As residents of Princeton have watched national brands take over Main Street (or, in our case, Nassau Street), most of us just shrug, figuring there’s not much we can do about it. We rationalize that somehow the mom-and-pop stores are not economically feasible, that in a global economy the little guy loses.
But Michael Shuman, vice president of Enterprise Development for the Training and Development Corporation of Bucksport, Maine, has a different take. His conviction, backed up by research, is that local businesses contribute far more to the local economy than do national stores.
Shuman speaks on “The Small-Mart Revolution: How Independently Owned Local Businesses Enrich and Support Community Life” on Tuesday, June 12, at 7:30 p.m. at 145 Peyton Hall at Princeton University. The talk is hosted by Professor John Ikenberry and the Project on the Future of Multilateralism at Princeton University, which lists sustainability as one of its interests. For more information, call Wendy Rickard at Eating Fresh Publications, 609-477-1700. Her organization is also sponsoring a meeting earlier the same day between Shuman and invited area business owners, government officials, and community organizers as part of its Living Local Initiative. The panelists will discuss strategies for strengthening Princeton’s economy through support of local, independently owned businesses.
Shuman says that his commitment to the best interests of communities is “not a religion, but certainly a passion.” He sees the health of these communities as directly tied to the strength of local businesses. From the perspective of how businesses enhance community well-being, he outlines three important distinctions between local and nonlocal businesses:
Local businesses don’t move. As a result, Shuman explains, “they are producers of wealth for a community for many years, often many generations.” Non-local businesses, on the other hand, are increasingly picking up and moving to lower-wage, less environmentally regulated locations and countries, like China and Mexico.
Because local businesses can’t move, they won’t suddenly punch a hole in a local economy, but if a larger, non-local business leaves, it can spell catastrophe.
And the fact that local businesses have no intention of leaving also means that communities can raise labor and environmental standards. “The way the game is now played in a city largely made up of non-local businesses,” says Shuman, “is that they call the tune and threaten ‘if you create living wages or raise the environmental bar, we’re out of here,’ and that’s a credible threat.” Local businesses, however, will adapt rather than flee.
Local businesses have a higher economic multiplier. This is defined as how many times a particular dollar passes from hand to hand within a community. Say you spend money at a local pharmacy. Its employees then go to the supermarket, which might buy from a local farmer. “The more times and the faster a dollar passes between hands without leakage,” explains Shuman, “the more income, wealth, and jobs in a community.”
The goal is to maximize the economic multiplier, and because local businesses spend more of their money locally, more of the money they take in stays within the community. A study five years ago looked at a Borders versus a locally-owned bookstore in Austin, Texas, comparing the impact of $100 spent at each store.
In the case of Borders, $13 remained in the local economy, but for the local store, $45 remained. Hence, says Shuman, every expenditure in the local book store led to three times the income, wealth, job, and tax benefits for the community.
Another study, released a week ago, showed that if consumers in San Francisco were to shift just 10 percent of their retail spending in just four categories — books, sporting goods, fast food, and one other — from nonlocal to local, San Francisco would have 1,000 more jobs and several hundred million dollars more in annual output.
“Local businesses tend to have the small size and unique character that fit more hand-in-glove with cutting-edge theories of economic development,” says Shuman. Take smart growth, which generally involves creating walkable communities. The idea is that by pulling people out of cars and designing communities so people can walk to work and to school, healthier communities will result. But big-box stores, surrounded by large parking lots, as well as big industrial parks, are incompatible with the goal of structuring work and shopping side-by-side with neighborhoods.
Another critical economic driver for many communities is tourism, and it’s the smaller, local businesses that attract visitors. “Tourists are interested in one-of-a-kind restaurants, shops, and nightclubs,” says Shuman, “and the more an economy is made up of big-box stores, the less likely it is to grab the tourist dollar.”
Yet a third economic theory, delineated by Richard Florida in “The Rise of the Creative Class,” argues that a creative economy is the sweet spot a community wants to be in. “The objective of a creative economy is to attract and hold onto the best and the brightest,” says Shuman. Such a community, the kind where Princeton alumni might like to stay, for example, is one that would attract diversity as well as offer fun and lots of small business opportunities.
If Shuman’s argument is convincing, the next question is clearly how to make a community hospitable to local businesses. His book, “The Small-Mart Revolution: How Local Businesses are Beating the Global Competition,” offers 200 steps a community might take, but he suggests that these generally fall into four categories:
Local planning. “A community needs to identify dollar leakages,” says Shuman, “all the places where people are unnecessarily spending money outside the community to import goods and services that they just as well could produce for themselves.”
Even though New Jersey does have burgeoning “locally-grown” campaigns, a fair chunk of food, energy, and materials are imported. For example, we have centralized power stations, not decentralized solar and wind energy. Also, communities are importing raw materials rather than recycling and remanufacturing basic things like paper and metals.
“In my view,” says Shuman, “even small communities have the ability to become cost-effectively self-reliant in almost anything they want to.” So, the goal is to identify the biggest leaks and have those become the basis of new kinds of economic development. He cites a leak study in Vermont in 2000, where one of the smallest leaks was $250 million a year in interest payments on credit cards issued out of state.
Business alliances. One way local businesses can prevail is by working together. With 55 networks across the country, the Business Alliance for Local Living Economies (BALLE), supports consortiums of local businesses that promote cooperation among members to improve their competitive advantage over nonlocal businesses.
Local purchasing. Among BALLE’s efforts are “think local first” campaigns, which convey to the consuming public the benefits that come from buying local. This does not mean, Shuman emphasizes, that people should sacrifice savings to shop locally. “You should shop more carefully and will find lots of deals at local stores that are simultaneously good for your wallet and for your economy,” he says. Citing research from the Federal Reserve and surveys in “Consumer Reports,” he says that smaller banks have better economies of scale and, as a result, mortgages from local banks or credit unions are slightly cheaper.
Another example — there are 20 in Shuman’s book — is that in Maine the cheapest prices for prescription drugs are from local pharmacies, not chain stores, according to annual surveys by the state.
“I’m not making the argument that local stuff is always cheaper, not that you should buy local always,” says Shuman, “but recognize that you should shop more carefully.” He believes that if people will take that small step, we will make significant progress toward localization.
Local investing. “Everywhere I go,” says Shuman, “I ask the audience, ‘How many of you bank locally? How many of you have pension funds in local businesses?’” Shuman is particularly interested in helping small businesses create small stock issues in cost-effective ways and in developing local and statewide stock markets to facilitate the exchange of these securities.
The best candidates to raise financing from the public, he suggests, “would be a successful local business, maybe operating five or ten years, that needs to raise a couple million of additional financing to expand.” Examples would be a successful restaurant that wants to open a second location or a small company with one product line that wants to add a second.
The Rocky Mountain states have seen a dozen or so successful efforts to finance general stores. The Mercantile in Powell, Wyoming, is an example. The community realized it needed a general store, so it initiated an effort to gather local financing. “Local residents created a local stock issue and sold it like Girl Scout Cookies door to door,” says Powell, “and started a department store.”
Shuman himself is working on an initiative to start a chicken company, Bay Friendly Chicken, for which he plans to do a stock issue. His goals are twofold: to demonstrate the concept, and also to help fix the problems that thousands of independent poultry growers face on the Eastern Shore of Maryland.” The growers are currently working for Tyson and Purdue. In the company he hopes to create, they will have more control over their businesses.
Shuman grew up on Long Island, and at age 16 he moved with his parents to St. Louis. His father, an electrical engineer, worked for Western Electric, the manufacturing arm of AT&T, before it was broken up. His mother is a registered nurse. He earned a bachelor’s degree in international relations and economics and a law degree from Stanford in the early 1980s.
He stayed in the Bay area for 15 years in a career that he jokes might be called “an assiduous avoidance of the practice of law.” His first job was with the Center for Innovative Diplomacy, an institution designed to help local communities become more effective in international affairs in areas like anti-apartheid, human rights, global environmental protection, and peace. After 10 years he moved to Washington, D.C., and worked for the Institute for Policy Studies, a multi-issue think tank, originally as a visiting fellow, then as a fellow, and finally as director.
Then came a crisis of conscience. “I concluded that IPS was engaging in strategies I thought unlikely to succeed,” he says. “I believe that policy change comes through finding 80 percent points of consensus, where most of the public says, ‘this is the right thing to do.’” But politics in Washington, he found, had a different approach: “trying to identify wedge issues, where they can win slight majorities and win power.” The result is just a ping pong ball.
“I am looking for consensus politics, common ground between the left and right,” he says, “as exciting to rural communities in Idaho as to inner cities.”
Shuman’s beliefs and his work have some clear public-policy implications.
The first has to do with how governments spend their money. “Most of economic development,” he says, “is about subsidies, tax abatements, loan guarantees, capital improvements, and tax-increment financing.” Lots of money is spent by government in the name of attraction and retention of business, with estimates of $50 billion a year by state and local governments and another $63 billion by the federal government.
What surprises Shuman is that no one has “cut through the rhetoric,” and made it clear that the only businesses attracted are non-local. “By definition,” he says, “local business is not moving, so it is not susceptible to money one way or another.”
And what are the results of these governmental spending decisions? Shuman says, “I argue that the pork has the result of making local and small business less competitive. And it’s got to stop.”
There are significant roadblocks to change, though. For one thing, there is a legal framework set up by the federal government to govern investment. “The reason people don’t invest in local business is that we have securities laws that make it expensive for people to create local stock,” says Shuman. He believes the reasons are nonsensical today, even if they made sense in the 30s and 40s when the laws were passed. The market bias and distortion the laws create, he says, favors large, non-local businesses over local ones because the non-local ones have preferential access to capital markets.
In the end, Shuman claims to have what he calls “a very modest agenda” — at least in the sense that it is simple and straightforward. In short, he says, “local governments should stop trying to destroy local business.”