July/August 1984 RAIN Page 15 Plugging Leaks in Local Economies by Kris Nelson ‘The recent success ofsocially responsible investment funds as profitable alternatives to conventional investing signals the likelihood of another development: locally responsible social investing. This approach to managing money raises important questions about the appropriate scale of economic activity. In these questions lie new opportunities: financing locally dependent food, energy, and related self-reliant systems and creating a more direct citizens' voice in deciding how money is handled. Such blessings, nonetheless, imply new responsibilities for all of us. As communities begin to check the flow of money out of their economies, people will need to become versed and active in local economic affairs. Our nation's citie.s are waging economic warfare among themselves. Each one attempts to lure large corporations that promise hundreds of new jobs by offering the best tax breaks, an ununionized labor force, and the highest "quality of life" package. But freely opening the city gates to outside companies introduces new leaks in the local economy. Once a community has captured an elusive high-tech firm, for example, the corporation siphons its capital to a distant place—the corporate headquarters. Centralized chain stores also create leaks in the local economy. In 1976 William Batko reported in Self-Reliance (the now defunct newsletter of the Institute for Local Self-Reliance) that a McDonalds fast-food outlet exports 66% of its annual sales for advertising, rent, accounting and legal fees, insurance, food and paper supplies, and a service fee paid to the corporation. Capital in most communities behaves like energy creeping through uninsulated walls: It leaks out of the local economy before it can be recycled among area businesses, residents, and financing institutions. The Community Reinvestment Act attempted to address part of this problem by requiring banks and their branches to offer loans within their communities, but it has not succeeded. Money-market funds and electronic banking fuel the flight of capital even further. In fact, everything a community imports means money exported, and therefore lost to repeated use. But just as electric utilities have finally found that keeping more of what's already being produced is the cheapest, fastest way to "generate" energy, local governments and organizations are plugging leaks in local economies to create jobs and revitalize their communities. Rerouting capital flow, in essence, comes down to retooling lending and investment practices. Based on the experience of Self-Help Association for a Regional Economy (SHARE) in Great Barrington, Massachusetts (see "Investing in the Community," RAIN IX;3), members of the Association for Regional Agriculture Building the Local Economy (ARABLE) in Eugene, Oregon, are pooling their deposits to provide collateral on loans to local farmers, food processors, distributors, and retailers. Using a credit fund in a host bank, ARABLE members can help review loans using investment criteria that benefit the entire local food system, from growers and market gardeners to retailers and food buying clubs. ARABLE found it could compound its lendable funds by investing a small sum in the Working Assets social investment.fund (see "Choosing the Future: Social Investing," RAIN IX:5). Working Assets, in turn, is investing several times the sum of ARABLE's investment in ARABLE's credit fund, thereby adding to the pool of money for local food-related enterprises. Ethical investment criteria could also extend to city and county public-pension funds. In California alone, more than seven local public-pension funds exceed $100 million each in assets, yet many of these do not invest their assets locally. "In most states," observes David Morris in The New City States (see RAIN X:4, page 12), "local pension funds are linked directly into state pension funds and controlled at the state level." Since ethical investment is in many cases more profitable than conventional investment, now is the time to propose that managers of public pensions and cities' bank accounts explore investing in local mortgages and developing local self-reliance in food and energy production. At the forefront of this opportunity is Tacoma Park, Maryland (population 1,231). The city council unanimously voted on December 8,1983, that the "city cannot invest in or do business with any industry or institution knowingly or intentionally engaged in the production of nuclear weapons or their components." The city's announcements for bids on projects include the above statement (see access). Local governments can help plug local economic leaks • through government purchasing criteria. David Morris cites Detroit, Michigan, and Livermore, California, where contracts go to local suppliers first even if their
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