Michael Shuman… there’s a local business revolution on the horizon, and we can make it happen

    Last week, I had the opportunity to spend a day with economist and author Michael Shuman. Shuman, for those of you who aren’t familiar with his work, is probably our nation’s foremost authority on the importance of cultivating, supporting and investing in local businesses. The stated purpose of his visit to Ann Arbor, which was coordinated by the Washtenaw County Office of Community & Economic Development, was to discuss the various mechanisms which are evolving for regular folks, like you and me, to invest in the small, local companies that we love, patronize and would like to have a financial stake in. As much of what Shuman said was material that I’ve written about here in the past, after having heard him speak on other occasions, I’ve decided to limit my coverage to the 16 things which Shuman said that struck me the hardest. Here they are, in no particular order.

    1. The economic development policy of Michigan, according to Shuman, has “gone off the rails.” This, he says, is not an indictment of any particular political party, as both the Democrats and the Republicans, according to him, promote a failed “attraction and retention” approach, which has little or nothing to do with nurturing the small, local companies that are the overwhelming creators of jobs and prosperity in this country. Instead, our various economic development organizations focus primarily on luring big businesses to leave the states where they currently reside, by offering tax abatements and other short-sighted incentives, and bribe those big businesses that are already in-state to stay. A more successful strategy, he argues, would be to implement policies that maximize local ownership, increase regional self-reliance, and reward adherence to the so-called triple bottom line (the understanding that environmental and societal costs should be factored in, along with profitability, when assessing a business’s value). In further exploring the triple bottom line concept, Shuman says that it’s already appreciated by most people that decisions aren’t just motivated by price. It’s about value, he says. If it were just about price, Starbucks wouldn’t exist. They, however, attract people for a reason. When thinking about local business, we need to keep that in mind. We need to reframe the value proposition, and demonstrate how other factors need to be taken into consideration. Until not so long ago, he says, people in many companies couldn’t purchase long-life, energy-efficient light bulbs, as they were more expensive. There was no way, according to Shuman, to factor in the life of the bulb when making a purchasing decision. That, however, has changed. And, as we move forward, other things will be factored in as well.

    2. The evidence, according to Shuman, shows that “local busineses are more reliable and efficient users of public money.” Shuman, in making this case, references an assessment that was done of the tax abatements given to entities doing business in Lane County, Oregon. 95% of all abatement dollars, during the specific period of time that he studied, were given to six non-local businesses. Three of these companies, after receiving their abatements, promptly moved their facilities to Asia. And, of those remaining, two never delivered the jobs that they promised. (Speaking of which, does anyone remember how many jobs Google said they’d bring to Ann Arbor when they got their abatement half a dozen years ago?) But, while only one of the six investments in businesses headquartered out-of-state actually brought about significant job creation, the 5% of incentives that went to businesses rooted in the community were actually quite successful. And, those jobs which were created cost the tax-payers a great deal less. Whereas it had taken over $60,000 in abatements to create each job with an out-of-state business, a new job was created with every $2,000 invested in a local business. (I plan to ask Michael for a link to the study.)

    3. Local businesses recirculate dollars in their communities. An analysis of bookstores in Austin showed that, of every $100 spent in a locally-owned store (Book People), $45 were circulated back into the community, whereas only $13 made its way back into the community when $100 was spent at the nearby corporate chain store (Borders). Local companies, as Shuman was quick to point out, hire local accountants, advertise in local papers, pay dividends to local owners, and give more to local charities, among other things. You would be hard pressed, said Shuman, to find an example of a non-local business making a more significant impact than its locally-owned competitor. And there are now dozens of academic papers that prove this to be the case. A recent study in the Harvard Business Review, according to Shuman, found that the highest per capita job groth rates in the United States are in those communities with the highest density of locally-owned businesses. And it’s not just job creation where these communities excel. Academic studies have also shown that, when you have well-established, healthy, local business ecosystems, you also tend to have smart growth, tourism, more entrepreneurial behavior, better public health, more civil society, and increased political participation. (Of course, it could be that these other factors lead to more robust local business ecosystems, or that all of these positive outcomes have more to do with the relative wealth of a community than the percentage of stores that are locally-owned, but we’ll leave the “correlation v. causation” discussion for another time. For the time being, I just think it’s interesting to note that these indicators of community health all seem to correspond with increased local business ownership.)

    4. There’s more opportunity for local businesses with the costs of fuel going up. Our economy has, over the past several decades, been shifting from one that manufactured and sold goods, to one in which most people are working in the service sector. (It is, after all, harder to outsource service sector jobs to China and India.) Now, however, the pendulum is swinging back. With the price of oil rising, local companies are starting to be able to compete in the area of manufactured goods, ranging from paper products to building materials. We need to acknowledge this opportunity, and start looking for opportunities to substitute locally produced goods for ones that are currently being shipped across the world, and trucked across the country, at great expense to the environment.

    5. If you were to ask anyone, “Would you rather have full employment with high environmental and labor standards, or full employment with low standards?” they would say that they would rather have full employment with higher standards, says Shuman. The problem is, people think that there has to be a trade-off. They don’t think full employment is possible in a world where the environment is respected and labor rights are protected. They’ve been convinced that we can’t have both simultaneously. We need to demonstrate that it’s possible, and that triple bottom line thinking doesn’t have to negatively impact the economy.

    6. The big problem is that we don’t have a way to capitalize local businesses that have the potential to grow and create jobs. We know that small businesses (businesses with fewer than 500 employees) are the ones with the real potential to create jobs, and transform our communities, but, as of right now, there’s now way for us to help them grow, and participate in their success. America is an extremely rich country. Collectively, the people of the United States currently have $150 trillion in wealth. The problem is, almost all of it, that isn’t in real estate and other tangible assets, is invested in large companies. It’s incredibly easy to invest in public companies and mutual funds. We don’t, however, have a mechanism by which to invest in the companies in our communities, unless we’re extremely wealthy, in which case we’re considered “accredited investors” under securities law. (The SEC operates under the assumption that the rich, unlike the rest of us, are capable of making informed decisions. Shuman calls the current system “securities apartheid.”)

    7. In 2009, Shuman proposed that a slight change be made to the existing system. He recommended a $100 exemption, arguing that unaccredited investors should be given some small degree of freedom to invest outside of the established securities system. His colleagues liked the idea, and a letter writing campaign was initiated. The Securities and Exchange Commission, however, did nothing. They sat on the idea until, one an a half years later, when the head of the SEC was called before Congress and asked, by Representative Darrell Issa, what innovative measures they could put in place to get the unemployment rate back below 9%. And, in the resulting conversation, Shuman’s proposal was brought up. Ultimately, the House committee unanimously voted to enact the legislation, but with a $10,000 exemption. This then went to the Senate, where it was whittled down to $2,000. (People that make less than $100,000 a year, can invest $2,000, or 5% of their income, annually. People making over $100,000, can invest in 10% of their incomes.) And, in April 2012, it was signed into law by President Obama. (If you’re interested, I discussed this legislation at some length not too long ago with author Amy Cortese.) The SEC is now working to get the rules, regulations and infrastructure in place, and the hope is that, in the next few months, we’ll have a system where unaccredited investors will be able to invest in specific companies through online middlemen. (Intermediaries are required by law, but the SEC is still debating what role they will play, what kind of licensing they will need, etc.)

    8. Move Your Money campaigns, aimed a getting people to transfer their accounts from big banks to local ones, are great, says Shuman, as big banks neither care about, or invest in, our communities, but funds invested in banks are “just a drop in the bucket.” We need to get at the over $30 trillion currently invested in securities, says Shuman. We need to start the process of slowly chipping away at it, taking advantage of the few opportunities that currently exist, and pushing for more. “We are on the verge of a huge change in capital markets,” says Shuman. “What happens when the first trillion goes from Wall Street to Main Street? People will take notice.”

    9. Shuman suggests that we immediately do two things as a community. Together, he says, these two things would likely only cost us about $20,000. And, if we did them, we’d be infinitely better off than every other community in the United States. First, he suggests that we create a passive web listing of every local business investment opportunity there is. Second, he says that we should strike a deal with a local accountant to help implement a self-directed IRA initiative. If we could gather 1,000 individuals, all willing to pay $100 a year to have someone manage a self-dircted IRA, he suspects that we could find an accountant willing to drop his/her rates to accommodate us. And, once we have this mechanism, we could begin moving our savings from investments in the S&P 500, into our own communities. (Self-directed IRAs are currently legal under SEC rules.) The accountant would just have to do the administrative work of facilitating the investments in these local companies. And, as he says, this could happen immediately. (He said that, if we wanted, we could also consider implementing a community portal, like those being rolled out by Mission Markets. As the new crowdfunding legislation still hasn’t been rolled out, Mission Markets can’t facilitate equity deals, but they can facilitate debt deals, connecting local businesses to those in the community who have money to lend. The equity piece will follow, when the terms of the legislation are announced.)

    10. As local banks are the ones investing in our communities, we need to make sure that all of our local governmental entities are investing their cash reserves in local banks. (You’ll be happy to know that I’ve already started looking into this, and hope to have a report soon.)

    11. Foundations, by law, have to give away 5% our more of their assets each year. The other 95% of their holdings, however, can be invested anywhere. What would happen, Shuman asks, if our local foundations began investing in local businesses, instead of in the big securities, which are systematically destroying our communities? And, he says, they can legally do this now. This would be a powerful mechanism for immediate change.

    12. This isn’t about investing in start-ups, he says. No, he would focus on companies that are between three and five years old, that are poised for growth. They’re the ones that need the crowfunding, and they’re the ones that could really create jobs. And this grassroots funding could keep local companies local. Shuman offers the example of Tom’s of Maine, saying that, if they’d been able to capitalize their growth themselves, they wouldn’t have had to sell to Colgate-Palmolive, and they could have stayed in Maine, and grown.

    13. Here’s how he thinks it will likely play out… This will all start with Direct Public Offerings (DPOs), with individuals buying equity in small companies though crowdfunding portals. Then, people will need a place to buy and sell stock, and local stock exchanges will emerge. Then, once there are exchanges to provide liquidity, we’ll see portfolios develop, and open-ended mutual funds. And, ultimately, we’ll see pension funds moving their money over. The path, he thinks, is relatively clear… It will likely take ten years, he says, and there will be setbacks along the way. There will be crowdfunding scams, and many portals will crash and burn, but, by 2015, a few good websites will have emerged, and we’ll be on our way.

    14. This is politically doable. The fact that we need to end corporate welfare, and stop stacking the deck against our local companies, is one of those rare things that both libertarians an progressives can agree on.

    15. Local businesses can outperform Wall Street. Regardless of what people may tell you, the S&P, over the past 140 years, according to Shuman, has an average rate of return of 2.6% annually. At that rate, you’d be better off putting your money in the bank, says Shuman. He then notes that it’s not unusual for local businesses to return 5% annually to their investors.

    16. Something that we could do immediately, that would cost nothing… We could start identifying the businesses that are most in need of investment right now. Which companies have potential for growth? Which companies could, if they were capitalized, grow and add jobs? We could put the word out through our networks, and start aggregating the data. Second, we could start pulling together a list of people who are interested in local investing, even at relatively small levels. We could have people sign an “I’m a committed local investor” list, and capture their contact information so that, as opportunities arise in the near future, we know who we can turn to… The bottom line is that we need to start building the infrastructure now.

    If you found this post at all interesting, I’d encourage you, after reading my last two Shuman posts, to check out the discussions I’ve had recently with Judy Wicks, the founder of the Business Alliance for Living Local Economies (BALLE), Zingerman’s co-founder Paul Saginaw, and author Amy Cortese. They’re all incredible.

    [Michael Shuman is the author of Local Dollars, Local Sense: How to Shift Your Money from Wall Street to Main Street and Achieve Real Prosperity–A Community Resilience Guide.]

    This entry was posted in Economics, Local Business, Locally Owned Business, Michigan, Uncategorized and tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , . Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

      27 Comments

      1. Posted February 3, 2013 at 11:55 pm | Permalink

        Those of you who were in the audience, please let me know if I got anything wrong, OK?

      2. Posted February 4, 2013 at 6:04 am | Permalink

        Great article Mark, I was lucky enough to Attend his talk and you did a great job of getting his message across. One thing that I thought was particularly interesting is that additional to the idea of in investing locally he named buying a house or reinvesting in your current house as the best thing to do with your money. As a Realtor I was so excited to hear him say that “this is the best time to buy a house” I have been working on helping first time homebuyers and first time investors find homes in the last two years and in my opinion he is absolutely right. His talk was highly informative and I can’t wait to see what innovative ideas we can come up with to better our local economy from this talk, everyone left the talk with some great new ideas and lots of positive energy!

      3. Edward
        Posted February 4, 2013 at 7:46 am | Permalink

        I like the idea but I’m having a hard time thinking of examples where I would have invested in local, growing companies. Here are a few that I came up with.

        1. Zingerman’s Deli expansion.
        2. Beezy’s, when there was talk of them taking over the Wolverine.
        3. Arbor Brewing, when they were opening the Corner Brewery.
        4. VG Kids, when they opened Wiplash.

      4. Posted February 4, 2013 at 7:50 am | Permalink

        It will take some time for the SEC to figure this out – and until then, crowdfunding is exclusively the domain of Kickstarted or IndiGoGo’d creative projects, not a reasonable capital access plan for companies. Beyond the mechanics of this, there are a lot of cultural and logistical issues in getting small companies and even smaller investors interested in each other – it feels good to do, but it’s a likely most investors will lose their money most of the time.

        We had a crowdfunding platform, CrowdEx, presented at Ann Arbor Startup Weekend yesterday. The founder, Craig, is a lawyer who’s spent quite a lot of time thinking about this, but he’s in the same position everyone is, waiting to see what happens.

        Lots of folks are trying to change things – the secondary markets (SecondMarket, SharesPost – whose Chief Architect is the the TechBrewery), the as-yet unregulated pink sheet market (OTC Markets is a customer of mine, and they don’t just handle penny stocks – Lufthansa, Volvo, and other foreign companies have started trading here OTC before going to an exchange like NYSE or NASDAQ), or my absolute favorite – a quixotic attempt by Rick Galdi from the Great Lakes Angels to leverage an interesting instrument through the TSX-V originally used to fund oil & gas expliration, the capital pool corporation, to start the first public angel fund for tech.

        I’m not sure foundations can actually spread their money around so arbitrarily, either – the point of the L3C structure (yay Michigan) was to allow for-profit – but mission-driven – companies to go after foundations’ PRI dollars. I’d only heard of one curious investment opportunity a friend at a large foundation out of Battle Creek was looking at in another friend’s educational technology company (Bloomfire), but it never happened – and the company picked up and moved to Utah, where it was bought by another.

        The mechanics of small investing should change, but for it to be effective, the culture needs to as well. Kickstarter built a social platform for creative sponsorship. It remains to be seen if the same can actually be done for corporate sponsorship, at the same individual level – AngelList is doing this very, very effectively, though, for high net-worth accredited tech investors and startups.

      5. anonymous
        Posted February 4, 2013 at 8:46 am | Permalink

        I don’t know if it counts as local, but Ann Arbor’s Vault of Midnight is opening a location in Grand Rapids.

      6. Meta
        Posted February 4, 2013 at 8:55 am | Permalink

        Google promised 1,000 jobs in Ann Arbor when they got their abatement.

        Here’s the news story.

        http://news.google.com/newspapers?nid=110&dat=20060720&id=-ylMAAAAIBAJ&sjid=OS0DAAAAIBAJ&pg=5551,1447487

      7. Meta
        Posted February 4, 2013 at 9:00 am | Permalink

        As of last year, Google had reached 300 employees in Ann Arbor.

        AnnArbor.com:

        Google originally promised to add 1,000 jobs over the first five years of its tenure in Ann Arbor, but the company’s personnel growth slowed in the midst of the global financial crisis. To offset the personnel costs of its expansion, Google received approval from the Michigan Economic Development Corp.’s Michigan Economic Growth Authority (MEGA) board in 2006 for a tax credit of up to $38.25 million over 20 years.

        Although the company hasn’t met its hiring target, it won’t be forced to pay back taxes because MEGA tax credits are distributed on an incremental basis per hired employee.

        The MEGA tax credit program was discontinued in 2011 as part of Gov. Rick Snyder’s business tax reform legislation, but previous tax credit recipients were allowed to keep their credits.

        Read more:
        http://www.annarbor.com/business-review/google-up-to-300-workers-in-ann-arbor-after-five-years/

      8. Tammy
        Posted February 4, 2013 at 9:36 am | Permalink

        The answer, as always when dealing with bureaucrats, one-percenters, and millionaire tech zombies, is for us to just act.

      9. Mr. X
        Posted February 4, 2013 at 9:57 am | Permalink

        Dug, local investors don’t necessarily have to lose money, and things could start modestly, in the real, off-line world.

        Check out what the folks in Port Townsend, Washington have done with their LION group.

        Scroll down to the bottom of this post for details:
        http://markmaynard.com/2012/05/accelerating-community-capital-part-two-at-the-balle-2012-conference/

      10. Eel
        Posted February 4, 2013 at 10:44 am | Permalink

        What, no post about the big football game, or the commercials between plays? Where do you think you live – France?

      11. Edward
        Posted February 4, 2013 at 10:50 am | Permalink

        The Superbowl – the world’s biggest human trafficking event.

        From HuffPo:

        When it came time for the Super Bowl, Clemmie Greenlee was expected to sleep with anywhere from 25 to 50 men a day. It’s a staggering figure, but it doesn’t shock advocates who say that the sporting event attracts more traffickers than any other in the U.S.

        “The Super Bowl is the greatest show on Earth, but it also has an ugly underbelly,” Texas Attorney General Greg Abbott told USA Today in 2011 when his state was gearing up to host the event. “It’s commonly known as the single largest human trafficking incident in the United States.”

        The influx of fans fosters the optimal breeding ground for pimps looking to boost their profits. Experts say that the sheer number of men looking to pay for sex substantially increases demand and the massive crowds allow for pimps and victims to essentially go unnoticed, newsnet5.com reports.

        “It’s not so much that you become a victim at the Super Bowl, but that many victims are brought in to be used for all the men at the Super Bowl,” Stephanie Kilper, a representative for Operation Freedom Taskforce in Akron, Ohio — an organization which aims to end to human trafficking –- told newsnet5.com

        According to Forbes, 10,000 prostitutes were brought to Miami for the Super Bowl in 2010 and 133 underage arrests for prostitution were made in Dallas during the 2011 Super Bowl.

        http://www.huffingtonpost.com/2013/02/03/super-bowl-sex-trafficking_n_2607871.html

      12. Posted February 4, 2013 at 11:07 am | Permalink

        Mr. X – you need investor liquidity through an exchange, though, as most small investors aren’t in a position to have cash locked up in equity waiting for a small company to have a liquidity event. This really has no relation to cooperative loan programs, which have traditional analogs in many cultures (e.g. Korean “gye” or Japanese “tanomoshi” lending circles, etc).

        Plenty of companies have gone the route of ESOP programs for employee ownership, and it works, but you have to be structured to do it (usually a C corp), and it doesn’t admit outside, unaccredited investors (for good reasons, generally). That’s a very different thing than a small company having to issue a prospectus and deal with many smaller crowdfunded investors. We’ll see how it plays out, but it’s all dependent on the SEC.

        I think this is all a move in the right direction, as is the recent popularity of economic gardening, as the Edward R. Lowe foundation has been pushing for decades (did you know we invented kitty litter here too?). But there are definitely risks involved – the biggest being, IMO, the wrong folks jumping in (scary hedge fund / Section 7 broker/dealers) looking for alpha, and the right folks not caring.

        I don’t think people generally understand

      13. Posted February 4, 2013 at 11:08 am | Permalink

        Mr. X – you need investor liquidity through an exchange, though, as most small investors aren’t in a position to have cash locked up in equity waiting for a small company to have a liquidity event. This really has no relation to cooperative loan programs, which have traditional analogs in many cultures (e.g. Korean “gye” or Japanese “tanomoshi” lending circles, etc).

        Plenty of companies have gone the route of ESOP programs for employee ownership, and it works, but you have to be structured to do it (usually a C corp), and it doesn’t admit outside, unaccredited investors (for good reasons, generally). That’s a very different thing than a small company having to issue a prospectus and deal with many smaller crowdfunded investors. We’ll see how it plays out, but it’s all dependent on the SEC.

        I think this is all a move in the right direction, as is the recent popularity of economic gardening, as the Edward R. Lowe foundation has been pushing for decades (did you know we invented kitty litter here too?). But there are definitely risks involved – the biggest being, IMO, the wrong folks jumping in (scary hedge fund / Section 7 broker/dealers) looking for alpha, and the right folks not caring.

      14. Posted February 4, 2013 at 11:40 am | Permalink

        ” Local businesses and outperform Wall Street. Regardless of what people may tell you, the S&P, over the past 140 years, according to Shuman, has an average rate of return of 2.6% annually.”

        I get 8.88% since 1871. I don’t know many people that invest their money for 140 years so that’s a fairly meaningless number.

        Even if we just look at the average annualized rate of return on the S&P since 1990, you still get 8.55%. Even adjusting for inflation, the S&P will have given you around 6% since 1990, even including two major equity busts.

        I’m not sure that investing locally really gives a better return, though I respect the sentiment. Small business are a very risky venture. Maybe in the best case (lasting beyond a year), things are good, but I can’t imagine that investing a lot of local businesses is something to bank your retirement on.

        I’m not anti-local/small business, but question the merits of wishful thinking.

      15. Posted February 4, 2013 at 12:26 pm | Permalink

        I see that he restricts his encouragement to invest in local businesses to places that have been around three years or more.

        While I have no doubt that a local business that’s made it that long is a good investment, and agree that some *might* provide decent returns to the community in terms of wages and service, I wonder how much of a drain on local economies the multitudes of failing businesses are, and wonder how this might play out in the grand economy.

        I’m also skeptical of his claim that areas with more locally owned businesses are more economically vibrant that areas which don’t have them. This may be true, but I bet these areas have other sectors which are driving the economy, which aren’t local at all.

        New York City has a multitude of locally owned businesses, but they don’t drive NYC’s economy. In fact, NYC, as a giant, global, financial center allows the existence of local small businesses.

        I only glossed over this, but those are just some small thoughts. I’m into the spirit of what he says, but I can’t help but be skeptical.

      16. Tommy
        Posted February 4, 2013 at 1:17 pm | Permalink

        I think that things more on the lines of the Cleveland Model are the best options for growth of communities and local ‘equity’.

        A lot of money was needed to get this thing going, however.

      17. Alice
        Posted February 4, 2013 at 1:23 pm | Permalink

        I’m with Tammy: next stop, to-do list. What is already going on in Ann Arbor, Arbor-Ypsi, southeastern Michigan that is capitalizing on these ideas? If it’s needed and would be helpful, I volunteer to help research and put together a list of local businesses that would be eligible under his (or whichever) constraints for the ideas presented in #s 9 and 12.

      18. anonymous
        Posted February 4, 2013 at 1:41 pm | Permalink

        I don’t think Shuman would suggest that people move everything, but would it really be terrible for people to move, say, 10% away from multinationals, and put it into companies that would help grow their communities?

        As for your comment, Dug, liquidity is important, but many of us would be happy to have annual dividends. We’re not looking to be day traders, constantly buying and selling.

      19. Posted February 4, 2013 at 4:51 pm | Permalink

        I was not able to attend the meeting, being out of town at the time. Thank you Mark for a great re-cap. To address those looking for existing programs: University Bank has a program that they innovated with Selma Cafe called the Farmer Fund. Individuals can get a higher-than-market-rate return (2%) on 5 year CD’s as well as the ability to cash out of the program without early withdrawal penalties. The CD’s can then be pledged as collateral against loans to area farmers needing access to capital. Investors can vet loans to match their own priorities. This is a relatively small program so far (total FF loans are a little over $100,000 to date) but is likely to grow considerably as the local food system takes off and could easily be copied to other programs for other local investment needs. Sustainable agriculture farmers have had a particularly hard time accessing capital to start and expand diversified vegetable production, so this program has been essential while we have waited for other lending sources to emerge. The most recent loan was $45,000 to Sunseed Farm to expand their operations to allow increased production for local markets. You can not find a business more rooted to the local ground than a farmer! And the re-localization of our food system is poised to add thousands of jobs in Washtenaw County alone. These jobs show up one at a time; not as sexy to business development folks as the Toyotas and Googles, but worth a look. And when you do look deeper, you will see that the new wave of farms sweeping across the county is not a nostalgic look back to our ancestors, but an efficient marriage of essential nutrition priorities with new tech tools like hoophouses, fodder systems, value-stacking arrangements and smart phone cash registers that make this all fun, exciting and increasingly profitable. It took capital to make it possible for more than a few of us to have cars, and to own homes. And it will take the same to see a new sustainable ag model emerge in our community. Glad to connect you with info on the Farmer Fund and other projects in the pipeline. jeff@selmacafe.org

      20. Posted February 4, 2013 at 5:31 pm | Permalink

        @Jeff: that’s awesome! University Bank has been pretty flexible, as far as banks go, in structuring creative programs targeting underbanked groups here (e.g. Islamic banking, etc.). Glad to hear the Farmers’ Fund is taking off – it’s come a long way since we last chatted at SELMA! You should come present that at the next Ignite Ann Arbor, 3 years since your last talk!

        BTW, have you seen Farmlogs ( http://farmlogs.com )? They’re a great group of guys who graduated the YCombinator program, and moved back to Ann Arbor – nice NYT piece on them last year:

        http://www.nytimes.com/2012/08/05/business/farm-software-tries-to-make-its-mark-digital-domain.html

        Jesse’s family used to sell soybeans to Eden Foods, and he knows his row crops. Good dude.

      21. Posted February 4, 2013 at 10:08 pm | Permalink

        @anonymous: Liquidity isn’t just for day traders. I’m not sure how the general public feels about locking their money away in someone else’s company indefinitely, and most small companies would rather invest any free cash flow into growth vs. paying out dividends – or else they wouldn’t likely be raising investment capital, 3 years into a business.

        As much work as can be to invest directly in the stock market, I’d imagine that it would be much more effort to do so successfully, locally. The tried-and-true friends-and-family route of lending each other money on short term promissory notes (e.g. 5% on a 12 month term) works because you know who you’re lending to, and banks make it their business to Know Your Customer (KYC). There’s a bit more of a gap between arms-length investors and small companies.

        My friend Sally is on the last 10 days of her IndieGoGo project in Ann Arbor, and has done awesome, with a killer video and great press in Wired, Make Magazine, etc.:

        http://www.indiegogo.com/pinoccio

        I’d hope local companies could be just as creative and compelling with their social appeal and campaign management to really scale up a model like this, but it would be work on both sides.

      22. JC
        Posted February 4, 2013 at 10:27 pm | Permalink

        “I’m not sure how the general public feels about locking their money away in someone else’s company indefinitely.”

        I’d feel fine about it.

        All that’s good in this world derives somehow from cooperation, collaboration, and having things in common. Everything else just enhances someone else’s poverty.

      23. Posted February 5, 2013 at 10:10 am | Permalink

        I don’t believe that anyone, at this point, is suggesting that anyone invest all of their portfolio in local investment. Michael is suggesting that local investment become part of a diversified portfolio. Local investment will never (or rarely) garner the best rate of return. It can however garner a decent rate of return with varying degrees of risk/growth potential. But right now the avenues to local investment are largely blocked. And the banks now tie every loan to equity…of which renting businesses have little or none, so when a catering company realizes it has demand that outstrips its space/equipment, it can no longer get loans (they used to be based on cash flow) despite a good track record and clear potential growth in market. That catering company will go to credit cards to fund growth. I’m betting that most people can except a rate of return a lot less than 12-18% on their money. The failure of small businesses is often tied to access to capital. I’m not talking about bailing out a sinking ship. I’m talking about funding the natural sustainable growth necessary to keep any business vital. The multiplier economic impact of local small business growth is well established. Both presidential candidates ran on platforms that acknowledged that most job growth comes from small businesses. This is happening despite the fact that the mass of capital moves elsewhere. And it is getting worse. Small businesses are being choked out. A chain (starbuck’s, american apparel) can pay $50 – $60 a square foot for a store that runs in the red for years– because they are establishing market share with a key demographic– students. This establishes a baseline cost that is unapproachable by the underfunded (and under-lawyered) small businesses that create community character. And real estate values tank. Our attractiveness as a city to googles and those valuable out of state students tanks, because we have no differential. Look at the separate fates of Kerrytown and SOuth U. Kerrytown (under Joe O’neil) has focussed on renting to locally owned compatible businesses, rents are around $25 – $30 a square foot and they work with tenants to do build out. That neighborhood is now a draw and real estate values are growing, home renovations and ownership increasing. Even Braun Court now has a life. South University, which used to have a diversity of businesses and is within walking distance of some of Ann Arbor’s richest population, was the site of a big growth development push in the late 80′s early 90′s that gutted it’s spirit, community dynamic and visual appeal. They are trying to correct it all now, but as a business district it has struggled for years, especially in the Summer months because locals have abandoned it. One can only imagine what it could have been had it followed Kerrytown’s path. We all have a lot invested in our local businesses whether or not we actually invest in them. I for one would be thrilled to throw a little of my scant resources at people and places that matter to me. I like the accountability of local investment. Yes, it’s a David and Goliath battle, but it matters. Also, on a very real level, it is forward looking and pragmatic in a way that investing in business as usual just can’t be.

      24. Jean Henry
        Posted February 5, 2013 at 10:31 am | Permalink

        Also, re the rate of return for stock market investments, I believe Michael is talking about the actual return investors have seen on their market investments rather than the return they would have seen had they just bought index funds and held them. Important distinction, because those index funds benefit from the poor investment decisions of most people. Now if you are smart enough to know you are not smart enough to beat the market, then you win. But most people aren’t that smart. Also we have seen in recent volatility that the market system is a bit stressed and over-reactive. Many of its key players are gaming the system rather than feeding it. I personally would not put all my eggs in that basket. All my money is in my home (owned outright now) and education funds. They have been good investments that provide stability and pay a personal return as well as a financial one. They are not liquid, but I get by.

      25. Meta
        Posted February 9, 2013 at 1:12 pm | Permalink

        Speaking of common cause between the Tea Party and the left on the subject of corporate welfare, Bernie Sanders has introduced legislation that says the following:

        Under this legislation, corporations would pay U.S. taxes on their offshore profits as they are earned. This legislation takes away the tax incentives for corporations to move jobs offshore or to shift profits offshore because the U.S. would tax their profits no matter where they are generated.

        Under the Corporate Tax Fairness Act, U.S. corporations would continue to get a credit against their U.S. taxes for foreign taxes they pay. That means that when an American corporation has profits in a country with lower corporate taxes than the U.S., they would pay the federal government the difference between the foreign rate and the U.S. rate. When an American corporation has profits in a country with higher corporate taxes than the U.S., they would pay nothing to the U.S.

        Read more:
        http://thinkprogress.org/economy/2013/02/07/1554221/sanders-corporate-tax-bill/

      26. Alice
        Posted February 10, 2013 at 7:31 pm | Permalink

        Hey y’all, there’s an event coming up that could be relevant; the focus is on economic vitality through environmental sustainability, and it’s being chaired by local entrepreneurial muckety mucks. Posting the link in case anyone cares to attend. http://erb.umich.edu/blog/2013/02/04/feb-13-ann-arbor-sustainability-forum-economic-vitality/

      27. Posted May 27, 2013 at 11:55 am | Permalink

        In 2002 I drafted a detailed plan for the Whole Ithaca Stock Exchange (WISE), whose standards would gather capital of all kinds for local eco-development. http://www.paulglover.org/wise.html

      3 Trackbacks

      1. [...] Mark Maynard explains: [...]

      2. By Big Business vs. Small Business…. who’s right? on February 28, 2013 at 11:33 pm

        [...] facing are far from black and white. At the same time, though, I have no reason to think that Michael Shuman is lying when he says that he’s never seen an academic study that’s shown that a chain [...]

      3. [...] Small & Mighty, and the Business Alliance for Living Local Economies, as well as my notes on Michael Shuman’s last visit to the area, and my interview with author Amy Cortese… Oh, and then there's the debate between by friends Dug [...]

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