While Wall Street cheerleaders hail shaky evidence of an economic recovery, what usually goes unreported is the fact that local businesses comprise more than half the economy by output and jobs. A new book by Michael Shuman, Local Dollars, Local Sense, asks why it is that so few of us are able to invest in those local businesses, as opposed to the Wall Street banks largely responsible for our current troubles. On March 22, join Shuman for Orion’s next live web event, during which he’ll discuss opportunities for local investment and answer listener questions. Register here.
Your book notes that Americans have $30 trillion in long-term savings (mutual funds, bonds, stocks, pensions) tied up on Wall Street. Why don’t we invest that locally?
It’s not that the 99 percent are prohibited from investing in firms that are small—it’s just that the legal costs of complying with the SEC rules are so high that almost no small business bothers. The historical reason for these complicated rules was to prevent Bernie Madoff and his ilk from selling Florida swampland to Grandma. But as we’ve learned with eBay, you don’t need to keep the masses out of the marketplace to prevent fraud—all you need to do is provide peer feedback on buyers and sellers, and the marketplace polices itself.
On that topic, you were supportive of something called The Entrepreneur Access to Capital Act, HR 2930. What came of that bill?
This week is a watershed moment to end what I sometimes call “investment apartheid,” because the Senate finally came up with a compromise bill. The House overwhelmingly supported reform already, and President Obama says he’s prepared to sign.
And what is the Act meant to do?
It would basically eliminate the legal hassle, red tape, and expense for small businesses that seek small investments from the 99 percent. Under the Senate bill, every American will be able to invest two thousand dollars, per company, per year—or 5 percent of their annual income, whichever is greater.
Politicians like to promote overall economic “growth” and inscrutable GDP goals, but when it comes to local economies, what’s the practical result?
Despite poor national policies, many local economies are flourishing as a result of local purchasing, local investing, and local business collaboration. In my book I give the example of Hardwick, Vermont, a 3,000-person community that decided to become one of the best local food centers in New England. The town created 100 new jobs during the early stages of the financial crisis, at a time when most rural communities were losing them.
Can you share a favorite local economy hero, organization, or initiative outlined in Local Dollars, Local Sense?
In terms of initiatives, the one I’d put in bright lights is the Self-Directed IRA. By hiring one of many companies that can help you do this (none of the 7,500 mutual funds in this country invest in local business), often for one to two hundred dollars per year, you can start moving your retirement money out of Wall Street and into local banks, cooperatives, and local stock issues. If even 10 percent of Americans did this, it would be the beginning of the end of Wall Street as we know it.
Discuss local investment with Michael Shuman on Thursday, March 22, at 7 p.m. Eastern, 4 p.m. Pacific, during Orion’s next live web event. Register here.