a period of hard times that could rival the Great Depression. What will be the effect on the Buy Local movement?

Paradoxically, it will have a positive effect. An important philosophical premise underlies the buy-local movement—that people can do more with less inside their own communities. The economic crisis will bring the truth of this into sharp relief, and this in turn will fuel support for the local-economy movement.

Another factor is that over the next years, we’ll see hundreds of chain store companies and large banks go out of business. Local entrepreneurs will step into the vacuum these departures create.

It used to be that economies of scale favored the big players. Now that’s changing. Economies of scale are shrinking in the global economy, in large measure due to the rising costs of transportation. It’s becoming more cost-effective to source locally rather than ship something halfway around the world.

And then there’s the Internet, which enables people in the Hudson Valley and elsewhere to serve customers anywhere on the planet. The horizon of small-business opportunities, even in remote communities, is expanding tremendously.

It is also becoming increasingly expensive for people to travel a great deal. This, too, will accelerate the transition to local economies.

The New York Times recently ran a glowing article about the greening of Walmart. It used to be the company people loved to hate. Now its image is changing. As corporate sustainability reputations improve, will that undermine the Buy Local movement?

These are completely separate issues. I’ve never hung my argument on villainizing Walmart or any big corporation. Every business—big and small—contributes positively to the economy, and there are opportunities for more sustainable behavior at all scales of business. However, the fundamental arguments in favor of locally owned business are not altered by the somewhat better behavior of a large player. The Walmarts of the world will always have a lower economic multiplier. They will not have a positive effect on tourism, nor they will not create more livable communities. They will not support smart growth or creativity or entrepreneurship. They will not have a lower carbon footprint than similar locally owned businesses.

What impact will the Obama administration have on the Buy Local movement?

While the Obama administration will heighten interest and activity in localization, the impact will probably not be as great as people think. The administration is open to new ways of promoting local business, and it’s also receptive to socially responsible corporate forms. However, at the end of the day, it seems committed to continuing many of the big-business subsidization policies that have been relied on by previous administrations. The stimulus package and bank-bailout packages are greatly increasing the level of dollars going to large non-local companies and institutions.

Can the administration be pressured to transfer its support from big banks to smaller ones, from big-energy projects to smaller energy projects, from big farms to family farms, and from traditional economic development policies to supporting local entrepreneurship? We don’t know yet. At this point, the Obama administration seems to be stuck in the old “big” paradigm.

What are the most important changes in our macroeconomic system that we need to accelerate the transition to a locally focused economic system?

One important step would be to move investment capital out of failing Fortune 500 companies and into promising local businesses. There’s currently a significant capital-market anomaly: Half of our economy consists of small and local business, yet none of our investment dollars touch local business! This is a total market failure. One way to address it is by revisiting our securities laws and making it much easier for small investors to invest in small businesses. I would like to see the Obama administration waive securities-registration requirements for microbusinesses.

How can people get involved at the grassroots level in supporting the Buy Local movement?

The first thing to do is actually to “Think Local First”—that is, to prioritize locally owned businesses over nonlocal ones. People can also educate themselves at sites like smallmart.org and livingeconomies.org.

People can also get more “activistly” involved, for instance by developing a Local First campaign. These are programs to educate people about the benefits of buying locally.

Where do you think the Buy Local movement will be in five years’ time? What’s your reality-based vision of the future?

Ultimately, my vision for planetary prosperity is a world of increasingly self-reliant communities that trade only in the diminishing number of goods and services that they cannot provide for themselves. Paradoxically, a world of self-reliant communities might well see an increase in global trade, since self-reliance is a way of growing local wealth and global purchasing power. To give you a personal example of what I mean, I moved my mortgage from Bank of America to a credit union several years back. This made me several thousand dollars a year wealthier, some of which I now spend on single-malt whiskey from Scotland. A world of more self-reliant communities, moreover, is also a world with fewer causes of war, human rights abuses, and environmental malfeasance.

We won’t get to this world in five years. But I do believe that our economic paradigm will begin to shift in this direction, along with changes in our policies governing economic development and global poverty alleviation. We will start to understand that every innovation the Hudson Valley does for, say, food self-reliance, can, if shared globally, move the entire planet in a fundamentally more hopeful direction.

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