Local Dollars, Local Sense

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* Book: Michael Shuman. Local Dollars, Local Sense. Chelsea Green Publishing, 2012.

a valuable addition to the literature about local investing and community empowerment.


Michael Schuman:

"Amer­i­cans’ long-term sav­ings in stocks, bonds, pen­sion, life in­sur­ance, and mu­tual funds total about $30 tril­lion. But not even 1 per­cent of these sav­ings touches local small busi­nesses, the source of half the econ­omy’s jobs and out­put. Is it pos­si­ble to beat Wall Street’s 5 per­cent long-term per­for­mance by in­vest­ing in your com­mu­nity? The an­swer is a re­sound­ing yes!

Co-op mem­bers who lent to the Weaver Street Mar­ket in North Car­olina and to the Se­ward Co-op in Min­neapo­lis earned well over 5 per­cent per year. Many out­side in­vestors who bought pre­ferred shares of the Coulee Re­gion Or­ganic Pro­duc­ers Pool, a co-op of or­ganic farm­ers, are still re­ceiv­ing an an­nual div­i­dend of 6 per­cent. Equal Ex­change has paid a div­i­dend to its pre­ferred share­hold­ers av­er­ag­ing above 5 per­cent for 22 years. In­vestors who par­tic­i­pate in New Mar­kets Tax Cred­its au­to­mat­i­cally get a tax credit equal to 5 per­cent of their cap­i­tal for each of the first three years and 6 per­cent for the next four—even if the in­vest­ment gen­er­ates no real re­turn what­so­ever. Burt Cho­jnowski’s re­turns have been good enough to con­vince out­side in­vestors to put more than $300 mil­lion into his local com­pa­nies and pro­jects over 25 years in Fair­field, Iowa. Most of LION’s deals in Port Townsend, Wash­ing­ton, are pay­ing be­tween 5 and 8 per­cent re­turns per year. Mi­crolen­ders on Prosper.​com are av­er­ag­ing an an­nual re­turn of 10.4 per­cent. Jeff Haug­land has paid the local share­hold­ers of Com­mu­nity Gro­cers in Mount Ayr, Iowa, an an­nual div­i­dend of 5.25 per­cent.

All of these prof­itable ini­tia­tives pro­ceeded within ex­ist­ing se­cu­ri­ties laws. If, how­ever, na­tional or state gov­ern­ments were to im­ple­ment sen­si­ble, sim­ple, zero-cost re­forms, the num­ber, va­ri­ety, and promise of lo­cal-in­vest­ment op­por­tu­ni­ties could ex­pand dra­mat­i­cally. The many ex­am­ples in this book— and the thou­sands of oth­ers out there, some of which may be hap­pen­ing in your com­mu­nity right now—sug­gest that the uni­verse of local in­vest­ment is ex­pand­ing faster than fi­nan­cial as­tronomers like my­self can pos­si­bly keep track of it.

Not every local com­pany, of course, will beat the 5 per­cent rate of re­turn from ex­ist­ing mar­kets. Bet­ting on any one or two busi­nesses, just like bet­ting on any one or two NAS­DAQ stocks, is very risky. No one should read this book as sug­gest­ing that we each should pull all our money out of the stock mar­ket and put it all into our neigh­bor­hood din­ers or book­stores.

As mod­els for local in­vest­ment pro­lif­er­ate, the focus will shift to the qual­ity of each in­vest­ment and the qual­ity of your lo­cal-in­vest­ment port­fo­lio. The coun­try is about to travel up a steep learn­ing curve to dis­cern the best local busi­nesses from the fraud­sters and grifters, and how to build a lo­cal-econ­omy in­fra­struc­ture in our com­mu­ni­ties—re­plete with local pur­chas­ing, en­tre­pre­neur­ship pro­grams, local busi­ness al­liances, and pub­lic pol­icy re­forms—that will in­crease the prob­a­bil­ity of local busi­nesses suc­ceed­ing and local in­vest­ments pay­ing off. One mod­est step might be to move 5 per­cent of your money from Wall Street to Main Street each year. By the time you get to 100 per­cent in twenty years, the na­tion should have a thriv­ing net­work of re­gional stock ex­changes and local mu­tual funds.

But an­other vex­ing ques­tion about local in­vest­ment I puz­zle over is this: Does it make sense to in­vest in any­one else’s busi­ness, bank, pro­ject, or fund until I have thor­oughly in­vested in . . . my­self? Might I get a bet­ter than 5 per­cent an­nual rate of re­turn in­vest­ing in my own bank ac­count, my home, my own en­ergy-ef­fi­ciency mea­sures, and my ed­u­ca­tion? Most of us ul­ti­mately have a sig­nif­i­cant por­tion of our wealth in these in­ti­mately close items. Get­ting these in­vest­ments right might be the sin­gle best way to in­vest lo­cally.

To beat Wall Street, in­vest­ments in your­self must achieve not a 5 per­cent an­nual rate of re­turn but a 7 per­cent rate. That’s be­cause most of the op­tions could not qual­ify for tax-de­ferred IRA or 401(k) in­vest­ments, and the extra 2 per­cent … ap­prox­i­mates the life­time ben­e­fit of tax de­fer­ral.

Re­mark­ably, though, the 7 per­cent goal is achiev­able—and in so many ways that many Amer­i­cans, per­haps most, might never need to think about re­tire­ment ac­counts again." (http://www.nationofchange.org/5-ways-make-your-dollars-make-sense-1329492960)


"Local Dollars, Local Sense, rooted in concrete examples, is a must read for those battling to transform local communities into the more humane and livable places that we all desire and deserve."

Mike Rotkin, former mayor of Santa Cruz, U.S.A:

"Most of the proposals I’ve studied and worked on tend to be either unrealistic about the ability of local communities to function outside of the larger capitalist system, or overly optimistic about the likely economic success and impact of alternative community institutions. But Michael Shuman, in his recent book Local Dollars, Local Sense, presents extensive and concrete examples of local communities that are redirecting the investments of ordinary Americans away from Wall Street and back to local community and small business.

What is most exciting and useful about Shuman’s current book is its focus on a frequently overlooked economic question: how can local communities create opportunities for individuals and groups of individuals to become the source of investment capital? An answer to this could, ideally, sidestep the challenge presented above. This is what Shuman tries to do.

Indeed, local communities can create new kinds of investment opportunities for working people by “tearing down the archaic regulations that prohibit ordinary Americans from investing in ordinary business,” argues Shuman. In many ways, his strategy parallels the microloan programs that have been, by and large, successfully developed and rolled out in third-world countries. But his suggestions reach further—a microloan program on steroids.

I found myself continually reflecting on the fact that many of his ideas could well be introduced into my own community of Santa Cruz, or similar small towns around the United States. Whether he is talking about expanding the role of cooperative or worker-owned businesses, redirecting pension fund investments from Fortune 500 mutual funds to local small businesses, or creating community banks, his examples are far more realistic than most of the ideas I studied (and rejected) during my 30 years in public office.

The book compellingly demonstrates how investments in local enterprise can result in rates of return as high or higher over the long haul than investments in the stock market. He also clearly outlines how the national regulations concerning who can be an “accredited investor” under Securities and Exchange Commission rules perversely block individual and institutional lending to local enterprise. He targets specific regulation for reform and demonstrates how much could be gained from such reform.

Ultimately, the book healthily balances actions that the readers can take within the existing regulatory and economic arrangements and actions that would require reforms to the current regulatory regime. I was hugely impressed with the number of concrete examples of communities already beginning to implement some of the programs that he outlines.

There is no local public official or local community activist who would not benefit from reading this book and then meeting with others of like mind to discuss which of Shuman’s ideas could most effectively be implemented." (http://www.thesolutionsjournal.com/node/1150)