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PacificEdge | March 31, 2017

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Shuman: local the way forward in economics

Russ Grayson

Talk about rapid response. Within a couple days of Michael Shuman finishing his Brisbane address, something like $36,000 had been raised to set up a local economic initiative. It seemed like the idea of LEI’s – Local Economic Initiatives – that emerged in the 1970s only to soon disappear, had been reborn.

Michael is an economist and attorney and a member of BALLE — the Business Alliance for Local Living Economies. Australia has no equivalent of this organisation that is active in 60 US cities and boasts a business membership of 15,000 locally owned businesses.

“It is a movement for, not against”, emphasises Michael. “It is not an oppositional movement. We’re not saying that non-local business is bad. It just doesn’t contribute as much to local jobs or community wellbeing”.

Benefits of locally owned business

It is this economic argument that is at the core of Michael’s message of economic localisation. And it’s a message Australian audiences heard when Michael spoke in a number of Australian cities in June 2009.

In Sydney, he appeared at a Sydney Food Fairness Alliance (SFFA) lead up event to the October Food Summit at the city’s presigious Customs House at Circular Quay. That kicked off  the development of a food policy for NSW (more at: www.sydneyfoodfairness.org.au).

Michael also appeared at an Eastern Suburbs council business breakfast, a seminar for sustainability educators with the theme of ‘bringing economics into sustainability education’ and at a Transition Sydney Cafe Conversation where he outlined the importance of strong local economies to cities seeking to become more resilient to changes in the global marketplace and to other influenes coming in from outside. His appearance at an event organised by the SFFA is no accident. Michael is a passionate advocate of the economic common sense of localised food systems.

Unlike many locally owned, small to emdium sized businesses, Michael says big business packs up and leaves when times get tough or when goods can be produced cheaper elsewhere and where, perhaps, environmental and workplace safety and working standards are lax.

We need look no further than Australia’s foreign-dominated automobile manufacturing industry for evidence of this. For years, successive and gullible Australian governments have handed over tens of millions of Australian taxpayer dollars to retain these industries in sensitive electorates.

Attracting the creative class

In what has essentially been a corporate welfare handout, the question was seldom asked about whether we should say goodbye to these old manufacturing industries and put the money elsewhere. Put it into new, design-based, knowledge intensive and locally owned creative industries, for example.

This would attract to those cities that deliberately set out to attract them what author, social scientist and economist, Richard Florida, calls the ‘creative class’ (see Amazon.com reviews of his books The Creative Class and The Flight of the Creative Class). This is an emerging socioeconomic group that consists of a broad range of knowledge workers employed in industries such as design, the arts, education, publishing, medical science and services, media, entertainment and various service industries. Add to this a diverse industry based on the supply of local grown and produced, nutritious and clean food marketed in imaginative ways, plus the development of other products and services that draw from local resources and knowledge, and you have the potential for a viable regional economy.

It is they, rather than the old industries that have their origin back in the earlier Twentieth Century, that develop and introduce the new ideas and new technologies and that develop the creative content for online and other media. Seen as an ascendant socioeconomic group, the creative class has the capacity to move local and regional economies away from the established manufacturing and other sectors and, among city authorities with an eye on their economic future, is seen as a core group to attract.

The value of this creative class to local and regional economies is that they often cluster in small to medium sized business which, where incentives exist, can resurrect and redirect failing economies. Rather than continue to prop up old, uncompetitive industry from the industrial past, better to redirect the funds to creating the environment in which these new industries can develop and thrive.

If Michael makes one point, it’s that locally owned industry is likely to stay around when the going gets tough. He’s not talking specifically about large scale industry, for Australian owned big business is just as footloose as any other. What he’s talking about are those small to medium scale business that populate our cities, the kind that might employ relatively few people on a business-by-business basis but that, collectively, employ millions of Australians.

Local stays local

It’s Michael’s research and economic nous that has led him to championing local food systems and locally owned business. He says that, where food businesses choose to sell the local product, one of the benefits is a reduced carbon footprint due to the shorter distance food is transported and the fewer greenhouse gases emitted. We are familiar with this argument as ‘food miles’, though those whose interest is the sustainability of the urban food system recognise that it is only one factor in estimating the sustainability of a food system.

Like other advocates of food localisation, Michael’s use of the term signifies food grown or produced in the rural hinterland of an urban area and consumed within that area. ‘Local’ food is a term synonomous with ‘regional’ food. The size of this urban ‘food bowl’, as it has been named, would be relative to the scale of the urban area it serves, and its population. Guessing, Sydney might derive its food supply from, say, about 300km around the city. Sydney’s fresh food supply, including some fruits and poultry, might be obtained from a region extending from the Hunter Valley in the north, through the urban fringe market gardens to the north west and south west of the metropolitan area and south to the Illawarra. This, after all, is the greater urban and nearby rural conglomeration that makes up Greater Sydney as a twenty-first century city in the same way that Brisbane can be considered to consist of a greater metropolitan area made up of the Sunshine Coast, Brisbane and the Gold Coast.

For smaller cities the food bowl would presumably be smaller, agricultural conditions in the hinterland being viable. Substituting imports of like-food with the locally produced might help develop local economies.

Also worthy of consideration in any assessment of the potential for a local food economy would be the impact on local, small business of opening a supermarket in an area. That impact is well documented. With their capacity to open seven days a week and for extended hours, and with parking spaces provided, supermarkets and malls can suck the economic energy and social vitality from traditional, streetfront shopping strips.

This was one of the reasons behind the opposition to Coles’ move into the south-east Queensland town of Maleny and the northern NSW town of Mullumbimby. Where Australia’s supermarket duopoly – Coles and Woolworths – that together controls much of the Australian food retail industry and the diets of Australians – does not compete by opening big box malls, it sets up imitation local, small businesses to compete directly with local specialty food retailers. Such is Woolworth’s Thomas Dux chain of specialty groceries. The supermarket industry’s economic and dietary impact has also been seen in the purchase and closure of the Macro wholefood chain of shops, effectivly reducing food choice for Australian organic food eaters.

Increasing competitiveness

So, what can locally owned business do to increase its competitiveness with the ‘big box’ retailers (so called because of the windowless, inwardly-focused buildings cut off from their environment that they inhabit)? Plenty, according to Michael Shuman.

Some of his proposals we already see in Australia – the rapid growth of farmers’ markets (though the term can be misleading: some so-called farmers’ markets are simply resellers markets, the food coming from the city wholesale markets rather than from farms) and direct distribution through home delivery services, especially those specialising in organic product lines as well as community-supported agriculture.

Michael’s proposal that locally owned small business seek to occupy a niche is already seen in streetfront commercial strips where delicatessens and stores catering to ethnic diets are found. The advantage of this is easily tested by walking into a Woolies or Coles supermarket and looking for organic foods. You find some, but there is no depth to the stock they carry, it’s just the best selling lines with no shelf space given to less popular but still in-demand lines. That is found only in smaller retailers catering to niche markets.

What, then, can locally owned retailers do about this intrusion by the economcally powerful supermarkets? According to Michael Shuman, they can promote their local ownership and the fact that local business is less likely to pack up and leave town when economic conditions detoriorate. They can also play on the reality that a greater portion of the money spent in local businesses is in turn spent by them in the area, on legal services, advertising, stock, stationery, tradespeople and so on. To buy local becomes a local economic multiplier.

He mentions other strategies for locally owned business such as the creation of shopping destinations that draw people away from the big boxes. This might look something like a big box, he suggests, but would consist of a large building containing independent, small scale retailers. There would be, in addition to specialist, niche food retailers, those selling the lower priced vegetables/fruit/grains that form our staple foods, cafes and coffee bars and, perhaps, a bookstand specialising in cooking and gardening books. Retailers supplying the ‘long tail’ of lower volume goods for which there exists continuing demand is another opportunity. This is something that supermarkets simply cannot devote their valuable shelf space to.

Hearing this, a couple pleasurable hours I spent wandering around the Adelaide markets came to mind — certainly a more interesting, more pleasurable and more culinarily delightful experience that doing laps down the supermarket aisles. The good thing I noticed abut the markets was that you could get those upmarket, more expensive food products that we might regard as occasional treats as well as the more basic vegetables, fruits, culinary herbs and grains, cheeses and dairy, pastries and breads that constitute the affordable food supply. And — there was both organic and non-organic in some lines.

Local government can help

It turns out that local government has a role to play in improving the viability of locally owned business.

This it can do through procurement policy – choosing local goods and services rather than those produced elsewhere – and making sure its community services purchase perishable foods produced within the city’s food bowl. Councils might not presently do this because they choose not to favour particular businesses, however the case for deliberately choosing local is perhaps more valid because local government then fulfills its mission to improve local conditions, and that means the local economy with all of its multiplier effects. After all, surely local government should have a built-in bias towards supporting the local.

First, plug the leaks

In systems thinking, it is axiomatic that the process of creating positive change and innovation lies in creating the environment in which such properties can develop and flourish. So, how do organisations supporting local economic development go about creating the conditions within which local business – and that includes not-for-profit, community and social enterprise too – start? By identifying the economic leaks and plugging them with new businesses, says Michael. Start to plug those gaps and you start to get your local economic multiplier effect.

This was the motivation behind a community enterprise, the Manly Food Cooperative. Well over a decade ago the Coop identified the need for a source of food that was primarily organic and that produced minimum packaging waste. The gap identified, the Coop has retained its support despite the presence of at times two organic food retailers in town and two Coles stores which also carry (minimal) organic lines, though those are not minimally packaged.

It was similar for the financial services business, August Investments. August was the creation of social (‘ethical’) investment pioneer, Damien Lynch. Damien saw a gap – a monetary ‘leak’ in the market for people wanting to earn investment income without contributing to damaging environmental, social or financial impacts. August is still in business, more than 20 years since it first offered its portfolio. And, it’s still a small, locally (Sydney, that is) owned business.

In Brisbane, after Michael’s appearances, bold and future-oriented people voted with their dollars to act on improving the city’s local economies. Inspired by Michael Shuman, they chose not to sit back and let his ideas wash over them. They acted, and in doing so added the element of economics to sustainability.

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