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Sunday, September 15, 2013

Too late for many Charlestown businesses

Local Business Poised for Dramatic Growth
By TIM FAULKNER/ecoRI.org News staff

PROVIDENCE — The local business movement is poised for major growth in Rhode Island and across the country, according to Michael Shuman, an economist and expert on local business development.

The catalysts for change, Shuman said during a recent visit to Rhode Island, are new crowdfunding opportunities for investing in neighborhood businesses, coupled with a growing belief that locally owned businesses, especially farms, are better for the economy and the environment than national chains and conglomerates.

Crowdfunding

Like Kickstarter and Indiegogo, a new type of crowdfunding will allow small businesses and startups to receive capital from a large audience of contributors. Forthcoming regulations from the Securities Exchange Commission will make it more affordable to launch a public investment offering while opening funding up to less-affluent investors with smaller infusions of cash. Essentially, the new investment platform, which will be online, will offer a potential return on investment in place of a venue for making donations. The SEC is expected to issue the new crowdfunding rules this fall.

Buy local

The story of Zingerman’s Delicatessen in Ann Arbor, Mich., was one of the most vivid examples of local business success Shuman gave during his Sept. 8 talk at Brown University. Rather than expand by replicating its popular deli elsewhere, the owners stayed local and created new but ancillary businesses such as a bakery, creamery and coffeehouse. Nine new businesses eventually led to more than 500 jobs, Schuman said.

Most economic development takes the opposite approach, he said, by fixating on landing a corporate, multinational businesses like a Toyota plant or Walmart. Yet, the sacrifices used to lure such companies, like tax breaks, rarely create the promised jobs and ultimately harm the economy, according to Shuman.

“Economic development today is destroying local businesses,” he said.

Businesses that grow locally demonstrate one of the most effective economic strategies: maximizing local self-reliance, Shuman said. “And they don’t need subsidies in order to get there.”

Independent business owners, especially those in the retail and food sectors, also contribute to tourism, have more interest in local issues and are more apt to vote. Local business owners also are more likely to support smart-growth principles such as multi-use village centers. “You just can’t have a walkable community in a big-box hell hole. It just doesn’t work,” Shuman said.

Ultimately, money customers spend at a local business stays local. Shuman cited a dozen studies that conclude money spent at independent businesses is reinvested in other local businesses. On average, he said, locally owned spending creates at least three times the economic benefit than spending at a nonlocal one. “Local businesses consistently spend more money locally and thereby generate more jobs,” Shuman wrote in his latest book, “Local Dollars, Local Sense.”

New investment choices also give owners more options to keep the wealth local if they decide to cash out, sell or transfer their company to new owners. “There’s a whole middle territory that now we are going to give (business owners) the ability to finance at the local level,” Shuman said following his Sept. 9 presentation to local business leaders and government officials at the Rhode Island Foundation, as part of its "It's All In Our Backyard" campaign.

Local land

Densely populated states such as Rhode Island face pressure on open space, straining one of its best economic resources. “There’s every incentive to convert land to subdivisions,” Shuman said.
New zoning rules are needed to protect land for agriculture, he said, while new farmland could be opened up along highways, at airports and on rooftops. Urban farms also produce a cleaner, healthier environment, reducing air pollution and stormwater runoff. A significant shift to local agriculture creates jobs, tax revenue and promotes business in regional markets.

“Let’s not get hung up that local must be Rhode Island,” Shuman said.

Nonlocal companies, Shuman said, are more likely to harm the environment and tend to resist tougher environmental standards by threatening to relocate if new regulations are adopted. He also referred to an Environmental Protection Agency (EPA) study that showed nonlocal companies tend to do more damage to the environment by releasing more toxins than a local business.

Shuman said local land trusts should expand their role in the community by doing more than protecting open space and farmland.

“I would like to see land trusts used for commercial development so that land trusts basically start acquiring parcels downtown to fill in gap teeth so you get coherent block structures," he said. Land trusts could also serve as intermediaries, buying commercial properties from usurious landlord in order to stabilize a business until a better landlord is found, he added. 

"We've just barely scratched the potential of how land trusts could be used," Schuman said. 

Better value

Higher prices are the most common objection to buying local. However, "You get what you pay for," Schuman said, noting that many products from chain stores are inferior. In an expanding service economy, the price of goods is also having less impact on a personal budget. “Let’s not think of it in terms of price. Let’s think of it in terms of value,” he said.

Entrenched obstacles to the buy-local movement, such as changing the buying habits of consumers who are loyal to brands and low prices, will be the job of advocacy groups, nonprofits, 
and consciousness companies, he said. “It would be smarter if social change activists really went to business school and thought about how they could take the work they do and create revenue streams around it so the work can stabilize and grow.”

These considerable tasks will have help, as $15 trillion of investable funds could flow towards local business investment through existing and new crowdfunding opportunities, ones that often have better returns than Wall Street investments.

“I believe we are really on the precipice of huge change,” he said.