The Most Revolutionary Act

Diverse Ramblings of an American Refugee

Dr Stuart Jeanne Bramhall

Dr Stuart Jeanne Bramhall
Location
New Plymouth, New Zealand
Birthday
December 02
Bio
Retired psychiatrist, activist and author of 2 young adult novels - Battle for Tomorrow and A Rebel Comes of Age - and a free ebook 21st Century Revolution. My 2010 memoir The Most Revolutionary Act: Memoir of an American Refugee describes the circumstances that led me to leave the US in 2002. More information about my books (and me) at www.stuartjeannebramhall.com

MY RECENT POSTS

JULY 3, 2012 7:00PM

Local Dollars, Local Sense – Part I

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localdollars

Local Dollars, Local Sense

by Michael Shuman

(Post Carbon Institute, 2012)

Book Review – Part I

There is growing consensus among economists and anti-corporate and sustainability activists about the importance of relocalization as the centerpiece part of genuine economic and political reform. It reflects a widely held belief that any realistic solution to the economic, energy and environmental crises mankind faces will repudiate corporate globalization in favor of bioregional networks that enable people to source the majority of their food, energy and other basic needs within a 100 mile radius of their home. Thousands of cities and towns across the planet are working together in Transition Towns, Via Compesina and similar sustainability networks to op out of corporate agriculture and energy production in favor of local food and energy production schemes. The biggest obstacle they face is finding sustainable funding to support their work.

Michael Shuman’s latest book, Local Dollars, Local Sense is valuable for three different groups of readers: sustainability activists seeking to seeking financial support for small locally owned businesses; local business owners seeking start-up and expansion capital; and investors – both “accredited” and “unaccredited” (see below) – seeking to move their IRA accounts and other Wall Street holdings to safer, more profitable and more socially responsible and environmentally friendly investments.

A Dearth of Funding Options for Local Business

At present options for small businesses seeking start-up funding for organic farms, solar installation companies and similar “green” enterprises are extremely limited. A business owner has two basic choices in financing a new business. They can take out a time-limited loan at interest or they can sell shares, in essence allowing other people to become part owners and share in the profits (or losses). Even prior to the 2008 economic crisis, it was virtually impossible for small business people to find conventional bank loans. Nearly all the neighborhood banks we grew up with have been bought out by global investment banks, which have no incentive to make loans to small local businesses. The recent move by millions of Americans to move their accounts out of global banks to local banks and credit unions – which do lend to local businesses – has been a move in the right direction. Yet as Michael Shuman points out in Local Dollars, Local Sense, this is merely a drop in the bucket compared to the $30 trillion Americans have invested – most through IRAs and pension plans – in Wall Street Fortune 500 companies. Shuman makes a compelling case for moving half – $15 trillion – of that money out of Wall Street and investing it in local businesses. He also outlines a number of intriguing strategies for accomplishing this.

Shuman, member of the Post Carbon Institute, partner at Cutting Edge Capital (a firm specializing in raising capital from non-traditional funding sources) and long time relocalization advocate, presents strong evidence that local businesses provide a higher and more reliable return than the Wall Street casino, as well as providing a host of benefits for society and the environment. At the same time, unlike multinational corporations, they are accountable to the local residents who patronize them, which results in a strong incentive to be environmentally responsible, to treat workers fairly and to contribute positively to the community.

Small Business Makes Up Half of the US Economy

Although small local business makes up 50% of the American GDP, as well as providing 50% of US jobs, less than 1% of Americans’ combined savings and investments help to finance locally owned business. Most Americans still keep their short term savings (if they have any) in large multinational banks. In most cases, their only long term savings are tied up in IRA plans and pension funds. With the exception of municipal bonds, nearly all of this is invested in Fortune 500 multinational corporations – which, as most activists are aware, have no loyalty whatsoever to any community, state or country.

Legal Obstacles to Selling Shares in Local Business

As Shuman outlines in his first chapter, the main reason Americans don’t invest in local business relates to major legal obstacles to doing so. Outdated securities laws passed during the Great Depression make it extremely difficult for “unaccredited” investors – approximately 98% of Americans – to invest even small amounts in small businesses. “Accredited investor is a term defined by the securities laws of various countries, which delineate which investors are permitted to invest in certain high risk investments, including, but not limited to seed money, limited partnerships, hedge funds, private placements, and “angel” investments. In the US, an accredited investor must have an income of $200,000 (for three years) and a net wealth of at least $1 million (excluding their residence).

A new business seeking funding from “unaccredited” investors is required to register with the SEC and state regulators. This, in turn, requires the creation of a disclosure and other legal documents at a cost of $25,000-150,000 in attorney fees. The U-7 or SCOR (Small Company Offering Registration) form alone is 39 pages, and each form must be accompanied by 14 disclosure documents (see http://www.nasaa.org/industry-resources/corporation-finance/scor-overview/)

While stressing the need to reform these archaic laws, as well as resurrecting regional stock exchanges that helped finance local business prior to the Great Depression, Shuman reports on a number of exciting investment models being tried across the US that conform to existing securities law.

To be continued, with examples of unconventional local funding models.

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""....................presents strong evidence that local businesses provides a higher and more reliable return than the Wall Street casino, as well as providing a host of benefits for society and the environment. At the same time, unlike multinational corporations, they are accountable to the local residents who patronize them, which results in a strong incentive to be environmentally responsible, to treat workers fairly and to contribute positively to the community.""

This is a wonderful example of capitalism being used as a tool for the betterment of the society when it is strictly controlled and regulated by the social system. THIS is how a proper capitalistic economic system ought to work. Real capitalism is never the master of the social system, perverting it to serve only economic ends instead of social ends. Real capitalism is an excellent, though dangerous, tool - just like fire - that can raise up a society to great heights when it is put to work for the good for that society instead of running rampant and serving only a small, greedy elite within a society.

Looking forward to Part II

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Skypixieo, you sound like Adam Smith. This is exactly what he said in Wealth of Nations. He states repeatedly that an entrepreneur has a major responsibilities to society - the primary one being job creation.
Thanks for bringing this to my attention. Michael Hudson is an economics God (lol)!
Dr. Bramhall,
Unfortunately, although I've heard of him, I've never read Adam Smith. Actually I DON'T think that an entrepreneur has a "job creation" responsibility to society. I think that a society has a responsibility to organize itself in such as manner as to strictly control and regulate the economic sector.

I see the economic system as a tool. One does not place responsibility upon a tool. One learns to use it properly and instructs others in its use. Should the tool be used for an improper purpose, that tool is not at fault. Tools, if left to their own devices, will "behave" according to the nature of tools - not according to the desires of mankind.

A capitalist economic system, as with any economic system, will try to "be" the best that it can be. When left without proper regulation and control it will attempt to dominate the social system so as to create more favourable circumstances in which to act according to its nature.

It is up to the social system to ensure that the economic system remains a useful tool and is never allowed to force the society to be merely an adjunct to the economic system.

If the social system wishes to enshrine wage-slavery as its means of sharing the wealth created by its economic system then, yes, the social system can demand of the economic system that it create jobs. I see no particular benefit to this means of wealth sharing. There are other, more equitable ways of doing that; ones that do not create an economic elite that is often able to subvert the social system away from being "for the good of all" to one of being "for the good of the few." We can see what happens in that case by simply looking around us at today's world which has allowed that to happen.

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Mea culpa, Sean. I had Michael Schuman and Michael Hudson confused. This was pointed out to me by the Post Carbon Institute and I have since corrected it.
If it were to be recognized that economies must live within the biophysical limits of their environment, on many different scales of perception, that criterion would stand alongside the one of benefiting the social system, of which they are also a part. Both the larger human social system and the subsystem of human economics, seen as existing within the underlying, overarching, and enabling environment, have a chance at being resilient and durable; seen as dominating or subsuming or exploiting the environment they eventually become terminally self-destructive.
If it were to be recognized that economies must live within the biophysical limits of their environment, on many different scales of perception, that criterion would stand alongside the one of benefiting the social system, of which they are also a part. Both the larger human social system and the subsystem of human economics, seen as existing within the underlying, overarching, and enabling environment, have a chance at being resilient and durable; seen as dominating or subsuming or exploiting the environment they eventually become terminally self-destructive.
Mea culpa again, everyone. It turns out I spelled Shuman's name wrong - which I have corrected. It's been a really busy week for me - it's hard work planning for civilization to collapse.

Philip, your analysis is extremely profound - and spot on. I hope people read it really carefully.