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An interview with Michael Shuman: if we’re serious about localisation, “all of us have to go to business school”

Michael ShumanI was honoured last week to be able to interview Michael Shuman, who has long been one of pioneers of thinking on the question of localisation. It was a fascinating conversation…

Can you tell us about your work and what you do, for those unfamiliar with that…

Right now my formal job portfolio is split 50/50 between BALLE, the Business Alliance for Local Living Economies, and another for profit called Cutting Edge Capital. BALLE is a non-profit founded about 10 years ago, which is building networks of local businesses through North America and I do research and economic development activities for them. Cutting Edge Capital is really working with small businesses and communities to help them figure out ways of creating more local investment solutions. I guess within Cutting Edge Capital I do a lot of other stuff that’s pretty broad: public speaking and I do community engagements on local food systems and on specific economic development plans. I’m also working on a new book now on local investment strategies (note: Michael is also author of Going Local and Small Mart Revolution).

When you talk about localisation, what do you mean by it?

I think localisation really is two pieces – one is ownership and the other is proximity. The particular spread of local food ideas has given a lot of weight to the proximity issue – that is, that the distance between farm to table should be a short one – but I think it’s given short thrift to the ownership issues, and I consider it just as essential that localisation involve local ownership of every node of a shortened journey that a good or service travels to get to the end user.

There was a news article here recently where Colin McInnes at Strathclyde University wrote a very critical piece about localisation without really understanding it. I’m just going to read this out to get your thoughts on it:

“… at its core, localism is in many ways an indulgent form of self-interest. A self-sufficient community is exactly that. It is independent of the cares or needs of other communities and is unwilling to engage in the wider human enterprise … we should reject these new forms of localism. We should have as little interest in growing our own food or generating our own energy as we have in producing our own steel. If we leave energy to energy utilities and food to efficient large-scale farming, we can enjoy the products of both while undertaking a myriad of other productive tasks, and so ensure growing prosperity for all”.

The reason I wanted to mention that was because it seems to sum up everything that is a misunderstanding of what localisation means, and it would be interesting to hear your thoughts on it.

That’s a great quote and I’d love it if you could send me a link to that article, because it would be fun to make fun of! There’s a bunch of things to say about this. First or all, I’m sympathetic with most of the underlying values of the author – that is, I do believe it’s important for an economy to be efficient and to achieve good economies of scale and for a community to maximise wealth, and I also believe it’s important for communities to relate to the rest of the world.

If in fact localisation meant poverty and withdrawal from the world, I would not be in favour of it. But what the author has wrong is a complete misunderstanding about economies of scale and also that the way that localisation is working, just like our phone-call is working, is that the wealth and the time and the resources that localisation provides to a community enables it to be a more powerful and effective participant in international affairs. My own professional trajectory – I’ve been out of law school now for basically 30 years.

The first half of my professional life was helping cities get directly involved in foreign policy. I had a journal for mayors and city council members in the US called The Bulletin of Municipal Foreign Policy, which was designed to make it essential for communities to get involved in international affairs. What I ultimately realised was that globalisation – the way that it had mutated – was making it more difficult for cities to maximise their wealth and to participate in international affairs. That’s how I got interested in issues of localisation. We could talk more about the economy of scale issue, but I do believe that localisation is about cities and communities becoming wealthier.

Where do you stand on the question of economic growth? Is it feasible? Is it desirable? Is it possible? Is it possible to have localisation where local size businesses are growing within a wider national framework of de-growth or steady state?

I guess I’m with some of the writings of Herman Daly on this, and that is that the way that one can make economic growth fit within the ecological limits of the planet is by growing information and technology, and decreasing energy use per unit of production and decreasing material throughput per unit of production.

Can we do that? I think there are some encouraging trends, but I think in order to make sure that that is the way it happens, that’s why it’s so important to move to energy and material taxation – that is, green taxation – from our current systems of taxation so that that becomes a requirement of economic growth. So reframed I think, growth of technology, growth of information, growth of intelligence are all possible and could in fact lead to growth of GDP.

In McInnes’s quote I read you out earlier on where he talked about how it’s undesirable for all communities to produce their own steel…. clearly when we’re talking about localisation, there are different things that work on different scales. What in your analysis would be the things that make economic sense at the local scale quickest? Food? Energy? Building materials?

Let’s get very specific and empirical about this. From data in the US, we have something called the North American Industrial Classification System – NAICS – and it splits up the economy into 1100 categories. A very interesting exercise that you can perform is to ask in how many of these 1100 categories do we have more examples of large business than small business? In the US we have a peculiar definition of small business which is 500 employees or fewer, but let’s call that….if not a local producer than at least a regional producer scale.

The answer to that question is 7. That is, in 1093 of these categories we have more examples of successful small business than large business. The truth is, when you look at those 7, top of the list is running your own centralised monetary system, which actually many localisation people think they can do through local currency. Number 2 on the list is running your own nuclear power plant which none of us care about. Number 3 on the list is missiles and rockets, and maybe we would be prepared to concede that one. But even in the other 4 items on that list, there are examples of successful small business, and so the point is that a good economic development programme would not ask the question, “what is the average economy of scale of a successful steel plant?” A good economic development programme would say, “let’s find the best examples of small scale, steel production and implement that and see if we could make a go at it.”

I don’t take it that steel is undoable at a local level. I believe that almost everything is doable at a small, local level in a competitive way if you’re smart about it. Almost every advantage that you can get through a larger economy of scale, you can achieve through a bunch of small businesses working together in, say, a producer cooperative or some other relationship. But that said, you have to say that where the economies of scale are changing, are shifting to the local level the fastest, would be where the weight of an object if relatively high and its value is relatively low – because those are the areas where rising energy prices are going to effect trade most significantly. So food and building materials certainly are high on that list.

If the analysis is that a localised economy, as much as is feasible, is what we want to see happening because it will be better for economics and better in terms of carbon and resilience and so on, how do we get there from where we are now? How do we start to be really strategic about what the key enterprises are that we need and how do we create, at the local level, a culture of social enterprise around localisation?

I think there are a couple of elements here but let me just focus on one that is the least obvious of them. In my mind, we need to make localisation politically attractive across the ideologies. I think one of the places where I depart from a lot of my fellow travellers here in the US is that I spend a lot of time working with and breaking bread with most conservative parts of American society, which put to shame the conservative parts of Europe!

What are the things that they care about? Reducing taxes, freeing markets, getting rid of big government, and so I think that it is very useful to begin to conceptualise localisation politically around those ideas. In point of fact, I think that a lot of the reason we’re in the mess we’re in right now is that large government agencies and major government subsidies and legal frameworks have made globalisation unwisely and irresponsibly cheap and if we begin to dismantle those, a lot of localisation will occur naturally.

In the US nearly all subsidies are around big things – big oil, big natural gas, big utilities, big cattle, big farms – it’s so perverse. Stripping away those things, that conservatives want to do right now, would be a tremendous boost for localisation. Even when you get to the State level it’s the same thing. I just finished a study for the Kellogg Foundation where we looked at the three largest economic development programmes within 15 US states, so we looked at 45 programmes in all. What we found, counting the dollars in the grants that went to these various economic development programmes was that 80% of the programmes were giving money to non-local business, that is out of state business attraction or attention.

About a third of them were giving more than 90% of their money to non-local business. So basically, if you abolish economic development as we know it, and save lots of money, which many conservatives are seeing the virtue in, it’ll be a huge boost for localisation, because the effect of these subsidies is to make non-local business more competitive, more powerful than local businesses.

The second thing I would say – the second area where this is true – is security law, so this kind of moves into the investment domain and what I’ve noticed about localisation discussions in the US and Europe and in Australia, (those are the places where I’ve spent some time), is that things are very much focused on consumption and buy local, produce local and all that is great, but there’s been really inadequate discussion about investment. What is perverse, this is true in the US and true in Australia, I don’t know for sure about Europe, is that when I go to an audience and I say, “by a show of hands, how many of you are doing your banking at a local bank or credit union?”, and almost all the hands go up…. but then when I say, “how many of you have your pension funds in local business?”, and all of the hands go down.

So we know that local businesses – and this in the US constitutes about half the GDP, in Australia it’s about two-thirds, and I suspect in Europe it’s probably somewhere in between. Yet none of our pension money is going in to local business. That is a huge market failure, and that market failure, when you start scratching at what causes it, is largely driven by security law which is a really obscure area of law. But security law basically makes it very expensive for small investors to put money in to local small business.

Coops are sort of an exception to security laws, which is why, among folks like us they’re very popular. But thinking about how to reform security laws and makes capital markets work more efficiently, I think is a critical piece of localisation. That’s another theme that I think also politically is very appealing to conservatives.

So you’re suggesting that in terms of making localisation happen, the focus should really be more on the Tea Party than on the alternative community?!

Yes. Well, I think there’s value in both and I don’t want to diminish the value of the alternative community, but…. people laugh when I say this, but I do try to practice it enough so that people take it seriously, that to the extent that we try to spend time rolling up our sleeves and working with others in our community, that we really find the people whose views are the most different from our own and really try to work it through, because I think therein lies the real rocket fuel for making what we’re talking about happen.

Might one suggest that often within the more alternative community there’s an aversion to enterprise and business and so on, and that’s going to need to be a key part in it?

Yeah, I think that’s right. Some of it is having a more mature democratic sensibility, which is to say, when we say we’re with the people to really take that seriously, because the people have such diverse views. Part of it is taking business seriously, in all of its incarnations, but even with those many incarnations, being demanding that the ownership structure of business – whether it is private or coop or non-profit – be local. Be locally controlled and reminding people of the virtues of that.

In the academic discussions about localisation there’s the idea of reflexive and unreflexive localisation – so localisation which is good, in a sense, and localisation which is undemocratic and unjust. What’s your sense in terms of when starting to implement localisation, start putting in place the infrastructures that we need for that to happen, how can we ensure from the outset that what we end up with is a reflexive form of localisation?

That’s an interesting question. Part of it is probably…..it’s the beauty of Transition Towns and what we’re trying to do with this conversation, which is to really say that the objective here is to build a global network of self-reliant, resilient communities, and to realise the best service that we can give to peace, justice, ecology and the world, is to prove that a small scale steel plant is tremendously competitive and then give that technology away to the rest of the world, knowing that if you have a 100,000 communities around the world using that technology, they are not in the end competing with each other because they’re all going to the local markets.

I think it’s the logic that the information flow and innovation that can come through an international network of local communities will lead to a more successful form of economy building than what we’re doing right now. That’s the way you get a healthy form of localisation. What I would regard as unhealthy, and this again puts me a bit at odds with some of my fellow travellers, is that wherever one throws up what are obvious trade barriers – I think that is inviting the fear, criticism that this is going to a) weaken your economy and b) it is a bit withdrawn from the world. I think the goal is through competitiveness and wealth building to become as local as possible, rather than through withdrawal and trade barriers.

So you don’t think there’s any role for legal or policy changes? Because at the moment, if you’re say, trying to promote local food and to get local authority procurement for example then you’re in danger of running up against protectionism laws and GATTs and this kind of thing. But your sense is in terms of localisation of food for example, there wouldn’t be any international policy or changes that would make that more likely? Because at the moment there isn’t really a level playing field so the Wall-Marts are always going to be….policy is skewed in their favour. So if you aren’t in favour of laws around changing protectionism, would there be any changes in the law that would support and make that playing field a bit more level?

Local procurement’s a really good example. Let me first off say that what you say really emphasises the importance of people like us pushing for policy change at the national and global levels because it is such an unequal playing field. Given that unequal playing field, it’s hard not to be sympathetic with efforts of communities to try and equalize it with their own tilt in another direction, but I do think that there are ways of framing policy that can be more consistent with market principles that may get us further along this.

Procurement is a really good example. Say for example…..in the US we have about two dozen communities that have across the board procurement preference laws. So they say, “if you’re a local business you will get a 5% advantage in the procurement process.” Those laws are probably illegal under the WTO but given the way dispute mechanisms there operate it may be decades before we know that! (laughs). It’s a good thing I guess!

But I’ve been thinking about – what’s another way of framing this that gets us to a more legally defensable result? So one thought is that within the WTO and with US law, you still have the ability to look at the long term impacts on price of a given contractor. One way of thinking about it is that you should require from any municipal contract an analysis of how much of that contract is going to be spent in the community. You then do a multiplier analysis and you look at what the tax collection from the respending of dollars is going to be.

The real price that a municipality faces from the contract will be the nominal price from the bid minus the tax collection. No because we know that local businesses spend a lot more per money locally, this would be an automatic tilt of the market in favour of local businesses. Because it’s not framed in a discriminatory fashion, that is that local businesses automatically get it because a non-local business from Taiwan could come into Washington DC and say, “we’re going to spend all our money in DC and do very well under the law.” We should say, “great, that’s fine”, because technically speaking they are contributing to the local economy, so we’ll give them due credit. I think that is a way of reframing the law and getting to the same place without violating market principles – that are important to conservatives.

If the process is successful with TTs and BALLE and other ways to try and make this push, if in twenty years it has been successful and we have managed to shift to a localised economy, can you describe that vision to us?

It’s sort of like the internal life of Switzerland! There are a couple of things about Switzerland that are impressive to me. It is such a highly decentralised country that no one ever can identify who the President is, and in fact the President does rotate every year or so, so it’s hard to identify. You also have these very powerful decentralised cantons. The reason this decentralisation was put into place was because of the bloody wars and they wanted to end them and they came to a wise conclusion that the decentralisation would eliminate the violence and in fact that happened, and it’s a major factor that contributed to Switzerland’s neutrality internationally.

The Swiss are fabulously wealthy, among the wealthiest per capita in the world and with very limited resources have become tremendously self reliant but they also are good in trade. That’s where the analogy ends because the Swiss are addicted to material in terms of energy, in terms of trade. I would say that we have shifted tax laws from all the ridiculous taxes that we have now on income sales and property….and move entirely into energy and materials taxes and so those, along with the natural spikes in energy prices are contributing to a great deal more natural self reliance.

Who knows, but I think in the world that we’re talking about, the value of trade could well increase but the content, the weight of that trade, the energy content of that trade would go down. I could imagine us trading a lot more things like music, conversation, intelligence – things that flow in the way of electrons, but things that are goods and have weight we’ll be doing a lot more of ourselves. Food is high on that list, energy is on that list too – and because we’re using less energy, and using materials more effectively, it will help to ease some of the environmental burden of that as well.

My last question is, in order for TT projects to take a step up and make this happen….what skills and what abilities to we need to learn, bring on board? What tools and resources do we need to move forward?

I would say two or three things. The first is I think that all of us have to go to business school. We have to realise that even if we’re going to be advocates of local economies, we have to be those economies and model those businesses that we want out there and prove concept wherever possible.

The second thing is it is the political majority, the listening….rather than trying to beat those on the right that people just instinctively distrust, I think it’s about embracing those with different political views and finding the right ideological and philosophical mix that gets us from here to there.

I think the last piece is seeing ourselves as part of the problem. Our consumption dollars, what drives the system, our investment dollars provide the foundation for the system. The more that we can create alternative systems by channelling our consumption and investment and convince others these are great ways of living, and consistent with what we’re trying to achieve long term, I think that’s the way we’re going to succeed.

What do you think? Leave a comment below.

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