Stacy Mitchell [ 23 NOV 2012 | Innovation Economics ] I want to begin today by telling you something about the Boston Tea Party that you might not know. At its core it 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.
And what this did was it 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.
Over the space of just 20 years, 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 hourglass 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.
Do you know that over 40% of the nations milk supply is now processed by a single company? Including 70% of the milk produced here in New England?
If you’re a dairy farmer that means it’s pretty hard to get a fair price for your milk.
If you’re a consumer you still have this illusion of choice because this one company markets under dozens of different brands.
And then there’s Wal-Mart. Wal-Mart was a small player in the grocery industry just 15 years ago. Today it captures one out of every four dollars that Americans spend and it’s growing rapidly.
In dozens of cities it already has more than half the market.
And the future of retail looks even more concentrated. One third of everything we buy online now 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 to you today is that a purely consumer based response to this problem on its own is not likely to get us where we need to go.
It can’t get us where we need to go in part because it doesn’t fully recognize how it is that we got here in the first place. For a long time the story of how big companies came to control much of our economy was that bigger is better. Right? 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 histories 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.
According to economists, banks peak in efficiency when they reach the size of a small regional institution. Beyond that they become top heavy with bureaucracy.
Today’s big banks are orders of magnitude larger. The top four each have about 2 trillion dollars in assets.
And their top heaviness may explain why we actually pay more in checking account fees and higher interest rates on loans if you bank with a big bank rather than a local bank or credit union.
But more important, the bigger banks become the more disconnected they become from our communities. And the less able they are to do the most important thing we need banks to do, which is to make nuance judgments about risk. And in particular 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. So they’re much better able to make that decision.
Big banks making decisions in regional and national offices are largely flying blind. Rather than end up with a bunch of bad loans on their books they’ve instead opted to sharply curtail small business lending.
Studies show that regions where bigger banks are more dominant have fewer small businesses and slower job growth than other regions.
And it’s not just banking.
In sector after sector if you really begin to look what you see is that 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. 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 are very low wage jobs working in these stores.
Jobs that pay so little that 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. And prescription drug prices are among the lowest in the country.
So if they aren’t outperforming, and delivering better outcomes, how is it that these giant companies have become so dominant?
And 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% of those dollars went to the 10% of the largest 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 foods.
So it’s no wonder that a quarter pounder often costs less than a pound of locally grown broccoli.
And our state tax codes and our federal tax code are littered with loopholes that give big companies the ability to escape paying taxes that small businesses have to pay.
This modest office building in Wilmington Delaware has only a handful of parking spots. But it’s home to hundreds of big companies including Wal-Mart and CVS who are using this address as a way to escape paying state corporate income taxes.
And I hardly need to say anything about the ways in which government has helped big banks become even bigger.
Boy! I don’t know about you but I thought TED was supposed to be inspiring.
You know Stanley Kubrick once described his film “The Shining” as an optimistic movie. He said anything that posits the existence of life after death is a fundamentally positive story.
I know that I’m reaching here a bit, but 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 these remarkable shifts in just the last few years.
The number of farmers’ markets has more than doubled. We’ve added over 1,400 new locally owned neighborhood grocery stores. More than 500 new independent bookstores have opened. Long dormant factories 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 accounts 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 an economy that is rooted in community.
We’ve learned that we’re far more likely to have a conversation at the farmer’s 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.
And those social networks in turn give them an edge when it comes to solving problems and innovating.
And we’ve learned that local business isn’t 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 a few years ago when I was interviewing the president of a small bank in South Minneapolis and 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, “You know, foreclosure is almost as much of a disaster for us as it is for our borrowers. And we’ve learned that there is a lot to recommend doing business with people who really know us.”
A few years ago my brother wanted to buy me a book for Christmas. 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.
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 Stuart at Longfellow books. I want to thank you for your order. I just had a question about it. Is this book for Stacy Mitchell?”
And my brother surprised says, “Yeah, it is. She’s my sister.”
And Stuart 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 than an interesting trend on the margins of the economy if the only way that we can figure out how to bring about the change we want to see is through our buying decisions.
I’m like a lot of people. I put a lot of my “making the world a better place” energy into thinking about how I can be a better consumer.
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 choices.
And the most we can do is pick between the options that are presented to us.
And it’s not that these choices don’t matter, they do and that’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 some day 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 that 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 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 market place. We can only do that by acting collectively as citizens.
Throughout our history we have been called upon at various times to arrest 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. It’s not hard to imagine what we would campaign for.
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.
You know for decades we have been just pouring public resources into creating the kinds of landscapes that are perfect habitat for national chains.
Meanwhile our village centers and our downtowns, we’re just pulling the rug out from under them. The places where local businesses are most likely to succeed.
It’s no coincidence 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 having a banking system that supported the real economy. Because we had that system in place for more than half a century.
Laws that were in place from the 1930’s until the 1990’s prevented banks from speculating on Wall Street. And they also 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 image if we took a small amount of the savings and redirected it 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 has seeded over 100 locally owned and cooperatively owned grocery stores in low-income neighborhoods.
And I think we also need to pull antitrust out of its 30-year hiatus.
I think there is some important questions that we really need to be asking like: Is it in our best interest that one company controls more than a third of e-commerce?
Does my local dairy farmer deserve to have more than one choice about where to sell their milk?
So the answers are there and the public support is largely there.
The question that 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?