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Michael Shuman on Pollinators, Social Enterprise and Remaking Economic Development

Amy Cortese | January 9, 2016

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Michael H. Shuman is an economist, attorney, author, entrepreneur, and one of the world’s leading experts on community economics. (He is not, however, a famous rock drummer).  His eighth book, (we think, we’ve lost count) The Local Economy Solution: How Innovative Self-Financing “Pollinator” Enterprises Can Grow Jobs and Prosperity, takes on the economic development profession and explores a more sustainable and entrepreneurial approach. In a wide-ranging conversation, Shuman talks about economic development and the challenges that remain ahead for the local economy movement. 

Amy Cortese: Explain the concept of a pollinator.

Michael Shuman: In nature, pollinators like bees take the pollens from one plant and spread them around to others, creating a fertile ecosystem for other plants and animals.  No higher authority cuts the bees a paycheck to pollinate—they do this naturally.  So a pollinator enterprise is, in my view, an economic development program that shares and spreads the best of what local businesses offer, creating a fertile entrepreneurial ecosystem.  And importantly, like bees, they do this naturally, as a self-finance business, without requiring subsidies from foundations or government agencies.

AC: Why did you decide to do this book, now?

MS: I worry that the local economy movement has hit a really critical fork in the road.  We have persuaded a critical mass of citizens, businesses, and politicians to embrace “local,” but the first instinct of local-economy organizers now is to ask foundations, philanthropists, or government agencies for a grant.  To me, it’s weird and hypocritical to promote entrepreneurship in a completely non-entrepreneurial way.  And counterproductive.

As you know, I was very active in the start-up of the Business Alliance for Local Living Economies (BALLE) in 2001.  Over the next decade-plus, the organization grew to more than 80 networks around the country.  Today, many of these networks are dead or dying because they don’t have a coherent model for financing their work.  My book is really aimed at them: to provide local business networks ideas for continuing their work in a self-financing way.

“To get economic development back to its mission, we have to pull the plug on every damn attraction and retention program.”

AC: You’ve never been a shrinking violet, but the book takes on the economic development profession pretty aggressively—at one point comparing them to street beggars with better hygiene and a bigger ask. Explain your beef!

MS: My beef is this: Economic developers have created a gigantic welfare system for globe-trotting corporations, offering them massive incentives – really, bribes – to move to their communities or, if the companies are already there, not to move out.  The New York Times recently estimated U.S. states and localities are shelling out $80 billion per year, and that number is surely too small (most tax incentive takers are not documented).  Besides imposing a huge burden on taxpayers, this system has the unintended consequence of making unsubsidized local businesses less competitive.

Now if global businesses contributed more to economic development than local businesses, this might be an acceptable set of practices.  In fact, the overwhelming evidence is that the most significant contributors of income, wealth, jobs, and equality are actually local businesses.  We know from about two dozen studies that every time a consumer spends a dollar in a locally owned business rather than a nonlocal one, the community gets 2 to 4 times the jobs, income, and taxes.  We also know, from several recent regression analyses, that regions in the U.S. with the highest concentration of local business have the highest per capita job growth rates and the highest per capita income growth rates.

And that’s just the direct economic benefits of local business.  Local businesses also facilitate smart-growth and mixed-use communities, improve public health by replacing food deserts with fresh local food, and attract tourists by providing one-of-a kind destinations, among other things.  It’s an extraordinarily long list why we should favor developing local businesses.

Finally there’s evidence that smaller businesses—once they get past the start-up phase—are more profitable than global companies.  U.S. sole proprietorships, which most small businesses either are or start out as, have profit rates 11 times higher than C-corporations.  In Canada, the most profitable businesses have 10-20 employees—and these are about 30-40% more profitable than the firms traded on the Toronto stock exchange.

So, yes, it irks me that huge sums of public money are wasted each year by a profession that’s effectively destroying those businesses most likely to lead to real economic development.

5 Kinds of Pollinator Businesses

Local economic development, according to Shuman, encompasses five functions, which are easy to remember with five P words:  planning, people, partnerships, purchasing, and purse.

Planning – identifying the best opportunities for creating new local business or expanding existing ones, such as identifying areas to replace imports with local goods.
Pollinator example: The Main Street Genome Project

People – training and supporting entrepreneurs who are leading these leak-plugging businesses.
Pollinator example: Fledge, a Seattle-based incubator

Partnerships – groups of local businesses that are more competitive as a team than they would be operating alone.
Pollinator example: Tucson Originals

Purchasing – encouraging consumers, businesses, and government agencies to buy more local goods and services, more of the time.
Pollinator example: Supportland (recently rebranded as Placemaker).

Purse – channeling local savings, whether they are in banks or pension funds, into promising local businesses.
Pollinator example: Credibles

AC: So do you consider these pollinators a form of social enterprise? Should they be B-Corps? What’s the interplay?

MS: Yes, pollinators are a form of social enterprise—but with a specific mission of supporting local businesses.  Their social mission helps them score well on some of the measures of social responsibility required of B-Corps.  It doesn’t necessarily follow that pollinators are attentive to their own environmental behavior and labor standards, but many are.  If you’re asking me whether pollinators should become B-Corps, I would say yes, because every business can and should deploy the B-Corps survey to improve its social performance.

Another form of ‘interplay’ is this:  I believe that the more companies in a community that become high-scoring B-Corps, the stronger local economic development will be.  For example, B-Corps spend money locally (which boosts the local economic multiplier), pay more (which increases local incomes), and impose fewer environmental costs (which spreads public health benefits).  I’ve just begun a project in Baltimore to calculate what the economic-development benefits could be as 5, 10, etc. percent of the businesses there become B-Corps.

AC: Have you come across new examples since the book’s come out?

MS: Yes, many.  For example, I just found a great local distribution company that helps other local businesses deliver products (beyond the usual pizzas) to the doorsteps of people who can’t go shopping—the elderly, the disabled, single parents, etc.

AC: You’ve been a local economy advocate and thinker for over two decades. How have things changed? Where do you think we are with this and what are the biggest remaining challenges?

MS: There is no question that the localization movement has made huge strides over the past 20 years. There used to be a saying that you know you’ve made it when you’re on the cover of Time Magazine. Well, it was March 2007 when Time had on its cover “Forget organic, eat local.

The Local Economy SolutionYou know, I visit 40 or 50 communities each year to speak, many in deeply conservative areas, and every place I go, I see signs that say buy local, eat local, bank local. I have never seen the sign, “We are not local—buy from us.”  To me, that’s a great victory: We have won the war of ideas.

We have also won the war of research findings. There is now overwhelming data and analysis, some of which we talked about, that local businesses are the best contributors to economic development.  We also have documentation that in many cities, particularly those with good local business alliances, ‘local first’ campaigns have made a big difference in the bottom line of local businesses.

And I’ll point to a huge accomplishment near and dear to your heart, Amy.  We’ve helped to change securities laws— both nationally and in more than half the states—that ultimately will facilitate a shift of trillions of dollars of capital from Wall Street to Main Street.

In terms of remaining challenges, there’s a bunch—but let me just highlight three of them.

First, to get economic development back to its mission, we have to pull the plug on every damn attraction and retention program.  As a half-way house for economic developers addicted to giving away our money, I might suggest they at least auction so-called “incentives” so that every business, local and nonlocal, can compete for them.  If we only give money to those businesses needing the least money to create the most jobs, funding for nonlocal businesses will dry up.

Second, we have a lot more work to do on the local investment front.  We’ve made it cheaper and easier for local businesses to issue securities, but now we have to make it easier and cheaper for local investors to trade those securities locally and to put them together in grassroots investment funds.  One reform that I think could be a home run—which I just saw in New Brunswick, Canada—would be a tax credit for local investments.  Once we incentivize a shift from Wall Street to Main Street, every player in the mainstream investment industry will be working shoulder-to-shoulder with us to identify great local investment opportunities.

Finally, we need to overhaul local procurement laws and practices.  I believe that bidding processes should credit local companies for the taxes that they pay on contracts they receive.  Current practices that don’t do this, I would argue, are guaranteeing that government agencies are paying too much for their goods and services from nonlocal bidders.  This kind of reform would be a huge boost for local businesses.

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Comments

  1. Thanks Amy and Michael for this focused conversation. We’ve experienced increasing collaboration between Sonoma County’s Economic Development Board, City of Santa Rosa and Sonoma County GO LOCAL for fostering expansion and start up of locally owned businesses. For GO LOCAL’s part, we’ve been self-sustaining financially for 7 years. Michael is absolutely spot on with that mandate. It made us stronger and more credible to the businesses we serve. This article on our Made Local magazine website demonstrates how we’re using the import replacement principle. http://madelocalmagazine.com/2015/09/pollinate-this/

  2. This all rings very true. Our towns give big tax-increment financing deals to larger corporation and auto-dealerships while the rest of us scramble for small grants or local investment. We went through the easier (but still $15-20k) process to launch our (MA) Direct Public Offering and our local CDC has a few local loan funds which are starting to grow, but it’s still a battle to get people to think of Investing Local as well as Buy Local/Eat Local. Tax Credits would be awesome; although I think even better would be easier (and lower fee) Self-Directed IRAs. More people have retirement accounts than $5000-10,000 extra cash.

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