Note: I link to still existing organizations that are mentioned, or their successors.
Local economics theory encompasses a growing body of knowledge and
aimed at helping individuals and their communities increase self-
and survive increasing economic uncertainty. A "local economy" may be a
small community or city, a section of a very large city, or a region of
several communities. Some use instead the terms "community" or
economy; "bioregional" economies have boundaries defined by
and ecological features like plateaus or watersheds.
Local economics theory is microeconomic in its scope, being concerned with the actions of individuals and businesses and with the economic attitudes, arrangements, and technologies that influence them. The theory displays a distrust of macroeconomic concepts like national income, gross national product, and monetary and fiscal policy. While too few advocates of local economics theory are consistent free-marketeers, they increasingly blame federal and state taxes, laws, and regulatory agencies for local economic stagnation. Growing numbers of local businesses, community activists, and research and technical organizations are beginning to take seriously this theory of local economics.
In the pages that follow I will describe what I find to be the principles of local economics, outline the theory's development, and detail the operations of some recent local economics experiments. I'll also review some objections to local economic theory and consider the theory's potential for achieving its goals.
One can identify three main principles of local economics: keeping
within the local economy, facilitating entrepreneurship, and building
While no single organization or locality may be currently promoting the
whole range of activities I'll describe, loose networks of individuals,
businesses, and organizations implementing these principles are forming
across the continent.
Keeping resources within the local economy requires greater self-sufficiency in producing basic necessities, investing money in local rather than outside industries, resisting federal "war" taxes and reinvesting the money locally, and creating alternate monetary systems to increase local trade. While some labor and community activists have called for laws to make it difficult for large corporations to leave communities, this tactic is not typical of the local economics approach.
Entrepreneurship is an important aspect of local economics theory, because new, innovative, and small companies are recognized to be the source of more new jobs than either big corporations or government. Entrepreneurship is facilitated by the creation of schools and workshops to teach business and craft skills, development of marketing and networking services, privatization of public services, and establishment of enterprise zones and small business "incubation" facilities.
Both principles, self-sufficiency and entrepreneurship, rely heavily on modern technologies, including alternate and "appropriate" ones, that are information-intensive, resource-efficient, and frequently small-scale. There is no doubt that modern technology is providing a significant boost to local economics.
The third principle, community building, emphasizes that community harmony and quality of life will certainly benefit the local economy. Specific attitudes and practices are encouraged: ending environmental destruction and repairing its effects, utilizing non-governmental arbitration and conflict resolution services, promoting user-owned institutions like land trusts, credit unions, and producer-consumer cooperatives, and increasing local charitable efforts and self-help programs.
A DEVELOPING THEORY
Earlier in American history some small businesses, farmer and labor
and anarchist and utopian communities tried to offer solutions to the
inequities in local economies. But most "progressive" activists
greater federal intervention to bolster the national economy and to aid
localities. Not until the last twenty-five years have increasing
of activists realized that federal policies are actually ruining both
and local economies.
In the 1960s, anti-establishment, counter-culture, and "hippie" critics of big government and big business were influenced by Jeffersonians, libertarians, decentralists, and communitarians like Ralph Borsodi, Paul Goodman, Karl Hess, and M.K. Gandhi. While many of the activists retreated to rural communes, others concentrated on developing community within the urban areas where they congregate Their strategies included start ing local alternate newspapers, food cooperatives, buying clubs, credit unions, free clinics, and daycare centers.
Joining existing advocates of economic alternatives like the School of Living and the Henry George Institute was the Institute for Community Economics, founded in 1967 by Ralph Borsodi and Robert Swann. Influenced" by Gandhi's village development movement, b the Institute developed the concept of community land trusts: corporations established to } make sure property is used to fulfill specific f "community" functions, such as agriculture, c low-income housing, or environmental protection. The corporation helps provide financing for land and housing, which is privately I owned, and in return for this assistance restrictions are put on its use and resale. Dozens of such land trusts have been created with the Institute's assistance.
Local economics theory and practice made significant progress in the 1970s. In 1971, credit unions serving low-income neighborhoods found themselves excluded from a new federal insurance program, and so established an organization that was to become the National Federation of Community Development Corporations.
1973 brought several significant developments. Terry Mollner formed the Trusteeship Foundation to promote community land trusts and cooperatively owned banks and businesses, modeled after the successful MondragonCooperatives in Spain. Murray Bookchin and Dan Chodorkoff co-founded the Institute for Social Ecology, which encouraged the development of practical, ecologically sound agricultural, energy, housing, and land-use design technologies. John McClaughrey founded the Institute for Liberty and Community to explore ways to advance individual liberty by decentralizing economic and political power and by restoring the small-scale human community. In 1974 E.F. Schumacher's book Small Is Beautiful was published. His best-seller refocused the minds of many activists on building community and local political and economic systems, instead of relying on big government programs and bureaucracies.
In 1974, the Washington, D.C., Institute for Local Self-Reliance was formed to provide research and technical expertise to cities wanting to become self-reliant in energy and other basic needs, and to encourage local enterprise. Co-founder David Morris wrote Neighborhood Power with well-known libertarian Karl Hess; the book was one of the earliest texts outlining the principles of local economics. (NOTE: Hess went on to write Community Economics. I wrote the introduction to a later edition, available on this site.)
In 1976, thousands of alternate technology practitioners formed theTransnational Network for Appropriate! Alternate Technology (TRANSNET), whose goals included applying new technologies to the development of local economies. Publications like Mother Earth News, New Age, Co-Evolution, and Whole Earth Catalogue publicized these developments throughout the 1970s.
The 1970s' interest in local economics paralleled the development of a strong anti-big government movement reacting to Vietnam, Watergate, high taxes, and inflation. Americans were ready to experiment with free-market and even libertarian notions to cut government at every level. The ideas were quickly co-opted by conservatives and militarists who helped elect Ronald Reagan in 1980.
Reagan's tight-money policy brought on the worst recession the country has seen since the Great Depression. The failure of banks, farms, and businesses devastated and disrupted thousands of communities. That Reagan's tax cuts and deregulation efforts were offset by his massive budget deficits only deepened the suspicions of millions that change could not come from the national level. Moreover, the very possibility of achieving healthy city and local economies within the context of the nation-state was challenged by urban economics expert Jane Jacobs in her award-winning book Cities and the Wealth of Nations. Such economic uncertainty encouraged the growth of local economics approaches during the 1980s.
EXPERIEMENTING WITH LOCAL ECONOMICS
David Morris' Institute for Local Self-Reliance has gained momentum
the publication of his Self-Reliant Cities in 1982. For the
two years Morris has been working with the city of St. Paul, Minnesota,
to develop and implement a "Homegrown Economy" project. The project has
created an "incubator facility" by encouraging the city to rent an old
warehouse at low cost to small businesses; a small business investment
corporation; a farmers' market that increased the number of local
from few to several hundred; a trade center linking small businesses
producers and consumers worldwide; a block nurse program aimed at
elderly people out of nursing homes; and resource recycling projects to
turn old tires into pothole fill and tons of diseased elm trees into
Co-Op America was formed in 1982 to link cooperatives, worker-owned businesses, and advocates of workplace democracy. Because employee ownership and profit-sharing plans keep money in the community, they are important strategies in the development of local economies. Many innovative corporations have themselves instituted such programs to unleash workers' initiative and share with them the burdens of financial responsibility.
Amory and Hunt Lovins, authors of Soft Energy Paths, have been promoting renewable energy through their Rocky Mountain Institute. In 1984 they initiated the community-oriented "Economic Renewal Project," which builds economies from the bottom up. The Institute has been conducting pilot projects in a Colorado town with a troubled coal-mining industry and in a rural area of western North Carolina. In each, it has called community meetings to introduce the project and formed Volunteer Resource Task Forces to concentrate on energy, food and agriculture, housing, and money and capital, along with whatever other topics community members consider to be of major concern. Institute members then help the task forces assess their community's assets and liabilities in cach area, study successful and unsuccessful projects conducted by other communities, and develop viable strategies for developing their own local economies. Such strategies might include starting a credit union, opening farmers markets, investing in local energy production, giving tax breaks to small businesses, or starting night courses in business skills at the local high school.
At about the same time, but completely independent of the Rocky Mountain Institute's project, Rodale Press initiated its "Regeneration Project." This project focuses on "import substitution" making communities more self-sufficient by producing locally many basic products formerly imported. It intends to help individuals and organizations set up "Regeneration Centers" and provide them with specific "Tools for Regeneration." These tools might include local inventories of natural and human sources, imports and exports, agriculture and food processing; market searches to help businesses and farmers identify existing or possible local markets; and indexes that will leasure local economic health and the potential for self-reliant growth. A Regeneration Center would organize networks of individuals md businesses interested in building the local economy, foster entrepreneurial activity, and generally bolster local economic morale. The Regeneration Project has attracted interest from communities around the country.
A variation on these efforts to make communities more self-reliant is the "Buy Freedom" Campaign launched by television commentator Tony Brown, who urges black businesses to display a "Freedom Seal" and black consumers to buy from them. He believes blacks should spend a full 50% of their income in the black community, instead of the 6.6% currently spent. The NAACP recently sponsored its third annual week of "Black Dollar Days," in which blacks were encouraged to spend only Susan B. Anthony dollars and two-dollar bills to dramatize black buying power. It is hoped such efforts will impress banks and businesses with the black community's economic power.
The establishment of enterprise zones is a strategy gaining wide acceptance as a means to build local economies. Areas are designated enterprise zones to retain existing businesses, attract local and outside investment, and help small businesses by cutting red tape and taxes. Congress has been unable to pass a bill promoting enterprise zones nationally, but twenty state governments, including Arkansas, Connecticut, Indiana, Louisiana, and Maryland, have established 1,000 such zones in the last few years. Another six states have enacted enterprise zone legislation. Existing zones have already attracted more than three billion
dollars in new investment capital and created more than 80,000 jobs.
Enterprise zones are usually set up in economically distressed communities with high unemployment. They offer such inducements as investment tax credits, per-employee tax credits, exemption from utility taxes, reduction of capital gains taxes, and exemptions from rent control and restrictive building code provisions to encourage construction. There is little doubt that these zones will continue to flourish and that localities offering them will prosper.
While the aforementioned projects deal primarily with economic relationships, San Francisco's Community Board Center for Policy and Training addresses the issue of building a harmonious communi ty, the basis of economic stability. Family fights, landlord-tenant conflicts, neighborhood vandalism and petty crime, and contractual, business, and labor-management disputes are costly in terms of property damage and income lost; if they lead to civil or criminal proceedings, legal fees and court costs quickly add up. To control such loss of local capital, there is a growing interest in teaching conflict resolu- tion skills and encouraging citizens to use non-governmental mediation services.
The first such San Francisco Community Board program was initiated in 1976 and continues today. Professional staff train volunteers in conciliation techniques in order to provide a free, informal, easy-to-use forum for the resolution of a variety of community disputes and problems. Currently twenty-five San Francisco communities and over 400 volunteers are involved in the program.
Inspired by the success of this program and similar ones around the country, the National Association for Community Justice was formed in 1984 to widely promote such conflict resolution programs. These volunteer efforts parallel the non-profit and for-profit efforts of professional mediation centers, which have grown continentally from three in 1971 to 400 in 1985.
Two organizations formed in the last few years are providing networking services for those involved in local economic activity. One is the Earthbank Association of Clinton, Washington, which is helping build that area's local economy by establishing a revolving loan fund, credit union, speakers bureau, and referral service. Through its newsletter and directory it serves individuals and organizations continentally.
The North American Bioregional Congress was formed by those promoting the "bio-regional vision" of a world of ecologically responsible, self-reliant local communities and economies free of nation-state control. That Kirkpatrick Sale's Dwellers in the Land: The Bioregional Vision was published by the mainstream Sierra Club demonstrates the growing influence of the movement. (See the March-April 1986 issue of NOMOS for a review of Sale's work.)
Finding investment capital for local economic development has always
a high priority, and one requiring much ingenuity, since banks tend to
favor loans to large corporations, established businesses, and
consumers. Locally oriented credit unions and cooperative banks,
concerned foundations, and private loans have been useful alternate
Two additional sources also show promise. One is the "Sociaily Responsible" investment Funds, such as the Calvert Fund and Pax World Fund, which attract investments from those who prefer to invest in "sociaily responsible" industries and businesses, even if such investment brings a lower return. Revolving loan funds, set up to attract investors wishing to help specific types of organizations or businesses, are another promising new alternate financing source. Both can be--and have been--aimed at providing capital for local economic development.
One intriguing source of financing for local development is found in the growing War Tax Resistance movement. Many of the more than 5,000 war tax resisters deposit for safe- keeping some or ail of their resisted tax monies in War Tax Resistance Alternative Funds. The interest on these accounts has traditionaily been donated to charitable or activist organizations, but today there is a growing desire to invest ~ in sociaily responsible, especiaily local, businesses, in order to end economic dependence on the armament industries. Currently more than sixty-five of these Alternative Funds exist in the United States, holding assets of several hundred thousand doilars. Growing resistance to big military budgets, economic stagnation, and recession could free miilions of tax doilars for redirection to local economic development.
One of the most exciting developments in local economics is the experimentation in alternate currencies. One such experiment is under development by SHARE (Self-Help Association for a Regional Economy), an organization sponsored by the E.F. Schumacher Foundation to serve the Southern Berkshire region of Massachusetts. Known as Berkshares, the currency wiil actuaily be denominated in units of a standard cord wood ~and wiil be redeemable on demand for cord-wood or its equivalent in doilars. Berkshares are intended to be strictly locally issued, exchanged, deposited, and borrowed only in the Berkshires in order to increase local trade and to offer low-interest loans to local businesses. Berkshares are currently in a trial period as organizers solicit feedback from area merchants.
Two already successful systems, trade exchanges (computerized barter) and the LETSystem, use credit and debit accounting systems that permit users to increase their trade without the use of cash. (See my 1984 NOMOS article "Trade Creates Money.") While many of the several hundred commercial trade exchanges doing millions of dollars of business across the country are strictly local, none has been organized specifically to encourage local economic development.
The LETSystem (Local Exchange Trading System), however, was established for just that purpose. In 1983, Michael Linton's non-profit management consulting group, Landsmen Community Services Ltd., organized LETS in the economically depressed Comox Valley of British Columbia. LETS uses the "Green Dollar" instead of a trade unit as the unit of account. Unlike trade exchanges, LETS does not establish debit limits to prevent members from overspending. Instead, any seller may inquire into the buyer's balance and decide for himself if the buyer is credit-worthy. So far, this self-regulating mechanism has proved effective in combating the bane of trade exchanges--inflation--and the Comox Valley system has more than forty members doing more than $10,000 a month in business. LETS is being promoted by Rodale Press' Regeneration Project.
Objections to local economics will be voiced by libertarians who sense
the theory ignores basic principles of free-market economics. Arguments
are likely to include:
"Consumers are primarily interested in getting the best product at the lowest price." True. But federal protections of and subsidies to banks, utilities, energy companies, agribusiness, transportation, and broadcasting have discouraged local production of many products and services and promoted the dominance of national brands, driving prices up and quality down. Libertarians should be helping advocates of local economics to recognize the pernicious effects of such laws and the importance of repealing them
"It shouldn't matter where products are produced if the quality and price are right." If individuals value the survival of local or regional economies more than minor price or quality differences, they will choose locally produced products. "Locally produced" can be used as an advertising hook to establish and maintain customer loyalty.
"The theory ignores the benefits of comparative advantage and economies of scale and can lead to needless duplication of goods and services." The goal of local economics is first to reduce unnecessary outflow of money on products that can be (and in a free market might well be) produced locally, A second goal is to seek overlooked, naturally occurring advantages or to create them by developing new skills among the inhabitants and new local businesses. Many so-called economies of scale--as in the utilities industries--are political myths, not economic realities. However, local economics does not call for exclusive local production of all goods and services. Modern technology, especially data processing and computer-assisted manufacturing, is making it increasingly possible to produce economically a wide range of goods and services at decentralized locations in small, even individually customized, quantities.
"Self-sufficiency could become an excuse for local tariffs and quotas." If libertarians become more influential in the local economics movement, they can lead the resistance against such restraints on trade.
"Non-profit organizations holding community meetings and working with local governments can't develop economies. They must jevelop spontaneously, as the result of entrepreneurial effort." Entrepreneurial effort must be supported by appropriate attitudes, skills, and organizational aids, many of which have not been developed in our regimented and regulated society. Organizations promoting local self-reliance can teach basic business and entrepreneurial skills, provide market research services, promote business networking and contact making, and generally so boost community morale that individuals are willing to take risks in the local community.
The greatest weakness of the local economics movement remains the failure of many of its advocates to analyze and decry the harmful effects of government regulation of the economy. The alliances some have formed with local governments could certainly prove counterproductive. On the other hand, as these local economists create decentralized, self-reliant, entrepreneurial economies, they can't help but learn about the hazards and benefits of the free market. Moreover, they are already beginning to create the kind of conflict resolution, consumer, environmental, charitable, and currency alternatives that libertarians only talk about. The convergence of a widely supported War Tax Resistance movement with the anti-nationalist bioregion- alist/decentralist movement might yet have immense libertarian consequences.
I strongly recommend that open-minded libertarians investigate some of the organizations identified here. Let's not forget Karl Hess' warning in Community Technology: "If local liberty has no materia! base, then it ultimately has no base at all." Local economics may well provide the most firm base for individual liberty in whatever locality each of us chooses to call home.
Carol Moore has been
in libertarian, Green, and War Tax Resistance groups in the Los Angeles