Thursday, February 23, 2012

New Study: Locally Owned Businesses Contribute to the Health of their Communities

Science Daily
U.S. Counties With Thriving Small Businesses Have Healthier Residents

Counties and parishes with a greater concentration of small, locally-owned businesses have healthier populations -- with lower rates of mortality, obesity and diabetes -- than do those that rely on large companies with "absentee" owners, according to a national study by sociologists at LSU and Baylor University.

"What stands out about this research is that we often think of the economic benefits and job growth that small business generates, but we don't think of the social benefits to small communities," said Troy C. Blanchard, Ph.D., lead author and associate professor of sociology at LSU. "This study highlights not only the economic benefits of small business, but its contributions to health and well-being."

The study of 3,060 counties and parishes in the contiguous United States, published online in the Cambridge Journal of Regions, Economy and Society and forthcoming in its March print issue, brings new evidence to a body of research literature and a debate among sociologists, who traditionally have advanced two competing hypotheses about how small business impacts public health.

Some sociologists argue that small businesses -- unlike chain retail "big box" stores and large manufacturing plants -- have a greater investment in the community and thus have more at stake when it comes to the well-being of employees, customers and other local citizens. The LSU and Baylor researchers, who analyzed national population, health, business and housing data, found that the greater the proportion of small businesses, the healthier the population.

"Some communities appear to have thriving small business sectors that feature entrepreneurial cultures that promote public health. A place like this has a can-do climate, a practical problem-solving approach in which a community takes control of its own destiny," said co-author Charles M. Tolbert, Ph.D., chair of the sociology department at Baylor. "The alternative is the attitude that 'Things are out of our control.'" Communities may become dependent on outside investment to solve problems, the researchers wrote.

Their findings are a departure from the traditional conclusion that "bigger is better." Beginning in the 1970s, communities courted large employers from the outside, with a goal of providing high-paying jobs with benefits. In contrast, small local employers offered lower pay, few -- if any -- benefits, little chance for advancement, vulnerability to competition and sometimes, nepotism, the researchers wrote.

"The old way of thinking was that you wanted to work for a big company because of pension plans, health insurance, dental insurance," said co-author Carson Mencken, Ph.D., professor of sociology at Baylor University. "But many of them have moved overseas to cheaper labor markets. So what we see are larger retailers, usually next to interstates, that pay low wages and may not even offer full-time jobs with benefits, but instead hire people to work 30 hours a week. There's a high turnover."

Larger companies showed a large drop in wages -- 33 percent in real dollars -- and access to health insurance between 1988 and 2003, previous research has shown. Amid restructuring and globalization, some large businesses are giving employees furloughs from full-time jobs, then rehiring them as short-time contract workers with no benefits.

While locally owned businesses are not adding greater compensation or benefits, the pay gap is shrinking.

"It's in their financial interest to take a stake in the community, to make it a place where people want to live and work," Mencken said.

Said Tolbert: "When someone creates a 'mom and pop' business, it's a huge step to bring that first employee on board. If it's a relative or neighbor, they'll bend over backward to hire and retain them. They're going to bring on board somebody they trust, and they'll pull every hair and every tooth in their head before they lay off someone who's their neighbor." For some workers, self-employment is a way to escape the "roller coaster" cycle of furloughs and call-backs. Given that health insurance and access to medical care will be limited, poorer health might be expected of those workers.

But small businesses are more likely to support bond issues for health infrastructures, recruit physicians, push for local anti-smoking legislation, promote community health programs and activities and support local farmers' markets, researchers said.

They found that counties with a greater proportion of small businesses have a healthier population. They analyzed the number of small businesses per 100,000 people, categorizing small business as those with four or fewer employees; large manufacturing establishments as those with 500 or more employees; and large retailers as those with 100 or more employees.

"Our findings suggest that the rewards of a vibrant small business sector are multi-dimensional," Blanchard said. "In addition to job creation, small businesses yield important non-economic rewards to communities that may improve the health of local residents. "

LSU and Baylor researchers analyzed data from the 2000 Census of Population and Housing, the 2007 Centers for Disease Control Obesity and Diabetes Estimates, the National Center for Health Statistics Compressed Mortality records from 1994 to 2006, the 2002 County Business Patterns and the 2002 Nonemployer Statistics.

The research paper is based on work supported by the U.S. Department of Agriculture, the National Research Initiative, the Social and Economic Sciences Division of the National Science Foundation.

Friday, February 17, 2012

5 Ways to Make Your Dollars Make Sense

From Yes Magazine
by Michael Shuman
posted Feb 14, 2012

Concerned about Wall Street’s devastating impact on communities? Then invest in yourself—the most local investment of all. 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 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.
1. Become Your Own Banker

There is one absolutely guaranteed place where you can get a rate of return well over 7 percent —in fact, often over 15 percent or 20 percent. Pay off the damn credit cards and stay out of debt! As the Sage of Omaha, Warren Buffett, says, “Nobody ever goes broke that doesn’t owe money.” Besides being expensive and self-destructive, credit card debt winds up sucking money out of your community and into the hands of distant banks, back offices, and collection agencies.

Here are some sobering facts about Americans’ relationship with credit cards. In 1990, the average American household had about $3,000 in credit card debt. It has since more than quintupled to $15,300. By the end of 2010, total credit card debt was expected to exceed $1.1 trillion. According to a recent survey by Consumer Reports, a third of Americans don’t have credit cards at all, but most of these folks are poor and therefore vulnerable to even worse depredations from payday lenders and loan sharks. About half the population pays its cards off every month. The rest of us have a problem—albeit one that can easily be fixed in a way consistent with the goals of a local living economy.

Another consideration underscoring the value of keeping a modest reserve of cash is that we are entering turbulent times. In the last few years, both the stock market and the housing market have tanked and many serious analysts fear that both could crash again, perhaps even more catastrophically. Some predict a perilous period of deflation ahead, where falling prices convince consumers to delay spending and trigger deep recessions. Others fear inflation, given the enormous size of the U.S. deficit and rising oil prices. In either case risk-averse lenders might cut off loans or credit cards, raise rates, or both. Since Sam doesn’t like to gamble, he will create a hedge against uncertainty so he can control in his own federally insured bank account.

This proposal is hardly original. Listeners to AM talk shows may have heard about a similar scheme, called “Bank on Yourself,” which encourages you to invest in a specialty life insurance policy that also can serve as your low-risk bank. Frankly, since your savings have to live somewhere, whether it’s under your mattress, in a money market account, or embedded in a gold stockpile, these options are all worth considering. But given the importance of keeping your money close to home and supporting local businesses, you should probably put your cushion in a locally owned bank or credit union, not a distant insurance company.

The bottom line is this: If you create a slightly larger cushion than you think you’ll need, you’ll never need to worry about credit cards or consumer loans again. What wouldn’t millions of Americans (including me!) do to redo their early years with this kind of approach. At some point, you then could move into the next level of investing. That would not be going into the global stock market. It would be buying your own home.
2. Become Your Own Landlord

Investing in your own home strengthens your community. While the evidence has been debated in recent years, the degree of home ownership in a neighborhood does seem to correlate with many other quality-of-life indicators, such as educational achievement, low crime, civic participation, public health, and property values. This led recent presidents as diverse as Bill Clinton and George W. Bush to push for “an ownership revolution” in the housing market. And if you are diligent about getting your mortgage through a local bank or credit union, where you’ll find the most competitive rates anyway, you can rest assured that your interest payments will be recycled through your community through additional local loans.

A home purchase really delivers two different kinds of valuable rewards. One is that you’ve got a place to live. Hey, you have to live somewhere! Instead of paying a landlord every month, you effectively become your own landlord. Yes, you enter a debt with your mortgage (hopefully, again, with your local bank), but as you pay it down, you grow an asset that ultimately eliminates rent payments for the rest of your life. The second reward is that you now have an asset that you can draw upon for your retirement. At some point, if you need the cash, you can sell your home and move into a smaller one. Or you can enter a “reverse mortgage” with a local bank that pays you an income stream and gradually works you out of ownership. The reality is that most Americans use their homes as their piggy banks for retirement anyway.

Once you’ve saved enough for a down payment, investing in your local home is unquestionably a smarter investment than investing in the nonlocal stock market. Working in your favor is the quirky federal tax code, which allows you to claim a tax deduction for interest on your mortgage. If your federal tax rate is 21 percent, then every dollar of interest you pay can be discounted by 21 percent. This especially helps you in the early years of a mortgage, when nearly all your payments are interest. In other words, your rent is effectively 21 percent lower per year, in addition to the benefits of growing an asset.

Home investment gives a local investor one huge, indisputable advantage. As the custodian of your home and as a participating member of your community, you actually have the ability to increase the probability of your investments succeeding. You can improve your house through repairs, additions, and tender loving care. You can help create a fabulous neighborhood spirit. You can contribute to the success of your public schools. And once you own your home, free and clear, no knuckleheaded politician or CEO can take it away from you. Being an active investor, holding a real deed to real property, means you’re less vulnerable to the next generation of Bernie Madoff–like fraudsters. In contrast, when you place your retirement money on Wall Street, you can only watch and pray.
3. Become Your Own Utility

The typical U.S. household is spending about $3,500 per year on electricity, fuels, and water. If you’re trying to get a 7 percent return on investment or better, you could spend $1,000 on dozens of kinds of efficiency measures that would save you more than $70 on your energy bill each year. You could use your $1,000 to buy a new high-efficiency refrigerator, oven, or washer and dryer—plus you get the bonus of a brand-new appliance. Indeed, you probably can do much better than a 7 percent return. According the U.S. Environmental Protection Agency, customers participating in many utility- or state-sponsored efficiency programs are saving 10 to 20 percent of their energy bills. If Americans took full advantage of the more efficient appliances and took steps to improve the efficiency of their homes and buildings, they could cost-effectively save 10 to 30 percent on their energy bills per year.

According to energy-efficiency expert Greg Pahl, “Home energy efficiency retrofits are probably the best returns on investment you’re going to get, as opposed to putting a windmill in your backyard. The home energy efficiency retrofits can pay for themselves, depending on where you happen to live and what the credits/incentives may be, in just a couple of years. Dramatic savings are realized very quickly. The money that you will be saving on your energy costs from these retrofits will make any further renewable energy system installations much more effective, and much more cost-effective.”

Of course, not every $1,000 investment in energy-efficiency equipment will make your house $1,000 more valuable upon resale—you may not be able to preserve all the principal invested. Some investments, like those in greater insulation, will increase your home value, while others, like appliances with a limited lifetime, won’t. Economists sometimes call the latter a “wasting asset,” which means it loses value over time, perhaps even immediately.

The entire discourse about energy-expenditure savings is oddly disconnected from that of long-term investment for retirement. Household efficiency measures are spoken of in terms of years of payback, with the investment assumed to contribute nothing to the long-term value of your house. If you install a thermal blanket around yourhot-water heater that costs $200 and saves you $100 per year, it is said to have a two-year payback. Many regard paybacks beyond, say, five years as farther out on a limb than consumers are willing to go. A payback of six, seven, or ten years is too uncertain, too unreal, to be taken seriously. Yet in the world of 401(k)s, we are essentially asked to prioritize investing in a 44-year payback.

The McKinsey Global Institute (part of McKinsey& Company, one of the nation’s most respected business consulting firms) estimates that, world- wide, there’s $170 billion of energy-efficiency investments possible by 2020 that could each generate an internal rate of return of at least 10 percent. The average rate of return of all these investments, McKinsey believes, would be 17 percent.

If consumers had to make all these replacements themselves, even slam-dunk investment opportunities might be difficult to take advantage of. Who has time to study the options, shop for energy-efficiency devices, and make all these complicated calculations? But across the United States are private and public institutions ready to help. New Jersey residents participating in the statewide program to replace inefficient heaters and air conditioners are saving $63 per year. Pennsylvania is weatherizing the homes of low-income families and saving them $300 per year. New York State offers homeowners rebates on their investments in more efficient appliances, typically saving them $600 per year. And according to Energy Trust of Oregon, customers participating in its programs have collectively saved nearly $800 million on their energy bills.

As was true for becoming your own landlord, you bump into limits on this investment strategy. Once you’ve become super-efficient, you again need to look for another place to put your money. Since the typical American household is spending $3,500 per year on utilities and $2,700 on gasoline, it will hit this ceiling once it invests $38,750 to become energy self-reliant.

But there may be ways to go beyond this $38,750. Right now, many U.S. utilities pay you to generate electricity for the grid. Put up your own wind- electric machine or photovoltaic array, and the utility will pay you for the surplus you sell back. Subdivisions and neighborhoods that work collectively to get themselves off the grid and get into the power-generation business may find themselves having a nice income supplement every month. The catch on this, for the moment, is that most utilities will allow you to run your meter back to zero but not negative. Many European governments, in contrast, have mandated “feed-in tariffs,” where the utility not only must buy back your surplus but do so at a higher rate than your electricity bill. This has created a huge incentive for households, neighborhoods, and small businesses to get into the energy-production business. If U.S. states start to reform their utilities in this way, there may be no practical limit to how much you can invest in simple, renewable energy technology that easily will last as long as your house.

The logic of seizing every invest-in-yourself option that delivers better than a 16 percent rate of return can of course extend to other kinds expenditures. It’s worth investing $1,000 in water-efficiency measures, if you can bring down your annual water costs by$160. Or $1,000 in a home-based greenhouse, if you can bring down your food expenditures $160 per year. Or $1,000 in a great bicycle, if it reduces your driving costs by $160 per year. Or $1,000 in an Italian espresso maker, if it shrinks your Starbucks habit by $3.08 per week. But why stop there?
4. Invest in Your Potential

Warren Buffett says, “Generally speaking, investing in yourself is the best thing you can do—anything that improves your own talents. Nobody can take it away from you. They can run up huge deficits and the dollar could become worth far less, you’re gonna have all kinds of things happen. But if you’ve got talent yourself and you’ve maximized your talent, you’ve got a terrific asset.”

Think of how many educational courses you could take, how many new skills you could acquire, or how many new degrees you could complete that would increase your earning power. Forget about enrolling in an expensive private university. Suppose you spend $10,000 per year over three years taking a bunch of classes to broaden your skills. If that $30,000 investment generates more than $4,800 in additional pretax income, your education will generate the needed 16 percent rate of return to do better than your tax-deferred IRA. Adrianne McVeigh, a management consultant and clinical psychologist in Atlanta, tells her clients that “the most successful executives and managers invest time and energy in their own self-development.”

Even if you’re not prepared to change careers, there may be subtle tweaks of your lifestyle that could generate better than a 16 percent rate of return. Everyone knows that prevention of health problems is more cost-effective than treatment. The assumptions required to work out the cost–benefit numbers are admittedly rife with speculation, but there are plenty of low-cost ways most of us would agree would save us more than 16 percent per year. If you’re a smoker, for example, investing several thousand uninsured dollars to quit can pay off in years of longer life with fewer maladies and health-care costs, as well as immediate savings by eliminating hundreds of dollars of cigarette purchases each year. There are similar, if perhaps less dramatic, payoffs by investing in whatever it takes—nutrition classes, exercise programs, spending more cooking healthy meals—to reap the myriad benefits of a healthier you.

Hey, Wait a Minute!

Have I gone too far with these arguments? I can imagine two objections. The first is something I’ve hinted at throughout this chapter—that smart investors will do everything on my list, plus save funds in their tax-deferred retirement accounts.

But I hope I’ve made it clear how far you can go before you should even think about a retirement account. Let’s review: $50,000 to $100,000 for your own bank, $1 million for real estate, $38,750 for energy efficiency, who knows how much for your own education and earning potential—this is well beyond what 90 percent of American families ever dream about saving for their retirement. The average American household has an after-tax income of just over $46,000, and few will retire with anything approaching $1 million to their name.

The second objection might be that I’m comparing apples and oranges. Money saved is not the same as money invested—and ultimately, you do need cash or some kind of income-paying asset to live on when you retire. Your reduced electricity bill will not pay your grocery bill after you turn sixty-five. To make this analysis work, you have to be committed to capturing your savings and placing them into some kind of savings account or asset that ultimately pays you an income stream. But, again, there’s no reason why that asset cannot be your home. And each year, you can take your savings and plow them back into home improvements. When you’re ready to retire, sell the home, move into more modest digs, and then place your savings into very safe, low-risk, local securities.

Whatever you think of strategies of investing in yourself, there’s one overarching advantage to them over every other local-investment strategy discussed thus far: You are the person principally responsible for whether or not the investments pay off. You have the ability to improve your home, to tweak your energy-efficiency systems, and to upgrade your own personal earning power through the right class. You can bring down the risks of your investments going sour. You are the star of your own investment firm.

And it’s in this spirit that I present one final tool to consider, what’s effectively the secret weapon of local investors—namely, the self-directed IRA. Even though the tool is mainstream enough that a "for Dummies" guidebook has been written on it, 99 percent of Americans—even 99 percent of sophisticated investors—appear to be unaware of it.
5. DIY Retirement Funds

Tom Anderson is the founder of PENSCO, one of the largest providers of self-directed IRAs in the country, and until he recently retired he served as its CEO. “After twenty-two years of operation I’m proud that PENSCO has an A+ rating from the Better Business Bureau,” he boasts, “and we’ve got $3.5 billion under administration. From a customer satisfaction standpoint, we’re performing better than some of the top banks in the country.”

Anderson is also the president of the Retirement Industry Trust Association (RITA). “We almost exclusively handle self-directed IRAs and retirement accounts as custodians, which means we provide the means to hold IRA and individual pension plans under the laws governed by the Internal Revenue Service. We hold their assets in custody, execute our clients’ investment instructions, and report the value of their holdings—on an annual basis to the IRS and on a monthly basis to our clients. We also provide all the other traditional services, including Internet access to your account, and your ability to do all kinds of transactions, purchases, sales, transfers, and distributions. Basically we do everything that’s required to keep your plan compliant with the law. And that’s about it!”

The difference, of course, is what you can invest in. “Unlike broker-dealers or traditional banks, we’re dealing with myriad asset types those institutions don’t handle. For example, a broker-dealer like Schwab or Merrill Lynch generally will just handle traded assets like stocks, bonds, and mutual funds, and those assets are essentially processed electronically these days. Our systems and personnel are very specialized as every transaction is unique—sort of like a handmade shoe.

“We can do anything that is not prohibited by law,” Anderson asserts confidently, “from buying 40 head of cattle and putting ear tags on them in the name of your IRA, to buying a property underwater off the coast of Miami. There are only three asset types that a self-directed IRA can’t buy: collectibles (antiques, artwork, a 1957 Corvette, alcoholic beverages, et cetera), life insurance, and the stock of a sub-chapter S corporation. So, for example, we have bought fishing rights in the state of Alaska, which is just a map of the ocean that allows somebody to fish, in this case for black cod, over a period of time, who then rent out these rights to smaller fishermen. We have helped start thousands of traditional businesses through early-stage capital, either at the very beginning like start-ups or with mezzanine financing. At this time there’s very little credit out there for new-business innovation, and service providers like us are stepping into the gap.”

You could use a self-directed IRA to put tax-deferred dollars into almost every local-investment option discussed in this book. The one prohibition is on personal use of the funds. You can’t invest in your daughter’s house, for example, or a business in which your spouse has greater than 50 percent ownership. But you can invest in almost every other type of local investment discussed in this book. That means that you can support a friend or neighbor’s personal project. You even can invest in your neighbor’s house. In Canada, where the rules around self-directed retirement funds are very similar to those here, a company in Calgary is being formed to enable groups of neighbors to invest in one another’s homes, enjoy the tax benefits of mortgages, and avoid the high interest charges of mortgage banks.

Suppose you know someone who wants to borrow money to buy furniture or put her kids through college. You know she has plenty of assets, but they’re tied up in the house or in a typical pension fund, so you’re confident about getting paid back. You could use a self-directed IRA to loan her the money at, say, 5 percent annual interest—or whatever interest rate you preferred. And taxes on your gains would be entirely deferred.

Anderson wishes that more Americans knew about self-directed IRAs. He believes that most retirement accounts are dangerously undiversified. In fact, according to most current statistics available from Investment Company Institute (ICI), more than 95 percent of all IRA assets are invested in the markets in one fashion or another. “These are an individual’s most valuable portfolios due to their tax-deferred or tax-free status, and if any portfolio should be diversified it should be your retirement account.”

Wall Street Sign photo by Alex E. Proimos

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On the flip side, self-directed IRAs provide a great source of investment capital and support innovation through the launch of new businesses. “The most significant success we had at PENSCO,” recalls Anderson, “involved a group of entrepreneurs who came into our office in 1999 and wanted to start a business on the Internet. They were going to use a traditional IRA, but I suggested they use Roth IRAs because the gains would be tax-free. So they started this company, and the lead investor put in $1,800, because he didn’t have any more. The limit at the time was $2,000. The others put in a certain amount, most of them the maximum contribution amount. Approximately three years later they sold the company to a national firm, and the CEO, the guy who put the $1,800 in, now had multiple millions in his Roth IRA. Then he took those millions in his Roth and became a lead investor in a whole bunch of other start-ups, which grew his IRA to hundreds of millions. All from his $1,800 investment!”

So why don’t more people use this technique? Anderson thinks most Americans don’t believe they are capable of handling their own finances. “People are accustomed to the normal contributory IRA. They get a solicitation from their bank in April just before tax time to take a deduction, they fill out a little form, and put $2,000 or $4,000 into an account, and it just sort of sits there. They don’t pay a whole lot of attention to it. The whole process is relatively passive.”

The custodian of a self-directed IRA, in contrast, cannot be the decision maker. That’s what self-directed means: It’s up to you.

Michael Shuman is research director for Cutting Edge Capital in Oakland, economic-development director for the Business Alliance for Local Living Economies (BALLE), and a fellow of the Post Carbon Institute. An economist, attorney, author, and entrepreneur, Shuman has previously authored, coauthored, or edited seven books, including The Small-Mart Revolution and Going Local (1998).

Thursday, February 16, 2012

Biketopia Exists!

Photo courtesy of Santa Cruz Bike Church

by Mira Luna

I like to think of utopia as the space where idealism meets reality. Over the years, I have found few radical social change projects that met reality without failure or conflict, especially within a capitalist economy. Transformative projects often fail to take off and end up disillusioning their founders and volunteers. The Bike Kitchen model is one of those unique exceptions that we can try to learn from.

The first time I visited the San Francisco Bike Kitchen, I was struck by the seemingly limitless energy – it was bursting at the seams with volunteers and clients waiting to work on their own bikes. As other local nonprofits and business are struggling or closing up shop, I wondered what makes this model different.

Bike Kitchens have been around since the 1980s, and the earliest recorded one was in Austria. There is little documentation about how they spread, but now they're all over the world: from Argentina to France to Ghana and over 200 in the US alone. Their common mission tends to be bike access for everyone, regardless of socioeconomic status. Reciprocity and self-empowerment are the key operating principles. Everyone’s contribution matters regardless of skill level.

Almost all Bike Kitchens share a remarkably similar model, perhaps because it works so well although there is some variation. Some have “earn a bike” programs for kids, and some, like Bike Not Bombs. repair and ship bikes to developing countries. The Bicycle Organization Project explains what constitutes a community bike shop:

Non-profit bicycle organizations
Bike shops that are accessible to people without money
Shops that have an educational focus, teaching others how to fix bikes
Shops that are volunteer run
Shops that provide free or low-cost services to the community
Organizations that recycle bicycles and parts

Most of these workshops charge small shop day use or periodic membership fees, around $5 per day to use. As ecologically minded organizations, they recycle bike parts and get donations from bike companies to sell at low cost or as “digging rights” for a bigger bike project. Some have flat “build a bike” fees to cover the cost of staff supervision, parts, frame, etc. to build an entire bike from scratch (from a minimal $30 to $60 or a six hours work trade). Patrons at SF Bike Kitchen have a third payment option – to volunteer for another nonprofit on the local Timebank and use their Timebank hours to pay. Shops offer bartering so that costs can be paid in labor instead of money by their lowest income customers, reducing barriers to participation from diverse groups. For this reason, some kitchens, like Colectivelo in Oakland, California, use no money at all.

Kitchens are different from regular bike shops in that they involve their patrons learning to fix their own bikes and becoming self-sufficient mechanics. Volunteer staff may guide them or teach them in classes, but the work is done by the patrons in a learn-by-doing methodology, which is critical in mastering bike maintenance and repair. To keep the shops sustainable, patrons are recruited to be volunteer staff, teaching others at whatever level they are at. SF Bike Kitchen staff seem to love their jobs, are obsessed with bikes, and reliably show up for weekly 5-hour shifts. The San Francisco Bike Kitchen has more patrons than it has space, so there is usually a line at the door even before the kitchen opens.

Cacita Bike Shop in Oaxaca, Mexico (photo by Marshall Hilton)

Bike Kitchens are surprisingly easy to start. Some begin out of a personal garage, like Bozeman Kitchen, sharing tools and skills informally. Biketopia in Berkeley opened and took just two months from conception to become an incorporated nonprofit with storefront shop, stands, tools, and a youth program. Founder Zach Cohen volunteered at the San Francisco Bike Kitchen as staff and earned Timebank hours at BACE Timebank, which he then used to create his own community bike shop in the East Bay. The hours paid for business plan, development, logo design, marketing and helped recruit a dedicated Board member. The SF Bike Kitchen donated the bike stands through its grant program. A local youth organization supplied volunteers to give at-risk youth employment skills. Zach explained his passion in an interview with EcoLocalizer, “I believe the most important form of activism is the creation of alternatives to the failing establishment. Biketopia’s goal is to address diverse social problems with one comprehensive model that builds community while implementing solutions to youth homelessness, climate change, interest based money, and public health.”

Read more here.

Monday, February 13, 2012

What an Anarchist Zoologist Can Teach Us About Sharing

By David Morris

A modern screensaver underscores the timeless message of cooperation from the 19th Century Russian scientist Peter Kropotkin. (Credit: Adam Duston under a Creative Commons license).

On February 8, 1921 twenty thousand people, braving temperatures so low that musical instruments froze, marched in a funeral procession in the town of Dimitrov, a suburb of Moscow. They came to pay their respects to a man, Petr Kropotkin, and his philosophy, anarchism.

Some 90 years later few know of Kropotkin. And the word anarchism has been so stripped of substance that it has come to be equated with chaos and nihilism. This is regrettable, for both the man and the philosophy that he did so much to develop have much to teach us in 2012.

I am astonished Hollywood has yet to discover Kropotkin. For his life is the stuff of great movies. Born to privilege he spent his life fighting poverty and injustice. A lifelong revolutionary, he was also a world-renowned geographer and zoologist. Indeed, the intersection of politics and science characterized much of his life.

His struggles against tyranny resulted in years in Russian and French jails. The first time he was imprisoned in Russia an outcry by many of the world’s best-known scholars led to his release. The second time he engineered a spectacular escape and fled the country. At the end of his life, back in his native Russia, he enthusiastically supported the overthrow of the Tsar but equally strongly condemned Lenin’s increasingly authoritarian and violent methods.

In the 1920s Roger N. Baldwin summed up Kropotkin this way.

Kropotkin is referred to by scores of people who knew him in all walks of life as “the noblest man” they ever knew. Oscar Wilde called him one of the two really happy men he had ever met…In the anarchist movement he was held in the deepest affection by thousands—“notre Pierre” the French workers called him. Never assuming position of leadership, he nevertheless led by the moral force of his personality and the breadth of his intellect. He combined in extraordinary measure high qualities of character with a fine mind and passionate social feeling. His life made a deep impression on a great range of classes—the whole scientific world, the Russian revolutionary movement, the radical movements of all schools, and in the literary world which cared little or nothing for science or revolution.

For our purposes Kropotkin’s most enduring legacy is his work on anarchism, a philosophy of which he was possibly the leading exponent. He came to the view that society was heading in the wrong direction and identifying the right direction using the same scientific method that had led him to shock the geography profession by proving that the existing maps of Asia had the mountains running in the wrong direction.

The precipitating event that led Kropotkin to embrace anarchism was the publication of Charles Darwin’s Origin of the Species in 1859. While Darwin’s thesis that we are descended from the apes was highly controversial, his thesis that natural selection involved a “survival of the fittest” through a violent struggle between and among species was enthusiastically adopted by the 1% of the day to justify every social inequity as an inevitable byproduct of the struggle for existence. Andrew Carnegie insisted that the “law” of competition is “best for the race because it insures the survival of the fittest in every department.” “We accept and welcome great inequality (and) the concentration of business…in the hands of a few.” The planet’s richest man, John D. Rockefeller, bluntly asserted, “The growth of a large business is merely a survival of the fittest…the working out of a law of nature.”

In response to a widely distributed essay by Thomas Huxley in The Nineteenth Century, “The Struggle for Existence in Human Society,” Kropotkin wrote a series of articles for the same magazine that were later published as the book Mutual Aid.

He found the view of the social Darwinists contradicted by his own empirical research. After five years examining wildlife in Siberia, Kropotkin wrote, “I failed to find – although I was eagerly looking for it – that bitter struggle for the means of existence…which was considered by most Darwinists…as the dominant characteristic – and the main factory of evolution.”

Kropotkin honored Darwin’s insights about natural selection but believed the governing principle of natural selection was cooperation, not competition. The fittest were those who cooperated.

“The animal species, in which individual struggle has been reduced to its narrowest limits, and the practice of mutual aid has attained the greatest development, are invariably the most numerous, the most prosperous, and the most open to further progress. … The unsociable species, on the contrary, are doomed to decay.”

He spent the rest of his life promoting that concept and the theory of social structure known as anarchism. To Americans anarchism is synonymous with a lack of order. But to Kropotkin anarchist societies don’t lack order but the order emerges from rules designed by those who feel their impact, rules that encourage humanly scaled production systems and maximize individual freedom and social cohesion.

In his article on Anarchy in the 1910 Encyclopedia Britannica Kropotkin defines anarchism as a society “without government – harmony in such a society being obtained, not by submission to law, or by obedience to any authority, but by free agreements concluded between the various groups, territorial and professional, freely constituted for the sake of production and consumption…”

Mutual Aid was published in 1902. With chapters on animal societies, tribes, medieval cities and modern societies, it makes the scientific case for cooperation. Readers in 2012 may find the chapter on medieval cities the most compelling.

In the 12th to 14th centuries, hundreds of cities emerged around newly formed marketplaces. These marketplaces were so important that laws embraced by kings, bishops and towns protected their providers and customers. As the markets grew, the cities gained autonomy, and organized themselves into political, economic and social structures that to Kropotkin made them an instructive working model of anarchism.

The medieval city was not a centralized state. It was a confederation, divided into four quarters or five to seven sections radiating from a center. In some respects it was structured as a double federation. One consisted of all householders united into small territorial units: the street, the parish the section. The other was of individuals united by oath into guilds according to their professions.

The guilds established the economic rules. But the guild itself consisted of many interests. “The fact is, that the medieval guild…was a union of all men connected with a given trade: jurate buyers of raw produce, sellers of manufactured goods, and artisans – masters, ‘compaynes,’ and apprentices.” It was sovereign in its own sphere, but could not develop rules that interfered with the workings of other guilds.

Four hundred years before Adam Smith, medieval cities had developed rules that allowed the pursuit of self-interest to support the public interest. Unlike Adam Smith’s proposal, their tool was a very visible hand indeed.

This mini world of cooperation resulted in remarkable achievements. From cities of 20,000-90,000 people emerged technological as well as artistic developments that still astonish us.

Life in these cities was not nearly as primitive as the Dark Ages to which our history books assign them. Laborers in these medieval cities earned a living wage. Many cities had an 8-hour workday.

Florence in 1336 had 90,000 inhabitants. Some 8-10,000 boys and girls (yes girls) attended primary schools and there were 600 students in four universities. The city boasted 30 hospitals with over 1000 beds.

Indeed, Kropotkin writes, “the more we learn about the medieval city, the more we are convinced that at no time has labor enjoyed such conditions of prosperity and such respect as when city life stood at its highest.”

Mutual Aid is rarely read today. No one remembers Petr Kropotkin. But his message and his empirical evidence, that cooperation, not competition, is the driving force behind natural selection, that decentralization is superior to centralization in both governance and economies and that mutual aid and social cohesion should be encouraged over massive social inequity and the exaltation of the individual over society is as relevant to the central debates of our time as it was to the debates of his time.

It would be salutary for the world to rediscover his remarkable writings, all of which are freely available online, and revisit his philosophy.


David Morris is co-founder and vice president of the Institute for Local Self-Reliance in Minneapolis, Minnesota and directs its Defending the Public Good Initiative. He wrote this for , a Shareable partner that focuses on the commons.

Friday, February 10, 2012

Sacred Economics with Charles Eisenstein [Interview]

Interview by Mira Luna

Charles Eisenstein is the author of two of my all time favorite books, the Ascent of Humanity and Sacred Economics. He graduated from Yale with a degree in Philosophy and Mathematics and now teaches at Goddard College. He is a well known speaker on the topics of culture, spirituality, economics, gifting, the money system and community currencies.

Mira Luna: What got you interested in Economics?

Charles Eisenstein: While researching for Ascent of Humanity and looking into the origin of the all the crises on Earth, when you go down a few levels, you always find money. The money system is deeply implicated obviously in everything that's happening. For a while I believed money is the problem, but money is built on deeper causes - the defining myths of civilization. Still money is deep down and at the core.

I read economic philosophy by a myriad of well known economists, including Keynes, Henry George, and other more mainstream economists. I found that they were all contradictory. I didn't have a degree in Economics, but all these PhD Economists disagreed with each other so I thought a fresh perspective was needed to shift and expand the dialogue. I bring philosophy, history, spirituality, psychology, and nuts and bolts economics into it.

On a personal level I went through a phase where I was deeply in debt and went bankrupt and then broke. I was sleeping at other people's houses with my kids for a while and hit bottom. It became obvious that what I was doing wasn't working. That got me interested in the psychology of money. Money embodies unconscious beliefs in the nature of reality, self and the world like: more for you is less for me, we live in a finite universe with scarce resources, we are separate from each other, we are fundamentally in competition.

Mira: What are the myths underlying the money system?

Read the rest of the article here.

Monday, February 6, 2012

Public Benefit Corporations: providing a legal framework for investing in our communities

February 6, 2012
by Layton Olson
from IIC

Last month, a dozen companies committed to advancing social good filed to be classified as ‘Benefit Corporations’ in California. Their decisions represent a commitment to business strategies that systematically contribute financial, time, human, and other resources to charitable, educational and community improvement initiatives and institutions. California has joined the six states – Vermont, Maryland, New York, New Jersey, Virginia and Hawaii- that have enacted so-called public benefit or “B Corp” legislation since 2010. Colorado, North Carolina, Pennsylvania and Michigan and some cities have similar laws under consideration.

While traditional C Corporations are chartered to maximize benefit (i.e. profits) for shareholders, the B Corporation is legally chartered to consider and benefit stakeholders – a group that also includes employees, the environment, vendors, and the broader community. This legal status shields corporate directors from “stock-drop lawsuits,” in which shareholders can sue corporate leadership for knowingly acting in ways that decrease profits (i.e. raising social or environmental standards). Benefit Corporations must also publish an annual benefit report, which publicly discloses environmental and social performance using 3rd party reporting standards – therefore increasing transparency and accountability to shareholders and a burgeoning class of social investors.
Debating the Value of “Benefit” Status

In California, chambers of commerce representing environmental and technology companies advocated for the law, which requires that 2/3 of a company’s shareholders elect Benefit Corporation status. Some corporate law specialists have opposed the law, arguing that it does not clearly delineate duties of company leaders to shareholders. Others critics argue that Benefit Corporation status is superfluous, as the “Judgment Rule” in US law already affords corporate directors great flexibility to act as they deem to be in the best interest of the company. This, they argue, provides adequate cover for socially and environmentally-oriented policies.

While the Judgment Rule does provide flexibility for how corporate directors maximize shareholder value, it does not provide flexibility regarding whether they must do so. And that is the key differentiating factor of Benefit Corporation status – it frees profit-generating companies from the legal imperative of short-term profit maximization. As Eric Friedenwald Fishman points out, it is this very imperative that incents the shortsighted decisions that create profit today at a cost of social or environmental catastrophe tomorrow.
Patagonia Paves the Way

The poster-child for California’s new law is Patagonia, an outdoor clothing company that believes the legislation creates a necessary legal framework for mission-driven companies to stay mission-driven. Patagonia Founder Yvon Chouinard endorsed the law, saying that it enables companies like Patagonia to “stay mission-driven through succession, capital raises, and even changes in ownership, by institutionalizing the values, culture, processes and high standards put in place by the founding entrepreneurs.”

This new ability to enshrine “values, culture, processes, and standards” across transitions in corporate leadership and ownership is an essential element of the legislation, because not all Benefit Corporations will fulfill their legal obligation to create “a material benefit to society” through their core good or service. Indeed, far more companies are likely to meet this requirement by implementing socially and environmentally sound practices within operations, supply-chains, human resources policy, or production procedures – variables that are more easily altered than a core business model.
IIC: Integrating Impact Into Operations

Socially Responsible Real EstateFortunately Benefit Corporation status is within reach for diverse companies, thanks to increasing opportunities for companies to build innovative relationships with sustainable vendors and socially responsible service providers. For example consider a unique real estate program called Investing In Communities (IIC). An IL nonprofit that I’ve had the privilege to advise, IIC ( an online platform that empowers individuals and businesses to fund nonprofit organizations for free through brokered real estate transactions.

IIC’s platform allows real estate professionals anywhere to replace typical business development costs with more affordable, client-directed philanthropy. A company using the IIC platform would thereby direct charitable funding to its preferred nonprofit at no cost – simply by purchasing, selling, or leasing real estate. The cost of the donation is willingly born by the broker because it is less expensive than comparable business development tools. Thus, IIC allows companies to increase “the flow of capital to entities with a public benefit purpose” – a “specific public benefit” as defined in Subtitle 6C(1)(D) of the Benefit Corporation legislation.

IIC – which is now operational across the US, Mexico, and Canada – thereby integrates social impact directly into the standard operations of any company; a perfect example of the hybrid value that Benefit Corporations strive to create. By creating shareholder value and public benefit, Benefit Corporations not only strengthen the economy in a traditional sense (job, wealth, and capital creation), they can simultaneously reduce the cost of government – something that the IRS recognizes as a charitable activity in itself.

Thus, Benefit Corporation status joins L3C (low-profit limited liability) corporation status and employee ownership and profit sharing plans as a framework for business to invest back in our communities – generating sustainable economic growth, reducing costs borne by government and taxpayers, and making society collectively better-off.

Contact Layton Olsen at if you are interested in learning more about the benefits and drawbacks of such legal structures in relation to traditional charitable, trade association and other tax-exempt activities.

Free Money!

There are two new radically alternative currencies have recently popped up.

Check out Occupy's new negative interest community currency.

And a free software application called Swatopia that allows you to set up a group and trade in multiple units of alternative currency.

Unfortunately, the added flexibility of choosing your unit may very well make your trades taxable and may penalize those receiving state benefits who are not currently working. But if you are already a war tax resister, then who cares?!

I couldn't find much info about these groups and their intentions.

That said, this is great progress. Free money is a step in the right direction towards resiliency and real democracy. Free the currency commons!

States seek currencies made of silver and gold

By Blake Ellis
from CNNMoney
February 3, 2012

Worried that the Federal Reserve and the U.S. dollar are on the brink of collapse, more than a dozen states have proposed using their own alternative currencies of silver and gold.

Worried that the Federal Reserve and the U.S. dollar are on the brink of collapse, lawmakers from 13 states, including Minnesota, Tennessee, Iowa, South Carolina and Georgia, are seeking approval from their state governments to either issue their own alternative currency or explore it as an option. Just three years ago, only three states had similar proposals in place.

"In the event of hyperinflation, depression, or other economic calamity related to the breakdown of the Federal Reserve System ... the State's governmental finances and private economy will be thrown into chaos," said North Carolina Republican Representative Glen Bradley in a currency bill he introduced last year.

Unlike individual communities, which are allowed to create their own currency -- as long as it is easily distinguishable from U.S. dollars -- the Constitution bans states from printing their own paper money or issuing their own currency. But it allows the states to make "gold and silver Coin a Tender in Payment of Debts."

To the state legislators who are proposing state-issued currencies, that means gold and silver are fair game, said Edwin Vieira, an alternative currency proponent and attorney specializing in Constitutional law. And since gold has grown exponentially more valuable, while the U.S. dollar continues to lose ground, the notion has become increasingly appealing to state lawmakers, he said.

The state gold rush: Utah became the first state to introduce its own alternative currency when Governor Gary Herbert signed a bill into law last March that recognized gold and silver coins issued by the U.S. Mint as an acceptable form of payment. Under the law, the coins -- which include American Gold and Silver Eagles -- are treated the same as U.S. dollars for tax purposes, eliminating capital gains taxes.

Since the face value of some U.S.-minted gold and silver coins -- like the one-ounce, $50 American Gold Eagle coin -- is so much less than the metal value (one ounce of gold is now worth more than $1,700), the new law allows the coins to be exchanged at their market value, based on weight and fineness.
Local currencies: In the U.S., we don't trust

"A Utah citizen, for example, could contract with another to sell his car for 10 one-ounce gold coins (approximately $17,000), or an independent contractor could arrange to be compensated in gold coins," said Rich Danker, a project director at the American Principles Project, a conservative public policy group in Washington, D.C.

South Carolina Republican Representative Mike Pitts proposed a currency system that would allow people to use any kind of silver or gold coin -- whether it's a Philippine Peso or a South African Krugerrand -- based on weight and fineness. Pitts said in the bill, which currently has 12 co-sponsors, that the state is facing "an economic crisis of severe magnitude."

Republican representatives from Washington State followed suit in January, introducing a bill that would also allow any gold and silver coins to be considered legal tender based on metal values. Minnesota, Iowa, Georgia, Idaho and Indiana are also considering similar proposals.

Many of the bills would make it possible for residents to exchange the physical coins for goods and services, so you could use coins to buy anything from groceries to a car as long as the store chooses to accept them.

However, most people aren't going to walk around with such valuable coins in their pockets, said Vieira. Plus, calculating the value of the coins -- especially if they come from different parts of the globe and are of different sizes and shapes -- will get tricky.

It's more likely that the states will create electronic depositories and accounts for the coins to make transactions easier, when and if the initial bills are passed, he said.

Utah Gold & Silver Depository is already developing a system where customers could use debit cards linked to their gold holdings. When customers swipe their debit cards to make transactions, physical gold and silver coins would be transferred between accounts in privately-owned depositories (or vaults) based on the market value of the metals.

Before deciding on a specific form of currency, some states -- including Minnesota, Tennessee, Virginia and North Carolina -- are considering proposals that would first require a committee to review their alternative currency plan.

The future of U.S. currency: The states' proposals have been gaining steam among Tea Partyers and Republicans, many of whom also endorse a nationwide return to the gold standard, which would require the U.S. dollar to be backed by gold reserves.

Tea Party "father" Ron Paul is sponsoring the "Free Competition in Currency Act," which would allow states to introduce their own currencies, and rival Newt Gingrich is calling for a commission to look at how the country can get back to the gold standard.

But it will be the individual states that could really get the ball rolling, said Vieira. Even if several of the current proposals get killed, the introduction of so many bills at the state level is drawing national attention to the issue, he said.
Funny money: 11 local currencies

Of all the state proposals circulating right now, Republican-controlled states including South Carolina, Georgia, Idaho and Indiana have the best chance of passing their proposed bills this year, said American Principles Project's Danker. If just one or two states implement an alternative currency, it could have a Domino effect, he said.

"I think we could get a couple passed in this legislative session, and that would show this is mainstream, popular and it would be a justification for more of the risk-averse states for doing this," he said.

There are, of course, many people who think the recent push for alternative state currencies should be stopped in its tracks. David Parsley, a professor of economics and finance at Vanderbilt University, said he thinks state-issued currencies are a "terrible" idea.

"Having 50 Feds" could debase the U.S. dollar and even potentially lead the country into default, he said. "The single currency in the United States is working just fine," said Parsley. "I have no idea why anyone would want to destroy something so successful -- unless they actually wanted to destroy the country." To top of page