Local economy key to resilient cities, says economist Shuman

...by Russ Grayson, September 2012

Michael Shuman

I've heard it twice now, the first time a few years ago and the most recent time just yesterday. That first time came from someone in Byron Bay decrying the appearance of look-alike fashion shops that, they said, were the same wherever in Australia you went. The second comment was from a friend fresh off the plane from Bali. She said that the new hotels there could be new hotels anywhere in the world they were so generic of design and feel.

What they were saying was that business that comes into an area from outside can create a bland, look-alike and homogenised experience for locals and visitors alike. Just the opposite to locally owned small to medium business that truly reflects the character of a region.

These comments would be familiar to Michael Shuman, the US attorney and economist who in September this year spoke to meetings on Australia's eastern seaboard. As a consultant with the Business Alliance for Local Living Economies and in his private consultancy work, Michael focuses on the economic and social impact of local business and has produced a number of books on the topic. He was in Australia several years ago and appeared at Sydney Customs House at Circular Quay for the Sydney Food Fairness Alliance and at the business breakfast at Bondi Pavilion for the Eastern Suburbs 3-Council Ecofootprint program.

Addressing a meeting called by Transition Sydney at the UTS, Michael spoke of the value of locally-owned small to medium business to the cities they work in. Maximising local ownership is a means of maximising regional self-reliance, he said in a comment that would ring true for Transition Towns groups in their promotion of viable regional economies as a means of creating resilient cities.

He went on to point out that local business—and he means small to medium business with a stake in the areas they trade in—increase neighbourhood walkability, tourism and entrepreneurship.

This reminds me of something that placemaking consultant, David Engwicht said at a course I attended. According to David, there is direct correlation to business viability and people lingering in an area or on a street—which, for local government and chambers of commerce, means that the street environment must be remade so that it attracts people, so that they feel safe and free to linger there. This calls for the creation of 'linger nodes', a placemaking concept that need not be expensive to create so long as citizens are involved in its creation. That calls for people-led design, not the designer-led approach of landscape architects or other planning professionals. They have a role but that is best when it is not a dominating one.

So, there is mutual dependence between viable, small and locally owned businesses and the ambience of commercial strips. It's quite the opposite to what you find in the anonymity and sameness of the big shopping malls.

Locally owned business does something else that is important. It is an economic multiplier because it is more likely to purchase from local suppliers and services and this, in turn, supports local employment. Quite the opposite to big corporate chains and franchises that have centralised buying arrangements.

What is local?

How do we define locally owned business?

There's going to be a lot of different opinions on this but, for a city like Sydney, my working definition is that locally owned business is that owned by people living in the Sydney region. It's even better when they live closer to where their business is based, however that is not always possible, especially for those industries that cluster in particular areas, such as IT in the Ryde area, adventure equipment in the Town Hall area of the CBD, medical services near major hospitals.

It can be argued that franchises such as food services and fashion shops are local, small business. They are in the sense that they are found on local streetfronts and in shopping malls and they might employ local people. What denies them authentic use of the term 'local' is that they may not be owned locally and their profits are exported perhaps to distant cities and not circulated locally by buying their business inputs such as advertising and other services from local suppliers.

Making it happen

Michael provided ideas on the ways businesses, chambers of commerce and local government can build viable local economies, and cited examples:

Plug the leaks: We can start to make this happen by plugging the economic leaks, says Michael. Track unnecessary imports of goods and develop import replacement by setting up small enterprises to stem those leaks. This will prove an economic multiplier.

Collaborate: Businesses can recognise the value of collaboration as well as competition, especially the value of joint buying. Setting up a purchasing organisation can result in savings through buying in bulk.

Purchase locally: Purchasing services such as advertising and legal locally, as well as goods, circulates funds longer in the local economy, spinning off the economic multiplier effect.

Policy: Local and other levels of government can stimulate resilient local economies by removing anti-local biases. An example would be adopting council purchasing policy to favour the local product or service where that was available.

Council administrators might object to this on the grounds that local government shouldn't favour any particular business, however there are precedents such as the food procurement policy adopted by the City of Sydney that favours Sydney-region produce, organic where possible.

I think a way through this for councils is to argue that, as locally-focused entities, local-first purchasing policy puts the wellbeing of the economy of the local government area first.

Growing opportunities

Michael spoke of the broadening of funding sources for both small business and for community economic enterprise, such as social investment.

Fair Trade: There exists in Australia a certification scheme to guarantee the veracity of goods claiming Fair Trade status, essentially a quality control measure for buyers. Certified Fair Trade goods carry a logo and providing this assurance of authenticity to buyers will help grow the market segment.

An interesting idea that builds on this has been proposed by the Australian food sovereignty movement. They support imported beverages, chocolate and other food and non-food goods being imported into and marketed in this country because of their benefit to small farmers and processors in their country of origin, as they retain a greater portion of economic value there. What would be good is to see 'fair trade for Australian farmers' through which small to medium scale farmers received a decent price for the foods they produce. This would call for more than a certification and marketing campaign. It would call for the reform of a supermarket industry that most benefits Australia's supermarket duopoly that dominates over 80% of food purchases.

Co-operative investment: Michael cited the example of the Weaver food co-op in the US which, faced with the high cost of setting up a new store, borrowed small funds from its members and offered a 6 to 8 percent return.

Co-operatives have played a significant part in the Australian economy and the model is one favoured by community-based social enterprise such as food co-ops.

Co-ops are a means of member ownership and, in the form of worker co-ops, of worker ownership of business. That is something that should please both the political right and left, the right because worker co-ops make capitalism accessible to the people who produce our goods and services, the left because co-ops give workers control over the means of production, achieving one of economic philosopher, Karl Marx's requirements for socialism. What it does show, perhaps, is the bankruptcy of both right and left and a way out of that polarising quagmire.

Crowdfunding: Michael mentioned the emergence of Kickstarter, the online venture capital raising scheme through which people investing small amounts can vote with their limited funds to support a new idea or technology trying to raise capital to launch. What would be good, Michael said, would be to apply this idea to locally-owned enterprise.

Crowdlending: This is a type of crowdfunding of people with entrepreneurial ideas in lesser developed countries. Usually, people require small funding amounts, by the standards of affluent countries, to set up a simple business as a sole proprieter. It's a citizen-led intervention in international development assistance through online entities such as Kiva.org.

We are talking about loans here, not donations or charity, and the repayment rate has been extraordinarily high, well over 95 percent.

The idea has come to Australia on the web pages of organisations like Pozible (http://www.pozible.com) through which social and small business entrepreneurs can seek start-up capital.

Pre-selling: This is simply the selling of something before it is produced. Clearly, a level of trust is required that the good or service will actually be produced. It is because of this that reputation is so important today.

Some in the permaculture design movement might recall pre-selling being used to fund some of the early books on the design system.

Michael told of how Awaken Cafe in the US presold coffee credits to fund their new premises. The value proposition was twofold—ideologically, by supporting a local business and, practically, getting more coffee than the coffee-equivalent value of the amount invested. The business paid interest on investment in the form of coffee credits.

Local stock: Michael spoke of the need for local stock exchanges through which people could invest in local business. As a form of people's capitalism it sure would beat investing in shaky old Wall Street with its economic abstractions and dicey dealing.

Local variants

There are other economic instruments for a people's economy in our country.

Rachael Botsman has done much to categorise, systematise and popularise what has become known as collaborative consumption, however Rachael did not invent it. That credit goes to Michael Linton who created LETS—Local Exchange and Trading System—a means of cashless community trading that is still to be found in Australia. What's less known is that Michael worked in Sydney during the 1990s, basing himself at Randwick Community Centre.

Collaborative consumption is a child of the collaborative web. It is booming now because of the ease of online communications which has spread it further than would have been possible in the days before we had effective online communications.

Even councils offer workshops to help people get started in collaborative consumption—Randwick City Council at their Barrett House community sustainability demonstration centre, and City of Sydney which, unfortunately for it, lacks such a venue.

Let's include in this rather sudden blooming of community economic initiatives the trading-in-kind second-hand clothing and household items events. And food swap ventures such as Melbourne and Adelaide's Community Harvest (there's a food swap in the Blue Mountains too), time share/time dollar schemes not unlike LETS in operation and initiatives like Permablitz, the mutual assistance home garden makeover scheme. There's also the bulk buy schemes for household solar electric panels.

New economy

What makes both Michael Schuman's call to further facilitate locally-owned small business and the web-enabled community trading systems newsworthy is the emergence of community trading systems in both Greece and Spain, two nations beset with overwhelming economic difficulty.

There, people forced out of the mainstream economy are inventing one of their own, a truly alternative economy.

Michael's new book

Local Dollars, Local Sense

How to Shift Your Money from Wall Street to Main Street and Achieve Real Prosperity.

 

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