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How to Grow a Local Job-Rich Economy

At a time when huge debates are raging over all the subsidies required by the 1 per cent of the business elite, Michael Shuman is working to shift public attention to the other, ultimately more positive, side of the picture – the sheer neglect of the 50 per cent of businesses that are local and independent, and don’t get much help from governments.

Shuman has long been an expert in the field of small, local and independent business, and has several excellent books to his credit. His latest, The Local Economy Solution, puts the issue of the 50 per cent versus the 1 per cent front and centre.

Half the population in North America works in public service or for large corporations, but half work in small and regional businesses. That half gets talked about a lot, but helped very little.

Shuman poses a choice that needs to be top-of-mind for people interested in the future of food, cities and regions. Victory for one side or the other will determine how food will shape the careers, lives, health and environment of the 50 per cent of the world population living in cities, as well as the 50 per cent of the world population living in countryside regions, where food security for entire nations comes from. From a city and food perspective, this book is about the 100%, not the 1% or the 50%.

A huge amount of taxpayers’ money hangs in the balance. According to Shuman, over 80 billion dollars a year now go to corporate boondoggles in the US that provide little in the way of jobs, community, public health or environmental benefits. In Canada, the level of annual corporate giveaways is even higher on a per capita basis. In 2014, the Fraser Institute documented a total expenditure of $684 billion over the years from 1981 to 2009.

Shuman’s book has “solution” in the title, and lives up to the promise of focusing on problem-solving. Most of the book is devoted to Shuman’s idea-popping about better ways to foster high-quality job creation by letting small entrepreneurial businesses have a turn at competing with corporations on something like a level playing field.

Shuman is one of the best idea-poppers around. Indeed, he has more ideas to pop than he has chapters, so many of my favorite ideas from his book are popped and passed over, left to spill onto the floor. I’m going to pick a few of them up, and show how they relate to my favorite themes -- cities, regions, food and food policy.

I’ll Take the High Road

Shuman mentions, almost in passing, that people need to decide whether they want to take the high or low road to economic development. In my opinion, this choice deserves an entire chapter on its own.

Low-enders, who have had the upper hand since the 1980s, say the way to grow economies, jobs and happiness is to lower taxes, lower wages, lower environmental and workplace protections, and lower government spending. That way, rich people will have more money to spend, and jobs will trickle down on the great unwashed below. This is called supply-side economics because so much effort goes to lowering costs of suppliers, rather than demand-side policies to raise the income of buyers.

The economy of 1945-70 was designed on high road and demand-side priorities. The neo-liberalism dominant since the 1980s has been supply-side and low road.

Any review of the best places to live in the world shows the appeal of the high road. More money spent on quality schools and school meals, public transit, public health, parks, and the environment means less money spent on police, jails and emergency medical care, and more jobs created from tourism and knowledge-based industries.

Tourists and knowledge workers –  keys to local job and value creation in today’s economy -- want to come to places high in public amenities, high in public safety, high in public festivities and places, and high in empathy and tolerance.  

As well, in my opinion, the low-road scenario is almost a recipe for cooking the goose of small and independent local businesses.

Small businesses that need to pay a decent income to owner-operators can’t compete against chains that pay minimum wage.

Small farms, where pain is taken to keep the farm environment in good working order for the next generation, cannot compete with factory farms that save time and money by dumping waste on land and water, and dumping global warming emissions in the air.

Schools that only provide cheap mass-produced food do not hire sustainable small businesses that put an emphasis on quality. Such schools do not have students paying their own way through university thanks to decent pay at quality food operations. Such schools do not produce graduates who bring lifetime healthy habits and skills to productive careers. The only thing more expensive that good public education, the wise saying goes, is public ignorance.

The business model of the corporate box store and franchised food outlet is based on the low road – low margins made up for by high volumes of low-cost materials. The business model of the diverse farm, or neighborhood restaurant and coffee shop, or farmers market, is based on a totally different value proposition – higher quality products, and more personalized service, based on lower volumes but higher margins.

Tourists stay at owner-operated bed-and-breakfasts when streets are safe and offer a variety of galleries, museums, heritage buildings, bars and people-watching places. By contrast, package tours to exclusive and gated hideaways are almost always at large hotels owned by absentee investors.

Local and high-road: you can’t have one, you can’t have one, you can’t have one... without the other.

Look Before you Leak

The most surprising and profound idea in the book, in my opinion, is that job creators should look to see where the existing local economy is weak, and plug the holes where money is leaking out of the local economy.

Don’t focus on the opportunity that shows promise of competitive advantage, Shuman advises: 
“Focus instead on your gaps, on all the businesses that should be there but aren’t, on all the goods and services that should be made and consumed locally but now are imported.”

To minds trained (brain-washed??) on the doctrine of competitive or comparative advantage, this is heresy – a recipe for losers.

But a little reflection shows the deep wisdom of what is called Blue Ocean thinking – head for the wide blue yonder, and avoid the water red with the blood of smaller fish torn to shreds by predators.

The promise behind a trade-intensive economy – in which most items are imported from afar, and a large volume of a few things are exported to far and wide – is that a region can choose to do exceptionally well at a small number of specialties such as mousetraps, and the world will beat a path to that region’s doors. 

That promise is based on an economic “law” or “principle” (that is, it holds true at all times and places, just like the law of gravity) formulated by David Ricardo some 150 years ago. Ricardo famously made the case that it was more advantageous for Portugal to export sherry to Britain, and then import British textiles, than to try to do both -- even if Portugal did better at both making clothes and sherry than Britain did. Stick to the thing you do best, and keep on doing it better, this doctrine preaches. Don’t do what you’re second-best at.

It’s odd that such a dated idea is still treated as relevant for today.

Ricardo concocted his principle long before there was any means to transport perishable or bulky items as short a distance as Portugal to Britain. That’s why he didn’t use food or carriages as examples.

Ricardo also concocted his law long before the era of mass production or processing, both of which incorporate many materials in any one product. In Ricardo’s day, shoes were made from leather and clothes were made from cloth – no nylon, rubber, plastic or any such complications in the supply chain.

It was a real game-changer when single products started to be made with many materials or ingredients. Once that became standard, there was no automatic link between the geography of one area and the production of one item.

An area ill-suited to growing hard wheat can still produce quality bread, for example.

Just because Dijon doesn’t grow mustard doesn’t mean a company in Dijon can’t sell mustard to Canada, where people are stupid enough to sell their raw mustard into France, and buy back expensive mustard.

A moment’s thought or imagination suggests that an entire realm of value-adding local companies can be inserted at an assembly point close to customers in a large city, where all the inputs are brought together and can be designed and assembled with the needs of one group of customers (people who need warm, rain- and snow-resistant clothing, for example) in mind.

And in today’s era of climate chaos, a moment’s reflection warns all but Alfred E. Newman (the inventor of Mad Magazine’s “what, me worry,” slogan) that resilience cannot be based on putting all eggs in one basket. Resilience comes from keeping diverse options close at hand.

Thinking about Shuman’s idea of looking for holes to plug – what economists refer to as “import substitution” – I was reminded of a close friend who had a stroke several years ago. During rehab, my friend complained to his rehab worker about his bad arm. Don’t blame your bad arm, you have no bad arm, his rehab worker replied. The problem is in your brain, which has to be retrained.

We need to retrain our minds to think of how products can be best localized. We don’t really have a problem with comparative competitive disadvantage.

A city is not the best place to produce milk, for example, but it might be the best place to receive bulk shipments of milk in reusable containers, turn the milk into many varieties of cottage cheese sold fresh by cottage industries in packages that can be sterilized and endlessly reused – thereby avoiding the irrational expense imposed on city governments left holding the bag of mountains of one-use packages that are neither reusable nor recyclable.

US statistics are organized according to 1100 possible business sectors -- often as specific as museums, zoos, galleries, historical sites. It would take an unimaginative economic development team not to see some hole to plug from a list that long and detailed. Shuman makes it even easier to think about possibilities by offering a software package that spins out the opportunities in more detail.

Add Zing to B2B and Stir

Shoppers really only get to see the tip of the iceberg of the economy – customer-facing businesses, such as car dealerships and supermarkets. But for every auto showroom with ten sales staff are tens of thousands of production workers at companies that sell from one business to another along a supply chain. Likewise with the supermarket, which may have two people at a deli counter working on meats that come from packing plants employing thousands of workers.

Business to Business (B2B if you want to be with the in-crowd at biz meetings) is where the jobs are. And because B2B is less visible to the population, that’s where monopolies are strongest. Behind every Starbucks storefront is an army of pastry and sandwich makers who work for mega-corporate Gordon Food Services, which delivers late at night, not in the light of day.  The middle is where monopolies hide from the light.

Because the power of numbers is so high behind the scenes at B2B, Shuman argues that quite minor shifts in shopping at customer-facing businesses can drive substantial change in overall job numbers. A ten per cent shift in demand for one product from one location in Oregon, for example, generated as many as 1600 new local jobs behind the scene.

Visibilizing, unlocking and localizing B2B is a major project that can boost the number and quality of local jobs, while improving the accountability and transparency of suppliers, along with the quality and sustainability of offerings.

I would have devoted a chapter to this theme, but Shuman only gives a sketch of what an enriched B2B sector would look like in the course of describing Zingerman’s famous deli in Ann Arbor, Michigan.

He thinks Zingerman’s is a prime example of a business pollinator – about which, more to come very soon -- because it has organized much of its supply chain into a value chain of businesses that share its values. There are ten such enterprises selling 50 million dollars worth of goods and employing 700 people in Ann Arbor.

That’s a lot of jobs sandwiched into one location.

Shuman misses one huge B2B opportunity – in the area of food waste, where waste in the form of uneaten food and food packaging is gi-normous.

Waste is really the wrong word to use, because most of what’s called waste is just a wasted opportunity – to turn quality food scraps into feed for chickens and pigs, to turn lower quality scraps into feed for insects that can be fed to fish and chickens, to turn even lower quality food scraps into compost or bio-fuels – all of which have cash as well as environmental value.

Just as most of the jobs are in the B2B sector, much of the waste is there too. If Shuman wants to create jobs where the leaks are, this is where the most environmentally sensitive waste is, and this is where everyone in every location has equal access to supplies of waste.  

Try When you Buy

Many environmental campaigns target individuals, who can deliberately buy (buycott) products that cause less environmental damage. Few kick it up a notch to target bulk purchasers, both in the public and private sectors. To Shuman’s credit, he sees this possibility to scale up purchasing power.

Local firms create so many advantages for host communities – 2-4 times more local jobs, 2-4 times more local taxes, 2-4 times more local charitable donations, 2-5 times more multiplier effect,  in one study Shuman cites – that local governments can justify paying a bit more to buy from a local company just on the basis of how many downstream public benefits this will create.

Likewise, Shuman makes a powerful case that local government bodies should bank at local credit unions because credit unions will loan money to local businesses when major banks won’t; for a minor increase in banking costs or convenience, the government initiates a virtuous cycle that leads to massive business stimulation.  

I believe that local bulk purchasing power should be at the top of any “low-hanging fruit” list of what local governments and school boards can do to improve the business and physical environment of their communities.

Don't Mind your own Beeswax

As the subtitle of Shuman’s book indicates, his real heroes are pollinators. I’m with him all the way, especially when it comes to food, where champions of all kinds, including pollinators, have that indispensable je ne sais quoi that makes things go.

It seems that pollinators select themselves, and don’t fall into any neat category. Shuman features a credit union in Vancouver and a builder in Grand Rapids.

I think of people like Barry Martin at the Toronto-based communications firm Hypenotic, a devotee of “triple bottom line” B-Corp businesses that seek environmental and community building benefits as well as their own profit.  Martin is as likely to advise clients to do something to serve the community they hope to sell to as he is to advise them to set up a blog advertising themselves as good community members. My guess is he would be pollinating no matter what business he was in.

Pollinators can turn any business into a hive of activity.

Shuman hopes pollinators will be able to insert themselves into situations where they can make a living by helping other businesses come to life. He admires Edmonton Fare because that organization helped restaurants buy more supplies in bulk from local and quality suppliers – thereby keeping their costs stable while improving quality of supplies, local jobs from local supplies, plus the salaries of the Edmonton fare organization.

I’m for that model, whenever and wherever it works. But staying in the private sector should not be a dogma.

However, as former manager and busy-bee of the Toronto Food Policy Council, I have to say this is one case where Shuman’s anti-government assumptions miss the potential. Governments are meant to step into the breach in cases of both market failure and collective action failure – cases where individuals and organizations just can’t get it together to act in their longterm self-interest because it takes too much time, energy or skill.

Universities can be pollinators in relation to suppliers, as much as Zingerman’s.

Governments may well need “intrapreneurs” (and likewise “insultants,” as well as consultants) to get them going, but given the ease and efficiency of raising money through taxes, it makes a lot of sense for city governments to establish organizations such as food policy councils that can bring diverse and underserved communities (the very kinds that take a lot of time to organize) together to grow food, set up food co-ops, and so on.  

I learned a lot from Sue Zielinsky, a bicycle planner in Toronto who set up scores of organizations that would cater to cyclists and make their rides more fun. One of her inspirations was a green tourism association that linked tour organizations to “staycationers” who would get a discount if they cycled to the attraction.

Don’t take my suggestions to Shuman as anything more than suggestions. They’re not criticisms, but critiques. They don’t dampen my enthusiasm for Shuman’s zest for trying things out, and his commitment to making sure that passion is matched by realism in business decisions.

The more people who read this book and take just one workable idea from it, the faster we will get to a more humane and human-scaled economy.

Editorial Notes: This article was originally published in Wayne's newsletter of March 1, 2016.

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