Michael H. Shuman
REVIEW BY Nathan McLellan
Review: Going Local
by Nathan McLellen
My first encounter with economics—at least as a formal subject—was during my first year at high school. To this day, I still recall being taught that economics was concerned with answering the following key questions: What goods and services should be produced? For whom should they be produced? How should they be produced? Some things must have appealed to me about that first economics class, as I decided to study economics throughout high school and eventually at university. Although these key questions were not plainly noted in every economics class I took, they were nevertheless always lurking in the background. Mainstream economics sought to persuade me that firms should seek to maximize profits by producing goods and services that were demanded by consumers, and that they should do this in the most cost-efficient manner possible.
Absent from the list of questions that economics endeavoured to answer was the where of production. Where should goods and services be produced? This omission meant that little attention was given to place. Looking back, this is somewhat perplexing, because the economic development of the country where I grew up was fundamentally shaped by its geography. Located within the South Pacific, part of New Zealand's economic prosperity is due to its terrain and temperate climes, which have made it amenable to agricultural production. Given this fact, why the lack of attention to the importance of place in economics?
In Going Local: Creating Self-Reliant Communities in a Global Age, Michael Shuman seeks to place the where of production at the center of his call for a new economics where "the well-being of workers, ecosystems and communities is the central objective rather than an afterthought" (20). In the introduction and first chapter, Shuman describes how "capital mobility"—the ability of corporations to move their operations from one locale to another, usually to take advantage of lower costs—has adversely affected the viability of local communities. He argues that capital mobility has contributed to employment losses, the imposition of costs on government (such as through increases in the number of welfare payments), the "homogenizing" of communities via the obliteration of local culture, and a reduction in the ability of local communities to plan (12-14). Mobility has been venerated and the importance of place has been minimized, with the result that local communities have been undermined.
Chapters two through four outline an alternative economic system that would make the well-being of local communities the goal. Shuman's proposal is thoroughly pro-enterprise. In chapter two, he contends that local communities should develop industries that enable them to meet their basic needs for food and water, energy, and other basic materials. He notes that the advent of new technology, particularly in energy-generation, now allows local communities to make their own provisions in a way that was not possible in the past. Shuman also contends that enterprise structure is important for the economic development of local communities. He argues in chapter three for the formation of "community corporations" that blend the strength of non-profits—focusing on the common good—and the strength of private and public corporations—their drive for efficiency. Shuman contends that these community corporations, which are for-profit and owned by local citizens (or at least majority-owned by locals), "represent an exciting hybrid between capitalism and socialism" that "foster competitive enterprise and private ownership without continued irresponsibility toward workers, ecosystems, and communities" (104).
For Shuman, it is not enough for community corporations to produce goods and services that meet a community's needs. Chapter four argues that financial vehicles need to be created that channel local saving into local investment. Shuman notes, "Historically, banks have been essential players in community development" but competition" has pushed traditional banks (with the permission and encouragement of federal and state deregulators) to loosen their ties with communities, consolidate, merge and set up branches across state boundaries" (107; 109). The result has been the diversion of local saving outside the local community, with foregone opportunities for economic development. As an alternative, Shuman calls for the foundation of more Community Development Financial Institutions (CDFIs), such as local credit unions and thrifts, which focus on local investment. Although Shuman sees a place for CDFIs to loan money to local enterprises, he also instinctively recognizes that equity-investment is superior to debt-financing because an investor "cares more about the success of an enterprise than does a creditor" (117).
Chapters five and six consider how government at various levels can foster local economic development. Throughout these two chapters, Shuman plugs the principle of subsidiarity—the notion that "power should always be exercised at the level closest to the people affected by a decision" (125). Where it is practically possible, decisions about trade policy, financial regulation, taxation, and so on should be devolved to local communities, rather than being determined at the international or federal level. Local governments should do their utmost to encourage the prosperity of local communities through local reinvestment, purchasing, hiring, selective privatization, and its taxation policies (128-144). Moreover, federal and state governments should empower local communities to become self-reliant, rather than fostering an unhealthy dependence on federal and state handouts.
Shuman makes a number of compelling economic arguments in favour of "localism." Three in particular should be mentioned. First, making self-reliant local communities the goal would eliminate wasteful corporate welfare, arising from tax breaks and subsidies designed to attract business to local communities. These tax advantages and subsidies erode the tax base and contribute to unproductive spending, thereby weakening public finances. Second, focusing on self-reliance would reduce the vulnerability of communities to the various costs of capital mobility, such as employment losses. Finally, localism would more fully align the incentives of enterprise with the interests of local communities. Corporations are less likely to engage in environmentally harmful practices or to exploit workers when they are owned by local residents who see these effects firsthand. Moreover, this approach to incentivizing enterprises and financial institutions to uphold local interests is achieved without extensive regulation and its associated transaction costs.
One of the more controversial aspects of Going Local is its repudiation of "free" trade, particularly as espoused by the World Trade Organization (WTO). Shuman is fairly unrelenting in his criticism of the neo-liberal free trade agenda. For example, he writes, "The most insidious feature of the WTO is that it systematically strips communities of powers they could otherwise use to protect themselves against the adverse effects of the global economy, and to promote community corporations" (160). When looking past some of the rhetoric, we see that Shuman is not anti-trade per se, but he is against the application of the principle that "free" trade is always and everywhere beneficial. In fact, at several points in Going Local,Shuman registers his belief in the benefits of trade within and between countries: "Just as trade is not inconsistent with local self-reliance, a global trade agreement could be constructed that would prove friendly to communities" (165). Nor does he appear to be a fan of pervasive "protectionism" (at one point he even argues for the removal of subsidies on the transport industry in the U.S.) or heavy-handed regulation. What Shuman sees clearly are the perils of trade in goods, when capital is fully mobile. In reviewing Ricardo's theory of comparative advantage, Shuman notes that when the assumption of immobile capital is relaxed, the world of absolute advantage takes over. In this situation, capital moves to where it can achieve the highest rate of return, with capital flight devastating local communities, regions, and even nations.1 Instead, Shuman urges a careful assessment of the benefits of trade at the local level. While I do have some concerns about whether local communities would be able to access the requisite skills to undertake this assessment and about the potential for this system to be abused (such as by lobbyists seeking to protect the interests of a few individuals), the argument for assessing the benefits of trade at the local level is compelling.
Although Shuman contends there are economic benefits to be realized from building self-reliant communities, he acknowledges that members of these communities "might wind up paying higher prices" because of their local focus. He essentially argues that this is a necessary price to pay in order to "enjoy a higher quality of life" (199). However, I think a weakness of Going Local is that it fails to fully explain how flourishing local communities contribute to better lives. Many social benefits that come from building local communities are hard to measure; and even if we could measure them, I am not convinced that we should necessarily try! Rather, what would strengthen Shuman's discussion is the articulation of a robust anthropology that outlines why we humans flourish in vibrant local communities and why consuming a larger number of cheap goods and services will not necessarily make us any "happier."
With some governments moving public policy in the direction of fostering "localism" (such as the "Big Society" initiative in the United Kingdom), perhaps the time is ripe to explore in more detail some of the creative proposals outlined in Going Local.2 And perhaps as we do so, additional ideas will be generated as we engage with the suggestions offered by Shuman. Certainly Going Local is a book that can spur our public discourse about building the kinds of communities where we all long to live, work, and play.
1 Some critics of Shuman's analysis might suggest that capital will not completely flee a particular locale, because as some capital leaves, the rate of return to existing plant and equipment will increase (thereby equalizing the rate of return across different locations). This critique ignores a number of real-world complications (such as scale and threshold effects) and the empirical evidence that suggestsabsolute income convergence across regions does not hold.
2 For example, more work could be done investigating the benefits of investing pension funds locally (120-121) and using local currencies (some of which have been trialed in Canada) to promote local purchasing (132-138).