The Kalu Yala Blog
December 22, 2010by Kimberly Kyle Hall
Posted In: A Home Grown Economy, Designing the Village, Voices of Kalu Yala
The Case for Locally Owned Businesses
A beautiful environment that promotes wellness, health, and increased social connections is certainly a place that many of us would want to live. However, at the end of the day, a city or a region without sustainable economic drivers will not grow or last over time. On May 18th, our keynote speaker, Michael Shuman, author of Small Mart Revolution, eloquently outlined his argument for how locally owned businesses can create that foundation and with the help of our guests we started brainstorming ideas to generate economic growth in both the Kalu Yala model and others around the world.
The Impact of Local Business
“Local businesses generate 2-4 times the economic impact of non-local businesses.” That’s a strong fact, enough for anyone to take notice. However, as one of our guests pointed out, it is hard to rally to support locally owned businesses if you don’t understand why and how that economic impact occurs and the benefits to your own community.
Michael jumped right in explaining that local businesses have higher economic multipliers, “the more times a dollar careens through the economy, the faster it moves without leakage, the more income, wealth and jobs.” In other words, a dollar spent at a local business is more likely to stay local. The owners and employees of the businesses live and shop in the area, the business uses local business services (attorneys, accountants), and they advertise with local TV and radio.
Michael’s Proven Benefits of Local Businesses:
- Since local businesses are small in size, they promote smart growth and walkability.
- Because they buy and ship locally, local businesses have a lower carbon footprint.
- A community that surrounds areas with a higher percentage of local businesses often has higher civil society, lower crime, lower welfare and higher degrees of public participation.
- Environments that are friendly to local businesses attract entrepreneurs.
- Authenticity of local businesses promotes loyalty and can attract tourists.
“Asleep at the Wheel…”
Michael expressed his disappointment at those who are driving economic development policy and explained 6 tactics he believes can “change this paradigm” in the Kalu Yala model and elsewhere;
- PLANNING: Watch for where goods are being imported. Plug the leaks of importing food, energy, and finance.
- ENTREPRENEURSHIP TRAINING: Have an on-site incubator for local food businesses. Create mentorship programs, perhaps between retirees and local entrepreneurs.
- PARTNERSHIPS: Local businesses can be more competitive acting together. Create a purchasing co-op to buy goods needed to do business.
- REORGANIZE FINANCE: Securities laws have made it difficult for small investors to put money into local businesses. Create local stock issues around 20 new businesses being established.
- THINK LOCAL FIRST: A 5-10% shift towards local can make a huge economic development impact.
- POLICY-MAKING: “In Panama, the model can serve as a demonstration for promoting entrepreneurship and building a local economy.”
Recent studies cited by Shuman on May 18th reveal:
- $50 billion per year is spent by state and local governments to support non-local businesses, putting local businesses at a competitive disadvantage.
- 95% of government funds that go towards tax abatements to attract businesses that promise jobs in a region are to non-local businesses, but many of these non-local businesses fall short of their promise to deliver jobs.
- Currently, 50% of the jobs in the U.S. are with locally owned businesses.
- Over the past 20 years, during the area of “globalization,” the percentage of the sector held by local business shrunk only 2% (which were mostly replaced by home-based businesses).
- In 1960, 1/3 of our household spending was on services and in 2000 it had increased to 2/3. This is great news for local businesses as services are inherently local.
- In 1900, an average of 40 cents of $1 of produce went to the farmer. Today, the average has been reduced to 7 cents. There are many models working today that bringing the dollars back local, such as local farmers’ markets and CSAs where money goes directly to the farmer.
The Case Against Locally Owned Businesses
Bigger, often non-local, companies can provide a more competitive product than smaller locally owned businesses because of their economies of scale. They make higher volumes of their product and are thus able to distribute certain production costs over larger number of units. Lower cost to make = Lower price for the consumer. Shuman argues that the “economies of scale” case focuses on the wrong issue and that “locally owned businesses are more competitive than people appreciate.” He feels confident that 98% of business categories can work small, they just need to shop around and find the right models to work from. (What industries are in that 2% that doesn’t? “The central monetary system, nuclear power plants, and missiles.”)
Large non-local businesses are increasing the efficiency of their production but the efficiency and cost of the their distribution is going down. Local systems can beat the inefficiency of the distribution systems of large businesses. There will be great local innovation on the distribution systems that will make local products more affordable (particularly heavy durable goods).
By the end of Michael’s session, all of had a great understanding fully that building a town has a lot more to do with the reasons people are there than the buildings we create. A town economy based on local businesses gives Kalu Yala the best opportunity to grow sustainably. In closing, Michael turned the conversation over to the crowd and we dug into our own relationships with local businesses as well as specific ways that this type of foundation could be laid in Panama.
“Today, you have the ability to get almost anything from anywhere and so the horizon of the kinds of people one will be able to attract in Panama to do what they love to do either locally or in the world is huge.” – Michael Shuman
At the forum, Michael posed 6 key questions to our guests. Tables discussed their answers at length, writing down their answers for us to use and share. Below are their answers. Join our team as we continue the conversation:
What new ideas can you propose that would be positive for locally owned businesses?
- Markets for locally owned businesses to sell collectively such as farmer’s markets, agricultural co-ops & CSAs
- Pooling production resources and costs, such as advertising
- Municipal (and other Government) policy to support locally owned businesses by subsidizing or lowering local business permits, fees, and/or taxes
- Municipalities provide incentives to restore historic facades or streetscapes that can then be good venues for local stores or restaurants
- Government subsidized small business loan rates
- Public/private partnership with local schools for training workers
- Chamber of Commerce in-kind support
- Business Incubators
- Self-Taxing District
- Remove government incentives and subsidies for non-local businesses
What economic development have you seen or read about, including both public and private initiatives, that have successfully supported locally owned businesses and self-finance?
- SBA Funding Programs
- Jamie Oliver- Food Revolution
- Jumpstart (micro finance for new businesses)
- Brevard County Jail- Sheriff’s Farm
- Eugene Restaurant and school garden
- Chicago City Garden
- East Nashville Municipal Zone
- Newnan EMC, local electrical co-op
- KIA plant in GA brought in local stores and restaurants
- Cloud GM plant near Racine City redeveloped with small stores and restaurants
- In Panama group joined together to buy buck-making equipment to build own houses
- Affordable housing density stimulus requirement in Decatur, GA
- Public-Private partnerships in the City of Savannah- tore down parking deck, went underground, put in new park and the new parking stimulus- led sales of downtown retail shops
- State-owned hotels- GA DNR, Lake Blackshear Hotel, let Macon and Valdosta in Cordele. Public-Private Partnership
- Farmer-chef connection in Portland, OR, which brings local chefs and restaurants together with hundreds of local farmers
- Gramean Bank
- Cadena Frio- Cold Chiin- local markets
- Ampyne- micro/small programs
What would encourage you to buy more goods and services from local businesses?
- Strategically locate markets and loops in Convenient locations; Put local businesses together in one area
- Increase competitive pricing
- Face to Face – Having a Relationship with owner or employees; Selling first the human element, and seeing the product essentially be a bi-product; Knowledge of owner on product
- Personal customer service & Accountability; You know who to talk to if you are not satisfied; Personal Guarantee
- Uniqueness and (clear benefits)
- Authenticity of the product
- Telling your story: Knowing the story behind the product; Learn who made it; How it was made (this can be done online)
- Ability to tailor to the customer’s specific needs
- Better understanding of what the customer wants
- If I heard about the business through a friend, personal connection (Word-of-mouth marketing)
- If I had a better awareness of impact on local economy (grassroots marketing needed)
- If local businesses banded together to increase awareness and a sub-culture of support
- If the local business is in a social able space where I can meet and run into people
- Sense of pride that it is from my community
What currently stands in the way of you buying more from local providers?
- Lack of Awareness of Local Businesses (Ex: Guide to local businesses)
- Easier to choose to save money as opposed to seek out a local product
- Hours: Larger national stores can be open longer areas
- Non-local businesses are sometimes more conveniently located
- Lack of options: The environment I live in does not support or encourage local businesses: The municipality provide financial incentives to local businesses, lower fees, businesses licenses, tax incentives; There are not good venues for local businesses to set up shop in; Regulations to business- local businesses in my area can not live up to all of them because of costs and therefore can not compete
- Taste: I simply prefer some of the products offered by non-local businesses
- Quality: Sometimes the quality of the products offered by non-local businesses are better
How can you personally help your community provide financing for locally owned businesses, and how should this shape economic development efforts?
- Encourage local residents to invest pension or other funds in local businesses
- Create an “investment club” that has a fund for local businesses
- Create local mutual fund / Micro financing co-op
- Lobby to create a self-taxing district that collects a percentage of property sales or retail sales for reinvestment in local business
- Gift/charitable giving (to increase in the value of your community)
- Investment club/mentoring; Coaching in entrepreneurship; Matching a budding entrepreneurship to an established business owner
- Center for helping businesses (small business association)
- Volunteer at the local economic commission, planning commission to find ways to influence policy
- Getting to know personally the people behind the businesses
- Bank Locally – Local banks more likely to lend to local businesses
- Personal loans to local businesses
- Local credit union (housing and small business loans)
- Encourage developer’s to subsidize rents for local businesses
- BUY LOCALLY!
What are the local businesses that should launch the economy for Kalu Yala?
As Michael pointed out there are key industries that can start creating an economy that begins and continues to be local. This summer our intern group is tackling two key industries that will launch the Kalu Yala economy: food & agriculture and tourism. We will be posting our progress so keep sending questions to us that we can try to tackle in our report.
How will the Kalu Yala team attract these businesses?
The discussions on May 18th started us off with a great toolbox, while not all the ideas are feasible during this phase of the project, we are investigating equity-ownership programs, new models for financing small businesses, mentorship and business consultant programs as we craft our system for local businesses to plant their roots at Kalu Yala.
How do we help create a framework for a system where those dollars will stay in Kalu Yala and the surrounding regions in Panama?
Shuman focused in on the big test. What are we importing and how is that an opportunity for a locally owned business. As we dig deeper into the Naked Development Process those opportunities will become apparent. For us, the key is creating a system from the beginning that can support a wide range of industries so that we can efficiently bring in new business owners and plus those leaks to keep dollars circulating locally.
Business Incubators: Programs designed to accelerate the successful development of entrepreneurial companies through an array of business support resources and services, developed and orchestrated by incubator management and offered both in the incubator and through its network of contacts. Incubators vary in the way they deliver their services, in their organizational structure, and in the types of clients they serve. Successful completion of a business incubation program increases the likelihood that a start-up company will stay in business for the long term: Historically, 87% of incubator graduates stay in business
Economies of Scale: The increase in efficiency of production as the number of goods being produced increases. Typically, a company that achieves economies of scale lowers the average cost per unit through increased production since fixed costs are shared over an increased number of goods.
Economic Multiplier: Estimated number by which the amount of a capital investment (or a change in some other component of aggregate demand) is multiplied to give the total amount by which the national income is increased. This multiplier takes all direct and indirect benefits from that investment (or from the change in demand) into account.
Tax Abatement: Reduction of or exemption from taxes granted by a government for a specified period, usually to encourage certain activities such as investment in capital equipment.