September/October 1985 RAIN Page 27 Transaction-Based Economics; What Small Business Experience Teaches About Economic Theory, by Michael Phillips, second edition, 1985, $5 from: Clear Glass Publishing Box 257 Bodega, CA 94922 Michael Phillips (author of The Seven Lazos of Money and Honest Business) tells us once again in this new booklet that traditional economics is in trouble. In it, Phillips contends that traditional price and supply/demand curves are ineffective predictors of either small business success or market behavior. "Non-price" components of the economic choice like service, information, quality, repair, and recourse may make up from five percent to 95 percent of price and the ultimate buying decision. In this sense there is not merely an exchange of money for a good or service (traditional economics) but a "transaction" where non-price considerations come into play. As a result of this new understanding, concepts like the free market, pure competition, and profit as the primary goal of an enterprise are either irrelevant, not meaningful, or even harmful. Phillips proposes that "net positive transactions" is a better measure of economic health than GNP, and promotes socially positive non-price values as well. In this new "transaction-based" economics, cooperation and "niches" replace competition, socially positive personal business values are rewarded, quality of service is valued over profit, pricing is based on the value of a product or service and its target market rather than market dynamics, honesty is favored, and monopolies result from honest service. This theoretical framework is based on the author's 10 years of experience with 650 businesses in the Briarpatch Network, which he helped form. The best part of the book is the first two chapters, which describe Briarpatch and its members' style of doing business. Anyone involved in a successful small business will recognize these as the important and familiar personal rules and behaviors that have insured that success. We would all benefit from reviewing them regularly, and Phillips does us a service by codifying them here. Successful small business people everywhere are aware that really all they sell is quality and personal service (the "non-price" elements that define a "transaction") and hence are involved in creating this new economics. The booklet's weak point is its confused intent. It seems to be written to set up and then knock down the straw men of traditional economic concepts. This broadside (in many ways it resembles a religious tract in its zeal and self-confidence) is unsatisfying. It is confusing to the believer in this successful business style since its common-sense observations are cloaked in sometimes dense "economist" language and illustrated with the kind of non-empirical graphs that are all too familiar to the student of traditional economics. If one does happen to be a traditional economist (Phillips' apparent target) the arguments seem painfully incomplete since they lack the necessary documentation to make a good academic case. —Bruce Borquist ACCESS: Social Investing The Clean Yield, monthly, $65/year from: Fried and Fleer Investment Services, Ltd. Box 1880 Greensboro Bend, VT 05842 This is a useful six-page newsletter for the serious ethical investor. The lead column, "Clear View," discusses topical issues of interest. In two recent issues this column reported on how mainline business publications are now reporting on ethical investment. Two columns discuss the state of the stock market, one on a general level and the other more technical. There is an update on their model portfolio, including their recommendations to buy or sell. There are also usually two detailed "Clean Profiles" of companies of interest to the ethical investor. A good feature for people new to investing is "Night School," a section in which a particular financial concept or term is explained. The authors also often site books and periodicals that may be helpful to the ethical investor. —Rob Baird Rob Baird, a former RAIN staffer, has a securities license and loorks with a financial services organization in Portland. Socially Responsible Stock Guide, edited by Ritchie P. Lowry, 1985,40 pp., $5 from: The Center for Economic Revitalization, Inc. 28 Main Street Montpelier, VT 05602 "Doing well while doing good" is the theme of this collection of past articles from the periodical Good Money (see RAIN, IX:3, page 13). This was written for investors who want to improve their financial position and stay true to their social goals and principles. Two articles illustrate the point that very often companies with objectionable social records have a poorer economic performance. One example is a comparison of "the filthy five," Environmental Action's designation for five companies that excel in polluting the environment, against five companies in the same industries that are responsive to environmental concerns. Another article takes a look at the economic aspects of switching stock holdings from "black hat" to "white hat" companies to make sure that you do not weaken your financial return. A model portfolio of favorite stocks of social investors is described, as well as more detailed descriptions of companies with good social records. Some of the descriptions of companies revolve around particular social concerns such as solar energy or supporting women and workers. The booklet has a supplement entitled "How to Screen Traditional Investments for Social Factors." Generally, small investors concerned with the ethical consequences of their investments will put their money into socially responsible mutual funds (see Periodical Watch for a reference to a good list of these funds). However, for those with larger amounts to invest, the supplement is an excellent guide to thinking through the main problems in creating your own socially responsible portfolio. The supplement suggests some principles for a social screen such as: Don't expect absolute purity in the corporate world. Elements of a social screen are outlined to help you decide your priorities of social concerns (South African apartheid or the environment?). Finally, there are some questions relating economic to social risk: Would you be willing to increase economic risk because the social return is potentially great? Even if you do not have the money to establish your own portfolio of stocks, this material is informative and thought- provoking. —Rob Baird
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