Why We Can’t Shop Our Way to a Real Economy

Wresting control of the real economy from corporate banks, commodity crops, and big-box retail means reversing policies that concentrate power at the top.
By Stacy Mitchell, adapted from her TEDx talk at Bates College in Lewiston, Maine, October 20, 2012
March/April 2013
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Many people are beginning to change where they shop and what they buy and where they do their banking, but a purely consumer-based response to this problem, on its own, is not likely to get us where we need to go.
Illustration By Mike Byers


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At its core, the Boston Tea Party was an act of corporate sabotage. Those ships were owned by the British East India Company, the most powerful corporation of its day. The Company was tightly connected to the British government, so much so that when it stumbled and found itself teetering on the verge of bankruptcy, Parliament quickly stepped in and passed the Tea Act. The Tea Act created a special exemption for the British East India Company so that it could sell tea in the colonies without paying any tax. The idea was that it could undercut local tea merchants and take their business. So what ignited the Boston Tea Party was not so much a tax, but a corporate tax loophole.

This story of highly concentrated economic power married with political influence is something that sounds very familiar to us today. A handful of big companies have taken over large swaths of our economy. Our banking system, diversified as recently as the 1990s, is now mostly controlled by a handful of big banks. Our food system has come to resemble an hour glass, where we have millions of farmers and millions of eaters, connected by this incredibly narrow passageway. The gatekeepers are a few big food companies and supermarket chains. One company now handles 40 percent of the nation’s milk supply. And then there’s Walmart, which was a small player in the grocery industry 15 years ago.  Today, it captures one of every four dollars Americans spend on food and already has half the market in three dozen metro areas.  The future of retail looks even more concentrated: one-third of everything sold on the web comes from a single company.

Many people are beginning to question the wisdom of this, and they’re changing where they shop and what they buy and where they do their banking, but what I want to suggest is that a purely consumer-based response to this problem, on its own, is not likely to get us where we need to go.

For a long time, the story of how big companies came to control much of our economy was that bigger is better. It’s more efficient, more productive, it outperforms. But that idea suffered a serious blow four years ago. We all remember this. It was one of history’s most dramatic reveals. Toto pulled back that curtain, and there stood Wall Street’s wizards of finance: insolvent, panic-stricken, their hands out. It turns out that big banks are not safer, and they’re not even more efficient. 

But more importantly, the bigger banks become, the more disconnected they are from our communities—and the less able they are to make nuanced judgments about risk, particularly the risk that a new business will fail. Local banks are actually really good at this, because in addition to the credit report and the market analysis, they have all this soft information to go on. They get to know the borrower face to face, and they know the local market intimately. Big banks making decisions in regional or national offices are largely flying blind. So rather than end up with a bunch of bad loans on their books, what they’ve opted to do instead is to sharply curtail small business lending.

And it’s not just banking. In sector after sector, consolidation is not serving our interests very well. We know for example that small farms produce more than twice as much food per acre as big farms with far less environmental impact. And big-box retail once seemed like a bargain, but we now know it’s costing us far more in lost income. This model has almost single-handedly eliminated large segments of the middle class. Millions of jobs in manufacturing and small businesses are gone, and all we’ve gotten in exchange is very low-wage jobs working in these stores—jobs that pay so little many rely on food stamps to get by.

Or consider the case of pharmacies. It’s pretty hard to find a locally-owned pharmacy these days unless you happen to live in North Dakota. Under a unique state law, virtually every pharmacy in North Dakota is locally-owned; there are no chains. And by any measure, residents are better off. There are far more pharmacies in North Dakota than in other states, particularly in remote rural areas, where prescription drug prices are among the lowest in the country.

 

So if they aren’t outperforming, if they aren’t delivering better outcomes, how is it that these giant companies have become so dominant? The answer is that, much like the British East India Company, they’ve used their market power and their political influence to rig the game.

Since 1995, we’ve given over $275 billion to farms through the farm bill. Almost 80 percent of those dollars went to the largest 10 percent of farms, and most of the money was spent on a handful of big commodity crops, like corn and soybeans. These are the building blocks of processed food, so it’s no wonder that a quarter-pounder often costs less than a pound of locally-grown broccoli. Our state tax codes and our federal tax codes are littered with loopholes that give companies the ability to escape paying taxes that small businesses have to pay. And I hardly need to say anything about the ways in which government has helped big banks get even bigger.

 

There is a bit of good news here. I think we can take some comfort in the realization that there is nothing inevitable about the current structure of our economy. It’s not the product of some kind of natural evolution. It’s the logical outcome of a set of policies. And many people are beginning to have a different idea about how the economy ought to operate, and to act on that idea.

We’ve seen remarkable shifts just in the last few years: The number of farmers’ markets has more than doubled. We’ve added more than 1,400 new locally-owned neighborhood grocery stores. More than 500 new independent bookstores have opened.  Long-dormant factory buildings in New York and San Francisco are filling up with small-scale clothing makers and beer brewers. And more than 600,000 people have moved their money from big banks to local banks and credit unions in the last year alone. 

Along the way, we’ve learned that there’s a lot to recommend a real economy that’s rooted in community. We’ve learned that we’re far more likely to have a conversation at the farmers’ market than we are at a big-box store—seven times more likely, in fact, according to researchers, who confirm that communities that have a lot of locally-owned businesses do in fact have stronger social networks. We’ve learned that small business is not just a smaller version of big business. It’s as though it’s running on an entirely different operating system. This really came home to me when I was interviewing the president of a small bank in South Minneapolis. He said, “You know, when we make a mortgage loan, we’re not planning to sell it. We’re planning to keep it on our books for 30 years. So our success and profitability depends on the well-being of our borrowers. When they do well, we do well.” He said, “Foreclosure is just as much of a disaster for us as it is for our borrowers.”

And we’ve learned that there’s a lot to recommend about doing business with people who know us. A few years ago my brother wanted to buy me a book for Christmas, and he lives in Arizona, and there was no local bookstore where he lived. So he went to the website of Longfellow Books, my local bookstore in Portland, and he found the book, and he placed the order, and he had it shipped to South Carolina, where my father lives, and where I was planning to spend the holidays. So here’s this order, it’s coming from Arizona, it’s going to South Carolina, it doesn’t have my name on it, except my brother has asked that it be gift-wrapped and that the card say, “Merry Christmas, Stacy.”

A few minutes later his phone rings. And the person says, “This is Stewart at Longfellow Books. I want to thank you for your order, but I had a question about it. Is this book for Stacy Mitchell?” And my brother, surprised, says, “Yeah it is, she’s my sister.” And Stewart says, “Well, I thought I should let you know that she’s already read it.”

 

Here’s what worries me. As remarkable as these developments are, they’re unlikely to amount to anything more than an interesting trend on the margins of the economy if the only we way we have to bring about the change we want to see is through our buying decisions. Like a lot of people, I put a lot of my making-the-world-a-better-place energy into thinking about how I can make better choices as a consumer. You know, Fair Trade coffee, recycled toilet paper, I’ll get the iPad instead of the Kindle so I won’t be locked into buying books from Amazon.

The primary and often exclusive way we think about our agency in the world now is as consumers. But as consumers we’re very weak. We’re operating as lone individuals, making a series of small decisions, and the most we can do is pick between the options that are presented to us. It’s not that these choices don’t matter. They do; it’s part of why this way of thinking is so seductive. But it’s not a great strategy for changing the world. If you think about it, what we’re hoping is that someday enough of us will have enough information about all the issues and all the choices in the marketplace, and we’ll have access to all the right alternatives, and all or most of us will be able to make the right decisions all or most of the time. And while we’re trying to line up all of these millions of small decisions in the right direction, we are swimming upstream against a powerful down current of public policies that are taking our economy in exactly the opposite direction.

What we really need to do is change the underlying structures that create the choices in the first place. And we can’t do that through the sum of our individual actions in the marketplace. We can only do that by acting collectively as citizens. Throughout our history, we have been called upon at various times to wrest control of our livelihoods and our democracy from would-be monopolists: the British East India Company, the trusts of the early 20th century. This is one of those moments.

We could begin by turning the farm bill on its head. Instead of giving the most money to the biggest farmers feeding the fast-food pipeline, why not give the most money to local farms, feeding their neighbors? We should rethink how we do planning and transportation. For decades we have been pouring public resources into creating the kinds of landscapes that are the perfect habitat for national chains. Meanwhile, we’re pulling the rug out from under our downtowns and town centers—the places where local businesses are mostly likely to succeed. It’s no surprise that Vermont, which has some of the strongest anti-sprawl legislation in the country, also has more small businesses per capita than any other state.

And it’s not hard to imagine a banking system that supports the real economy, because we had that system in place for more than half a century. Laws that were in place from the 1930s to the 1990s prevented banks from speculating on Wall Street and limited their ability to expand beyond state lines, so they had to stay focused on their home regions There are bills in Congress right now that would begin to reinstate some of that framework.

And we should close all those loopholes that give big businesses an advantage when paying their taxes. Just imagine if we took just a small amount of that savings and redirected to new initiatives to grow a whole new generation of local businesses. We could take a page from a great Pennsylvania program that in the last few years seeded over 100 locally owned and cooperatively owned grocery stores in low-income neighborhoods. 

We also need to pull anti-trust out of its 30-year hiatus. I think there are important questions we need to be asking, like, Is it in our best interest that one company to control more than one-third of e-commerce? Does my local dairy farmer deserve to have more than one choice about where to sell her milk?  

The answers are there, and the public support is largely there. The question I think we have to grapple with is, how do we begin to see our trips to the farmers’ market and to the local bookstore not as the answer, but as a first step? How do we transform this remarkable consumer trend into something more? How do we make it a political movement?

Stacy Mitchell is a senior researcher with the Institute for Local Self-Reliance, where she directs initiatives on independent business and community banking.  Her most recent book is Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America’s Independent Businesses. Watch Stacy Mitchell’s TEDx Talk in its entirety at the Institute for Local Self-Reliance.


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Post a comment below.

 

Luke
5/10/2014 5:51:58 AM
Several times it happens that many big companies and even small companies present their wrong balance sheet in order to save from paying taxes. But when the auditor comes to know about the forgery, the company is penalized. So it is advised to prepare the correct balance sheet and present it before the officials. For this company need to hire a good http://awolfbookkeeping.com/

NANCY BRUNING
7/1/2013 5:49:46 PM
Thank you so much for this outrageous yet hopeful article. The story about the local bookstore brought tears to my eyes. I have a story of my own that taks place when I was part of a team of fitness instructors in a low-income neighborhood. We supplied 15 free outdoor classes each week for 8 weeks, the length of the funding. The program was free and reached many people who had not exercised before, who did not previously know each other or us, and who mostly did not speak English. We designed the program around their needs and abilities, and at the end of the last class of the last day of the last week, we all joined hands in a circle, said goodbye--and wept. Although I have been in corporate gym classes where we grew attached to the instructor, this was something different--the dissolution of a community who cared about each other.








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