Introduction

Centralized systems, whether they are economic, manufacturing, food production or energy naturally lead to inequity and ultimately wrestle power away from communities, who are the consumers of all the products of centralized systems.  They also create unhealthy dependencies. In a global supply chain which is itself dangerously reliant on non-renewable carbon-based fuel, Peak Oil disruptions will lead to major community shocks. There is a growing global awareness of these dangerous dependencies as well as a movement towards a distributed resource architecture stimulated by the  building local autonomous, resilient communities

Local economies have the following benefits:

  • Insulate the community from the volatility of global economics
  • Reduce dependency from global suppliers of food, energy and manufactured products
  • Build sense of comunity
  • Easier to implement sustainable solutions
Where do Local Economies fit in the future of our civilization? There are other alternative economic models currently being explored such as the Bhutanese initiative towards a Global National Happiness scale to replace the GDP, the Blue and Circular Economy. Can Local Economies be the solution in a post carbon, low energy world? If so, how do we get there?

Leading Institutions in the Local Economy Movement

Amongst the institutions leading the Local Economy movement are:

                

The Power of Co-operatives in Local Economies

Michael Shuman is a fellow of the Post Carbon Institute and a leading proponent of Local Economies. He is the author of Local Dollars Local Sense and argues for the critical role that Co-operative structures play in local economies. Shuman cites some impressive economic statistics of local community co-operative organizations in his home country of the United States:

  • U.S. Co-operative sector owns $3 trillion in assets
  • It generates half a trillion dollars a year in revenue
  • It pays 856,000 people $25 billion in annual wages
  • Their multiplier impact on the economy supports more than two million jobs nationally
  • Minnesota has 1,000 co-ops and a survey showed that a third of them contributed seventy-nine thousand jobs in the state and more than $600 million in state and local tax revenues
  • 99.9 % of Co-operatives meet the definition of locally owned; they are tied to one specific geographic location and owned by geographically proximate members
  • Are critically important builders of local economies
  • Are deeply democratic
  • Co-ops help grow other co-ops
  • Members naturally have trust and confidence in a co-op because they own it
  • Co-operative accounting, marketing, membership, personnel department, management, buying is all local

Cooperatives start very modestly but may grow spectacularly. Some familiar US co-op brands include:

  • Nationwide (a mutual insurance cooperative)
  • AgriBank (a Minnesota-based farm-credit cooperative with $36.6 billion in assets)
  • Recreational Equipment Inc. (better known as REI, the Seattle-based sporting goods company)
  • The Associated Press (a newspaper cooperative)
  • The Hanover Consumer Cooperative Society, based in New Hampshire and Vermont, has twenty-eight thousand members

They also follow the principles enunciated in England in 1844 by the Rochdale Equitable Pioneers Society:

  • Anyone who wishes to join a consumer cooperative can
  • Profits must be split among members according to their “patronage,” which refers to their use of the cooperative, not the amount of their investment in it
  • Members elect a board that oversees the management
  • Unlike most U.S. companies, where voting power is based on the principle of “one dollar, one vote,” cooperatives are based on the principle of “one person, one vote

 Three Major Local Economic Benefits of Co-operatives

Cooperatives offer three major benefits compared to the standard business model:

Benefit 1 – Consumer Cooperatives help to keep prices Low

Information flow from consumers to producers is direct and immediate. Many of the unacceptable behavior commonly found in today’s large corporations could not exist in co-ops:

  1. enormous executive compensation
  2. debt-inducing acquisitions
  3. unjustifiable dividends to attract shareholders
  4. irrational price inflation and discrimination

All of these can effectively be banned by consumers with decision making power in co-ops.

Benefit 2 -Worker Participation in running the Business increases Labor Productivity

In his book, Shuman cites two studies:

Study One – A plywood companies in the Pacific Northwest

This study found that cooperatives were 13.5 percent more productive than equivalent unionized plants. Cooperative workers could have had an extra seven weeks of vacation and produced the equivalent output as their private-sector counterparts. The efficiencies were due to management’s involvement of workers in their decision process concerning raw materials, machinery, and production methods.

Study Two – Mondragon Cooperatives in Spain
Henry Levin of Columbia University conducted a study in Mondragon Cooperatives in Spain which showed that with only 25 percent of the capital per worker as the nation’s largest five hundred private firms, they were able to add 88 percent to the value of products per worker; triple the productivity.

Benefit 3 – Help Local Businesses Compete more Effectively

Normally, small businesses cannot compete with larger established companies. They do not have the economy of scales for purchasing supplies, transport or a host of other factors as their larger competitors do. By joining together to form a Cooperative, they can achieve these economies of scale.

Example 1:Sunkist

Sunkist is a well known brand of cooperative citrus growers. It enables member growers to run first-class, well-financed marketing campaigns.

Example 2: Furniture First

With headquarters in Harrisburg, Pennsylvania, Furniture First collectively purchases furniture on behalf of small furniture dealer members spread around the country. It can command bulk discounts and volume savings that would be impossible otherwise.

Community Food Enterprise (CFE)

Food is at once a vital community resource as well as an opportunity for local economic development. Michael Shuman and Alissa Barron of BALLE are coauthors of the book Community Food Enterprise (CFE),  a global study examining two dozen local ownership models for food enterprise. Through 24 case studies—half inside the United States and half outside— the authors show a huge diversity of CFEs. This study explores four major focus areas:

  1. Competitive Strategies
  2. Challenges & Solutions
  3. Meeting the triple bottom line: profit, people, and planet
  4. Global Scaleability

The success of CFEs is often measured against their larger competitors, many of which have greater economies of scale and are not locally owned. The case studies reveal 14 powerful strategies CFEs are deploying to compete effectively. The study also reveals some surprising facts such as disadvantages of the larger companies such as long supply chains which are vulnerable to rising oil prices and Peak Oil. While CFEs face special challenges such as leadership, finance, secession,  and technology, they are developing creative ways to overcome these challenges. Many are doing so and turning their superior social performance into compelling competitive advantages. The conclusion from the study? – spurred by constant innovations,  CFEs might be capable of explosive growth in the years ahead.

The entire book is downloadable as a 20Mbyte PDF here.

CFE’s vs Multi-national Chains

CFEs once dominated local markets but with globalization:

  • industrial scale agriculture displaced smaller farms
  • food processing moved to centralized manufacturers
  • chain supermarkets and restaurants displaced local grocers and diners

CFE’s CONs:

  • larger fixed costs
  • more inexperienced managers
  • more limited distribution networks
  • less potent marketing
  • poorer access to talent, capital, and technology

CFE PROs:

  • deeper awareness of local tastes and markets
  • obtain quicker consumer feedback
  • can tweak their business models quickly
  • deliver goods and services faster
  • shorter distribution links and smaller inventories
  • rely more on word-of¬mouth advertising that costs nothing
CFE’s can do well against multi-nationals if they emphasize their strong points above

Among the food enterprises, the study found 5 major categories:

  • Proprietorships
  • Limited Liability Companies
  • Nonprofits
  • Private-Public Partnerships
  • Cooperatives

The choice of business model is dependent on two factors:

  1. the underlying philosophy of the founders
  2. where sufficient initial capital can come from:
    • Sole Proprietorship, Partnership and Limited Liability Companies – If the founders believe their best source of capital will be themselves
    • Nonprofit – If funds are coming from foundations or wealthy contributors
    • Public-Private Partnership – If the funds are government money
    • Cooperative – If they see funds coming from committed consumers

New Economics Institute

The New Economics Institute is a US based organization that is based on the work of economist E.F. Schumacher and applies a multi-disciplinary approach to transition to a new economy that gives priority to supporting human well-being and Earth’s natural systems. They operate on the premise that a fair and sustainable economy is possible and that ways must be found to realize it. In particular they have done important work that contributes to establishment of local economies in these areas:

SHARE Microcredit Program

The New Economics Institute has developed a community implementable micro-loan program called SHARE. SHARE stands for  “Self-Help Association for a Regional Economy” and  is a model community-based, micro-loan, nonprofit that offers a simple way for citizens to create a sustainable local economy by supporting businesses that provide products or services needed in the region.SHARE makes micro-credit loans available at manageable interest rates to businesses that are often considered “high risk” by traditional lenders—usually because of their credit ratings or the unique nature of their business ideas. Local SHARE members make interest-earning deposits in a local bank, which are used to collateralize loans for local businesses with a positive community impact. SHARE depositors live in the same community as the business owners they support—bringing a human face back to lending decisions.Information to implement a SHARE program in detail including all the forms and agreements are available for download here.  It is also recommended to read Local Currencies: Catalysts for Sustainable Regional Economies, by Robert Swann and Susan Witt, to understand the background of the SHARE program.