I hastened to buy Local Dollars, Local Sense by Michael Shuman, because I was attracted to the title and had high hopes for the emphasis on localization. Shuman's book represents a small step in a needed direction, but I was yearning for much deeper.
The cover claims that it is "a Community Resilience Guide" -- I don't think so: not at face value, not without plenty of caveats and sidebar explanations to adapt Shuman's recommendations to a dramatically changing economic picture. Certainly, Go Local. But do so ready to adjust to the radically different landscape we now face. This new era of economic contraction alters many long-held presumptions.
The book's subtitle lends insight into my hesitations: "How to shift your money from Wall Street to Main Street and achieve real prosperity." First part great, I'm there. Second part ... if only Shuman didn't mean the phrase so conventionally, in the style of Mr. Buffett who wrote the Forward. If only he understood "prosperity" as do Dave Wann, Cecile Andrews, Jeremy Rifkin, and Tim Jackson in his TED talk.(6) While Shuman highlights many, many examples of The Right Stuff, he doesn't seem to get it that the grow-grow-grow economic paradigm is dead-dead-dead. His enthusiastic text repeatedly sounds like a conventional business book gone small-scale: Prosperity. Rate of Return. Profit. Stimulus. He has missed the indicators of the new world.
I applaud Shuman's anti-globalization approach. He has carefully researched and presented plenty of statistics -- should you be looking for some -- to document how Local has been gaining competitive advantage and how small and home businesses are providing real and valid livelihoods. He has feretted out plenty of niche examples of community-based financing. The holes in his enthusiastic recommendations come in that he continues to work within a conventional paradigm.
The new economic paradigm begins with the understanding that humanity is currently navigating peak oil and peak everything, that we are facing energy descent(4). The conventional economy has grown to nosebleed heights fueled predominantly by cheap, abundant, presumably inexhaustible petroleum -- a substance for which we have no easy substitute. In the past few decades, our consumption levels have zoomed out-of-sight. North Americans currently consume world resources at a level that -- if everyone on the planet consumed the way we do -- would demand five planets to provide for. (And some still think we will "grow this economy" ... ) This fantasy-driven growth paradigm has been compounded by easy credit.
Now phase one of the credit bubble has popped, oil is fibrillating in price, the costs of climate repercussions are becoming evident, and biocapacity issues are gradually easing into view. The route forward is inevitably one of powerdown, energy descent, economic contraction, and an adjustment to something more in line with one-planet's-worth-of-consumption.
Expectations of business volume will have to adjust -- sales volume, throughput, profit, and yield, as well as consumption volume. For true resilience, it's not simply "go local" -- we must also pay attention to the types of local businesses which are needed to make up the fabric of that resilience(3). In a landscape of economic contraction, taking on debt isn't the advisable thing it was during economic expansion(2). Shuman skips over those parts.
In a recent post at this blog I wrote about my dawning realizations that just as the grow-grow-grow paradigm in business is flawed, so too might be the presumption that our money/investments should "grow." The business world has, for several decades, been focused entirely on maximizing profit and rates of return. Shuman writes from this older paradigm.
A lot of his proposals are versions of conventional credit and micro-credit (which Charles Eisenstein capably debunks(1)). For true economic resilience, every time Shuman mentions conventional interest-bearing credit structures, I recommend that readers keep in mind the vastly altered understandings about debt and credit that must come with economic contraction(2). Debt and leveraging makes sense in an expanding economy. But in a contracting economy, it DECREASES resilience. I would not encourage our desperately-needed resilience-building local businesses to sign on to interest-based financing.
Shuman praises B Corporations. While B Corp principles begin to head in the right direction with respect to waste, water, carbon, and fair wage; they are largely about greening conventional businesses. They skate lightly or skip over globalization, appropriate scale/volume, biocapacity, assets of the commons, democratic voice, and post-petroleum resilience-building. For building true economic resilience, watch the principles emerging from groups like the UK's REconomy; they are revealing broader wisdom.
Schuman's recommendations in the subchapter "become your own landlord" are scary to me -- I wish he had heard what Stoneleigh and Robert Prechter forecast as the long-term future of real estate values before he wrote that part. Yes, we have seen one burst bubble, but we have a bathtub full of 'em yet to pop.
Shuman advocates for resurrecting regional stock exchanges and recommends community banking. My understanding, enlightened by analysts such as Stoneleigh, is that even these more local cousins are deeply immersed in a financial world that is crumbling on the verge of collapse. Unless these local exchanges and banks can shift their underlying investments away from conventional financial vehicles and petroleum-dependent businesses, and shift their income structure to the new economic paradigm, it seems to me they are in every bit the same jeopardy as the big guys. We, who are working hard to build community resilience and create an economic safety net, should be very, very cautious.
Shuman does include material on cooperatives, although even this section contains a subtle adulation that bigger-is-better. But the star chapter in Shuman's book is "Unaccredited Investing in SEC-land." It may well be that these brief pages alone are worth the book's cover price. Shuman outlines multiple ways to achieve local-scale investing without the oenerous reporting requirements, accredited investor rules, and limitations imposed by the SEC.
The subchapter "Zero Returns," which highlights networks like Kickstarter.com and other crowdfunding ideas, is awesome. "Micropatronage" is a great term which pops out of this subchapter. Yes, we the 99% do need to invest in Main Street, and ideas like these show How. These will support local business without undermining it.
Shuman examines the Port Townsend, Washington network LION investing (their interview on Peak Moments is "must-see TV") The subchapter on direct public offerings looks promising, although its celebration of investor dividends makes me cringe.
In my understanding of what lies ahead, the ideas in chapters "Zero Returns" and "SEC-land" represent the cutting edge. A redefinition of investing is going to emerge from this new era(5).
Repeatedly, Shuman holds his reviews to a standard of "beating Wall Street's 5% long-term performance." And in the new economy -- which is appropriately headed for degrowth -- this standard is flawed. Firstly, we cannot hope to achieve the "performance" Shuman promises as the conventional economy implodes. But much more importantly: Charles Eisenstein's explanation proves that if we attempted to reap that exceptional rate of return, we would drain the lifeblood from the very businesses that are our survival network.
In his final chapter, Shuman refers to "the illusions sold to us by Wall Street," yet Shuman's approach reveals he is still subscribing to those same illusions. Shuman still stands upon the growth paradigm and the expectations inherent in a growth economy even though his book was released into an era of energy descent and economic contraction where all of those assumptions and expectations have been turned upside down.
I had hoped Local Dollars, Local Sense would unroll radical, root-level change, that it would be a book that might address localization within the changed economic landscape. I was disappointed that Shuman has written mostly about conventional paradigm interest-based financing and conventional paradigm rate-of-return-driven investing, that in most cases is distinguished only by smaller scale and taking place much closer to home.
I know Shuman's book was focused on investing, but there is so much more to the Localization picture. It is not merely a case of taking the old capitalism model that has failed us and replicating that, small and local scale.
To develop resilience within our local communities -- resilience which will enable us to weather the storms of post-peak, of climate change, and of economic upheaval -- we must put in place an economic "safety net." In the same way a circus performer uses a safety net, we need to have something to catch us when we fall.
First and foremost, we need to set in place the bare-bones tools for economic survival through collapse, things like getting in place the needed kinds of local businesses -- resilience-building ones, that provide the basics for sustaining local life. Releasing our personal attachments to the old ways, to old models of spending, and to the corporate style of "job." Setting up sharing networks and time banks and local currencies and gift circles to open up the neighborhood "money supply" so that local transactions can flow.
As we put in place the safety net, we need to be aware that we are weaving the threads which will become the new economic system of the future. What might those threads be? I have been wrestling with these ideas for some time, and you can read some of my explorations here(7). In Transition Los Angeles' "Transition Enterprise" working group, we have been discussing ideas about ownership structure and democratic voice. Most recently, I have been grappling with ideas about debt and interest, and what borrowing money means in a contracting economy. Other important threads for that safety net and ingredients of the economy of the future would include new economic indicators -- that focus on the right stuff. An end to corporate personhood -- many places are embracing this at the city level and that is a great thing. Full cost accounting, in other words ending the externalization of costs -- carbon counting is the bare beginning; there is so much else that needs to be considered. An end to limited liability. Getting corporations out of politics.(8)
In my opinion, we need to put all these things in place at the local level. That way, as we bring our economic centers back home with the end of the age of energy plenty, our fallback becomes the new, improved system. As we localize, we have the opportunity to effect the grand transformation, The Great Turning for the economy. That, to me, is Community Resilience and "Local sense."
Joanne Poyourow is active in Transition Los Angeles. She is completing her third book, under the working title "Economic Resilience: What we can do in our local communities." She is an economist and a Certified Public Accountant by training.
(1) see chapter 20, subheading "Robbing Peter to Pay Paul," Charles Eisenstein, Sacred Economics, http://sacred-economics.com/read-online/
(2) see "Borrowing money in times of economic contraction" http://economicresilience.blogspot.com/2011/10/borrowing-money-in-times-of-economic.html and "Debt and the Transition Economy" http://transitionus.org/blog/debt-and-transition-economy
(3) "Resilience-building businesses and industries" http://economicresilience.blogspot.com/2011/10/resilience-building-businesses-and.html
(4) for extended explanation of Economic Contraction see http://economicresilience.blogspot.com/2011/10/understanding-economic-contraction.html and related pages
(5) "Community-based investment" http://economicresilience.blogspot.com/2011/10/community-based-investment.html
(6) a new idea of "Success" http://economicresilience.blogspot.com/2011/10/redefine-success.html
(8) developing ideas for the "safety net": http://economicresilience.blogspot.com/2011/10/crafting-shadow-structure.html and http://economicresilience.blogspot.com/2011/10/what-might-it-look-like.html The framework http://economicresilience.blogspot.com/2011/10/framework-from-new-economics-foundation.html The work of Transition Los Angeles' "Transition Enterprise" working group https://sites.google.com/site/latransitionenterprise/ ideas about debt and interest http://transitionus.org/blog/debt-and-transition-economy and borrowing money http://economicresilience.blogspot.com/2011/10/borrowing-money-in-times-of-economic.html