Earlier this year I interviewed American economist, lawyer and writer Michael Shuman. He’s the author of two books on re-localisation, Going local and The small-mart revolution and a founder of the Business Alliance for Local Living Economies.
Shuman writes about the economic benefits of buying from locally owned businesses, arguing that the money you spend has a much bigger economic multiplier effect. That is, it circulates more quickly and more often, and in doing so, it creates more jobs, income and wealth.
As an example, he refers to a 2003 study in Austin, Texas, where economists analysed the impact of a proposed Borders bookstore against two local bookstores. They found that $100 spent at Borders would circulate $13 in the local community, while $100 at the local stores would circulate $45.
When we spoke, he began by telling me that the localisation message is spreading fast.
MS: I’m very struck by the similarity of the consciousness about various crises that are hitting the world – in finance, peak oil and climate change – and equally struck by the similarity of the solutions that people are developing at the community level. Frankly, everywhere I go there are profound and growing localisation movements.
MG: What’s the main thrust of your message?
MS: First of all, every time you spend your money you are voting for the kind of economic future you want. And if you vote with your money more conscientiously for local businesses with high quality local goods and services, there are a whole bunch of wonderful things that can happen to your economy. If you don’t vote that way, you’re economy is going to become hollower and shallower, and your prosperity is going to be imperilled. And I think it’s even truer for investment, because right now we have an investment system where everyone under-invests in local business. I think if we can change that, we can dramatically increase the number of local businesses and prosperity will flow from that. The two critically important decisions to think about are your purchasing and how you invest your super.
MG: What do you mean by ‘local’?
MS: I define local as the smallest jurisdiction in which you live that has real political, economic or legal power. So if you live in Melbourne, the city would be the relevant area. If you lived in a remote rural region, you might think of a larger area. It’s necessarily a flexible term, but the point that I like to emphasise is that local ownership means that the people who own the business live in the immediate jurisdiction in which it operates.
MG: You wrote The small-mart revolution in 2007, arguing that small, local businesses contribute more to long-term economic prosperity and community wellbeing. The world seems to have changed a lot since then – has your thinking changed?
MS: In the book I lay out a dozen trends in the global economy that were accelerating localisation. All of the trends have moved faster than I anticipated. For example, I never expected oil to hit $150 a barrel so quickly. It didn’t stay there very long, but it won’t before we get there again. Also, when I wrote the book, I felt that the conventional understanding about the financial system would make it very difficult to convince people to move into local stock quickly. But the financial crisis has so changed people’s perceptions about the risks inherent in the current system that it has really opened their minds to localisation in a huge way. I think the shift in global consciousness is profound and has moved much more quickly than I thought it would.
MG: You write that smart localisation is about being self-reliant and exporting – not about limiting global trade. So are you saying the ideas we have about scarcity aren’t accurate, and there’s actually great scope for growth?
MS: That’s right. It’s not a new argument – for example, look at the writing of Frances Moore Lappé with Food First, thirty years ago. She made the argument that the planet has more than enough food to feed people, but our distribution systems are corrupt. As the years have gone by she has increasingly talked about the importance of local food systems that feed populations first and foremost, and then we build trading systems for more exotic foods on top of that. And I think that’s true in all kinds of goods out there.
It’s not to say there aren’t shortages or profound challenges in moving communities that are in very high levels of poverty into a place where they can be active participants in the global economy. But in my work in the US I’ve seen that the poorest economies are the ones that are most predisposed to try new approaches because they have been most readily left behind by the mainstream economy. And when you’ve got little or nothing and you change your approach, a little of something that’s better can actually generate a lot quickly.
MG: But in the short term, if I’m spending more money locally, then someone else will be missing out.
MS: I agree with that – for example, the argument is that in the US we import bananas from Guatemala so if we figure out ways of producing bananas in hydroponic greenhouses, the peasants who are producing those bananas in Guatemala are going to lose out. I think the weakness of the argument is that the peasant receives such a tiny fraction of the value-added of that banana – probably a fraction of one per cent – that it turns out to be an enormously inefficient mode of helping that peasant. And so both the promise that trade-as-usual helps the poor, and notion of the harm that comes from changing traditional trade, both of those things are a lot smaller than people assume.
But there is a short-term cost and there’s a transition in that. What I would add is that it is in the interests of communities to share their best practices for free with other communities worldwide. We should all become part of a kind of open-sourced world of information about the technology, business finance and public policies that support localisation. Every community that takes this seriously should try to share what’s working and what isn’t.
MG: But isn’t localisation a trend that will inherently disadvantage developing countries – if wealthy countries become more self-reliant, won’t that punish developing-country commodity producers?
MS: I think there is something to that argument, but again, it’s clear that the kind of development policies we’ve undertaken have been a dismal failure for most of the world. In the places where they have been successful, like the Asian tigers and China, they’ve come with grotesque costs to the environment, human rights, labour rights and equity. I just really feel that creating models of community self-reliance around basics and sharing them internationally is going to be much more important to poor communities than any of these other strategies.
MG: Is it implicit that a localised economy will produce a more egalitarian society?
MS: In the United States there is a sociology literature on this. Basically, communities that are largely made up of small businesses have higher measures of social equality and, in some cases, even lower levels of welfare dependency. I think part of the reason is that in a community of small businesses where there’s a lot of local commerce, it’s a relationship-based economy. That is, both the employer-employee and consumer-seller relationships are rooted in people who know each other. If you know each other you have to act more responsibly because you can’t just pick up leave and hide what you’ve done.