Why Local Sustainable Enterprises are at Competitive Disadvantage, and What to Do About It

green businessMichael Shuman, one of the co-founders of BALLE, has written an excellent book diagnosing the reasons entrepreneurial businesses face an uneven playing field and an unfair competitive disadvantage versus the multinational corporatist oligopolies (MCOs). This book, The Small-Mart Revolution, also prescribes 95 ways we can help rectify this damaging distortion of the ‘market’ economy — as customers, investors, public policy-setters, community members, citizens, and entrepreneurs ourselves.

Shuman introduces a useful acronym to differentiate the types of entrepreneurial business we need to encourage and support: LOIS (local ownership & import substitution). Only when owners live and work in the communities they operate in do they really care about the people and environment in those communities, he argues. And only by replacing shoddy products and services transported half way around the globe (at enormous social and environmental cost) with goods and services produced right in the community can we hope to build strong, healthy and resilient local economies where people can both live and make a reasonable living.

The first part of the book outlines the 13 market distortions that multinational corporatist oligopolies (MCOs) have been able to create and exploit to enormous advantage, to the great detriment of entrepreneurs who actually add value to the communities in which they operate — and offer customers much greater value for their dollar:

  1. Government Subsidies: More than $300B in corporate subsidies, almost all of which go to MCOs, are paid by North American and European governments each year to protect and incent these rich and powerful corporate goliaths. These subsidies are ‘purchased’ with MCO campaign donations, junkets and lobbying.
  2. Access to Cheap Capital: MCOs can borrow money much cheaper and under much more favourable terms from the big financial corporations than entrepreneurs can. These rates reflect formulaic conventional lending wisdom and not actual risk.
  3. Labour Negotiating Power: MCOs have the clout to smash unions and bully employees into accepting lower wages and fewer benefits, with the threat of outsourcing and offshoring jobs if the cuts are resisted.
  4. Supplier/Retailer Negotiating Power: With their corner on the markets for supply (oligopoly) and big box retail distribution (oligopsony), MCOs are in a position to bully big, brand name suppliers into offering their products exclusively through the MCOs, at hugely discounted prices. These ‘deals’ force suppliers in turn to outsource and offshore their operations to afford these prices, and often force these suppliers into bankruptcy in the futile attempt to endlessly reduce costs.
  5. Subsidized Transportation and Energy Infrastructure: Because the cost of gasoline is suppressed by political deals with OPEC, and energy and highway projects are heavily subsidized with tax dollars to favour long-distance transportation carriers, the true cost of imports is hugely distorted, to the advantage of MCOs. 
  6. Undervaluing of People’s Time: Because we are too busy to find and visit small local suppliers, and because we undervalue the time and energy it takes us to drive to big box malls, we overvalue the ‘savings’ we supposedly receive from MCOs.
  7. Deceptive Advertising: Huge MCO advertising and PR campaigns delude us into believing we are getting value from overpriced, poor-quality imported junk that MCOs sell us. And if you try to get your money back, the armies of ‘customer care’ and the armies of corporate lawyers are ready to dissuade you.
  8. Addiction to Consumption and Debt: MCOs and their handmaidens in the lending industry and in government spend a fortune to persuade you that irresponsible spending and borrowing beyond your means is socially necessary and good for ‘the economy’. Once you’re hooked, there’s no way out — especially now bankruptcy laws have been tightened up.
  9. Lack of Consumer Protection: Under the guise of ‘deregulation’ and blocking ‘frivolous’ litigation, consumer protection laws in many countries have been weakened or gutted, encouraging poor quality production and services and other irresponsible MCO practices.
  10. Naive Local Planners and Zoners: Because they’re unaware of the multiplier benefits of LOIS enterprises, local zoners and planners often offer huge incentives to attract MCOs that yield little local return on that investment, and actually destroy local employment and manufacturing.
  11. Oligopoly Network Power: MCOs, by striking exclusive deals with other MCOs, cut LOIS enterprises out of the bidding for major supply contracts, effectively starving them out of all distribution channels except local independents’. You won’t find small local food vendors’ products in large chain grocery stores, for example, because the Big Agribusiness producer oligopolies won’t let the chains carry small competitors’ products.
  12. Lack of Environmental Regulation: Thanks to heavy ‘deregulation’ lobbying by MCOs, environmental regulations in many countries have been weakened, or are unenforced, allowing megapolluting MCOs to ‘externalize’ (pass off to taxpayers and those who have to live in the polluted communities) the heavy environmental costs of their operations.
  13. Lack of Training in Entrepreneurship: As I have been harping on in these pages for years, there is little or no reasonably-priced training available to entrepreneurs on how to establish and operate a responsible independent business effectively. The consequence is huge entrepreneurial failure rates and millions of enterprises that could easily, with a bit of coaching, be much more effective, successful and happy places to work.

If these distortions could be overcome, Shuman argues, we have a lot to gain from an economy in which LOIS enterprises compete fairly and effectively with MCOs:

  • LOIS enterprises are closer to the customer and hence better attuned to their needs, and able to be more innovative and adaptable to meet those needs.
  • LOIS enterprises are less vulnerable to spikes in energy and transportation costs, which are certainly on the horizon (though Grist argues that this is offset by the endemic lack of infrastructure that LOIS enterprises must live with).
  • LOIS enterprises are better able to customize products to meet the unique needs and opportunities that are present in each local market (One size never fits all).
  • LOIS enterprises are better able to leverage virtual and peer production and distribution networks because they are less committed to and invested in older physical networks and infrastructure.
  • LOIS enterprises, thanks to the personal touch and local ownership, generally have much lower turnover (and hence more knowledgeable staff) and greater employee loyalty (and hence better service) than MCOs.
  • LOIS enterprises are less dependent on corporate subsidies and low interest rates, and if, as many suspect, the US dollar and economy soon tanks and interest rates spike, they will have the resilience to continue to operate when many MCOs go under.

The balance of the book prescribes the 95 actions we can take to remedy the market distortions:

  • As customers — e.g. by buying local and creating local buying networks
  • As investors — e.g. by investing in local enterprises and creating local investment funds, networks and capacity
  • As public policy-setters — e.g. by appreciating the economic advantages of LOIS enterprises and leveling the playing field for them
  • As community members — e.g. by creating local community-based economies
  • As citizens — e.g. by combating the wealth and power of MCOs politically (e.g. by voting out corporatists) and economically (e.g. through boycotts)
  • As entrepreneurs ourselves — e.g. by creating local Natural Enterprises and networking them with others

There are two disturbing and enduring myths about entrepreneurship:

  1. That franchises are a healthy form of local entrepreneurship; and
  2. That entrepreneurs need to compete on price with MCOs by offering customers the same imported, subsidized low-price crap as MCOs, instead of local, high quality, non-mass-produced (‘unaffordable’) products

Shuman tackles the first misconception well, but sidesteps the second. One of the most frustrating experiences of enlightened customers is to go into locally-owned retailers and discover everything on the shelves is imported (mostly from China) when good local sources of similar goods are available (just invisible). Or to hire a local service provider only to discover that they buy all their supplies from a wholesaler’s catalogue, most of which is imported products that by-pass local producers.

But we have to start somewhere, and this book provides a good blueprint on how to do so.

What will be even more essential than a grassroots buy local movement will be entrepreneurs and local activists researching, cataloguing and creating networks of LOIS enterprises, and acting as organizers and intermediaries to help customers in local communities become aware of, and arrange to buy from, LOIS enterprises.

Just as important will be encouraging and coaching new LOIS enterprises to get properly and sustainably established, and helping them appreciate (and explain to their customers) the benefits and value of buying the goods on their shelves, the service that support them, and replacement and supply parts and accessories, from local suppliers.

This book is the perfect antidote and response to the corporatist apologists’ argument that “no one is forcing you to buy from Wal-Mart”. It’s time for responsible, enlightened LOIS entrepreneurs to break ranks with the corporatists in chambers of commerce, the anti-Kyoto forces, and the cynical ‘deregulation’ lobby, and realize that MCOs are not their allies but their worst enemy. The Small-Mart Revolution islong overdue, and needs our support and collaboration to make it happen.

Logo above is from the Bay Area Green Business Program.

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3 Responses to Why Local Sustainable Enterprises are at Competitive Disadvantage, and What to Do About It

  1. Ken Hirsch says:

    Is the list of “market distortions” actually from the book (as you imply), or is it your own. I used Amazon’s “search inside this book” feature and I couldn’t find most of the phrases you use.Much of the list is not even plausible. Contrary to (3), employees at large businesses earn more and have more benefits than employees at small businesses.In (5), you’re apparently arguing that (a) somebody is keeping oil prices artificially low(!!) and (b) small businesses would be better off (relative to large businesses) if oil prices were higher(!!!!).In (6), you contradict yourself. Do we need to spend _more_ time to “find and visit local suppliers”, or spend _less_ time? Except for something you buy super-frequently (like groceries), do you think you save time by visiting smaller businesses? Not in my experience. (This isn’t even a “market distortion”, just your opinion that people spend too much time or not enought time shopping.)In (7), you bemoan “deceptive” advertising (who doesn’t?), but are you really going to claim that small business advertising is less deceptive?

  2. Dave Pollard says:

    Give us a break, Ken. Your arguments and questions would take longer to respond to than my original article. Read the $^%$# book instead of ranting about my interpretation of it! Stop wasting your time, and mine. As for your ‘search inside’ failures, it’s called paraphrasing, and it is a well-established process in book reviews. And as for your final question, the answer is absolutely, because small businesses, living next door to their customers, can’t get away with the deceptions that remote big corporations like Dell and Merck can.

  3. Martin-Eric says:

    I think that the advantages of buying from local, well-managed businesses, producing small quantities of great value is well-known to everyone. The problem is just that business and politics share the same bed and only care about their bottom line. This results in lower worker salaries, which in turn results in less purchasing power. Less purchasing power means that average workers can no longer afford to buy local high-quality products, so they instead buy lame bulkpacks of megacorporate products that put even more money in the hands of businesses and their politician friends. USA calls this the Wall-Mart phenomenon, I think.

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