Down to Earth Blog

How to  Help Local Businesses and How They Can Boost Your Local Economy: Wow, it's been over two weeks since I posted anything. Sorry for the big gap; it is a busy time of year.

Over the summer I read an advance copy of Michael Shuman's new book, 'The Small-Mart Revolution: How Local Businesses Are Beating the Global Competition.' After many months I've looked through the book again and present this review.

I liked this book for its ideas and the way they're presented. Shuman makes the case for why consumers and local governments should support local businesses as opposed to shelling out millions of dollars in subsidies to lure a Fortune 500 company to their town He shows how local businesses are better for local economies and how they could help chip away at some global problems. He's also able to use examples of work he has done on three projects in the United States to show how local businesses can be the answer to towns or regions in decline.

He doesn't say let's get rid of Wal-Mart, but he explains how to grow a local economy so it doesn't need to pay Wal-Mart to come provide jobs.

The book addresses two theories of economic development, or two visions of capitalism:  TINA (There Is No Alternative to luring big coporations to your town with millions of dollars in tax giveaways) and LOIS (Local Ownership and Import Substitution). Shuman argues that "LOIS" companies deliver their benefits to a community "more reliably and robustly" -- and are better for the environment.

If consumers and governments support locally owned businesses, one basic benefit is the multiplier effect. A dollar spent at a LOIS firm will likley stay in the community longer, multiplying its power. "The more times a dollar circulates within a defined geographic area and the faster it circulates without leaving that area, the more income, wealth and jobs it generates," says Shuman. He cites several studies showing that spending money at locally-owned businesses instead of national chains actually boosts the local economy more. One study in Austin, Texas showed that $100 spent at local bookstores ended up circulating $45 in Austin, while spending $100 at Borders ended up circulating just $13 in Austin.

He also claims small businesses generate more long-term wealth for their communities. Plus he shows how small businesses cost less in tax dollars than subsidizing big corporations.

The book includes checklists for consumers, entrepreneurs and policymakers, laying out how they can support and encourage LOIS firms and build strong local economies. Shuman does not preach buy-local orthodoxy; instead he supports a concept called "local first" and the idea of creating a "purchasing ladder" in your mind of how to decide what to buy if you can't buy a product made and sold by local businesses. He says his ladder of choices would look like this:

1.  Buy less

2.  Buy from a locally-owner store selling locally-made goods that use local inputs

3.  Buy from a store that sells some locally-produced goods

4.  Buy regional

5.  Buy bi-local:  Maybe set up a buyer's club to purchase goods from an out-of-town LOIS business.

6.  Buy fair trade.

He also lists the top 10 actions consumers can take, from home mortgages to car costs and entertainment. Most people already spend most of their money locally, he writes, and you don't necessarily have to spend more to buy local.

Shuman is a Vice President at the Training & Development Corporation and former director of the Institute for Policy Studies, a Washington, DC think tank. His job is to help communities with economic development. He relates examples of how he helped St. Lawrence County in New York and the Katahdin region in Maine analyze their assets, the leaks in their economy and the opportunities for new local businesses to patch those leaks. One key is import substitution -- setting up businesses to produce what your community is currently importing. His efforts seem to have had some success.

Shuman also describes how he is starting his own LOIS business, which is called Bay Friendly Chicken. He argues that the way to change the chicken industry is for hundreds of small businesses to sprout up selling chicken locally around the nation. He thinks people are looking for alternatives to the gigantic chicken companies that raise their birds in poor conditions, use antibiotics and often don't manage waste disposal in a community friendly or environmentally friendly way. 

He says companies can succeed following his model. One example of a successfull locally owned firm he mentions is the Hershey Chocolate Co. Plus LOIS joint ventures such as TrueValue Hardware and Ace are competing with Home Depot.

This is an economics book that makes a compelling argument for consumers and government to support small, locally owned businesses. If you want to create an alternative to the Wal-Marts and Best Buys of the world, read this book.

Tags: Michael Shuman, Small-Mart Revolution , Wal-Mart

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