Michael Shuman headshotAmericans want to invest locally: here’s how.

The Obama Administration believes that the best way to repair our financial system after the Great Crash of 2008 is to improve the performance and oversight of global banks and investment firms. A growing number of Americans, however, would prefer to pull their retirement savings out of these high financial fliers altogether. They would rather invest in their communities. The problem is, they can’t. Outdated federal securities laws have left Main Street dangerously dependent on Wall Street, and overhauling these regulations turns out to be a hidden key to economic revitalization.

There are two reasons Americans increasingly wish to invest in locally owned businesses. First, they understand that these businesses are the real pillars of a prosperous, sustainable economy. A growing body of evidence suggests that every dollar spent at a locally owned business generates two to four times more economic benefit—measured in income, wealth, jobs, and tax revenue—than a dollar spent at a globally owned business. That’s because locally owned businesses spend more of their money locally and thereby pump up the so-called economic multiplier. Other studies suggest that local businesses are critical for tourism, walkable communities, entrepreneurship, social equality, civil society, charitable giving, revitalized downtowns, and even political participation.

Second, many Americans no longer believe Wall Street’s assertions that a global, publicly traded corporation is the safest place to invest their savings. According to data in Statistical Abstract, sole proprietorships (the legal structures chosen by most first-stage small businesses) are nearly three times more profitable than C-corporations (the structures of choice for global businesses). Moreover, a bunch of global trends, like rising energy prices and the falling dollar, are making local businesses increasingly competitive. Meanwhile, Americans are shifting their spending from goods to services, a trend that promises to expand the local business sector, since most services depend on direct, personal, and, ultimately, local relationships.

Locally owned businesses currently generate half of the private economy, in terms of output and jobs. Add in other place-based institutions—nonprofits, co-ops, and the public secto—and we’re talking about 58 percent of all economic activity. So in a well-functioning financial system, weï’d invest roughly 58 percent of our retirement funds in place-based enterprises.

Yet local businesses receive none of our pension savings. Nor do they receive any investment capital from mutual, venture, or hedge funds. The result is that all of us, even stalwart advocates of community development, overinvest in the Fortune 500 companies we distrust and underinvest in the local businesses we know are essential for local vitality. This situation represents a colossal market failure.

The good news is that much of the problem could be solved by modernizing securities laws. Today these laws place huge restrictions on the investment choices of small, “unaccredited”investors—a category in Securities and Exchange Commission vernacular that includes all but the richest 2 percent of Americans. The regulations prohibit the average American from investing in any small business, unless the business is willing to spend $50,000 to $100,000 on lawyers to prepare private placement memoranda or public offerings—thick documents with microscopic, all-caps print that no human being has ever actually been observed reading.

Were these reforms enacted nationally, literally trillions of investment dollars could begin to move into the local business economy.

One easy reform would be for the SEC to allow low-risk public ownership of locally owned microbusinesses. By low-risk, I mean that no person can hold more than $100 worth of any one stock—which means that we’re freeing up people to engage in the risk equivalent of a nice dinner for two. By local ownership, I mean that stock shares can only be bought, held, and sold by residents within a state. And by microbusinesses, I mean any business with a total stock valuation on issuance of under $250,000.

This legal reform would be even more effective if supported by a few others:

  • Micro-investment funds.
    Let’s allow small investors to pool their money in backyard investment funds (again, up to $100 per person) that in turn create diverse portfolios of local stocks. (Only the rich can invest in such funds now.)
  • Co-op investment funds.
    Let’s allow cooperatives, most of which are owned by workers or consumers in a single community, to set up investment funds empowered to make local investments on behalf of their members. (Currently, they can only invest members’ capital in businesses owned and run by the co-op itself.)
  • Local stock exchanges.
    Letï’s allow private companies to facilitate local trading of microbusiness stock electronically, like and do for microloans. (The SEC now bans small, electronic exchanges like these from trading equities.)
  • Pension fund participation.
    Let’s allow any pension fund that places as much as 5 percent in local securities, either directly or through microbusiness investment funds, to meet legal standards of “fiduciary responsibility.” (Current regulations define the term in a way that directs virtually all such investments to global companies.)

These new community-based funds and investments, of course, need to be overseen to prevent fraud and ensure accountability. But since all these activities are intrastate, these new rules can be left to the existing securities departments in the 50 states. Once state-level laws are put into practice, many of the absurd requirements of the SEC—like expensive audits and lengthy legal filings; may finally disappear.

Were these reforms enacted nationally, literally trillions of investment dollars could begin to move into the local business economy. Entrepreneurs, hungry for new capital in the post-meltdown credit crunch, will begin to restructure their businesses to receive microcapital. Investors terrified of betting all their money in the global casino will start shifting their investments to local businesses they know, trust, and can visit and “ground-truth” with tough questions.

The result will be a nation of stronger local economies, with American investors placing more and more of their money into backyard businesses rather than into the untrustworthy hands of distant speculators.

Finally, there are two other compelling features about these ideas. First, they cost nothing. And second, the experimentation opened up at the state level will invite all kinds of grassroots engagement and inventions. Instead of spending billions more in federal taxpayer dollars to prop up dubious big financial institutions, why not create a system that’s more stable, safe, lucrative, and democratic—for free?

Michael Shuman wrote this article as part of The New Economy, the Summer 2009 issue of YES! Magazine. Michael is director of research and public policy for the Business Alliance for Local Living Economies ( and author of The Small-Mart Revolution: How Local Businesses Are Beating the Global Competition (Berrett-Koehler, 2007).

Originally posted in Yes! Magazine. Reproduced under Creative Commons licence.


The Obama Administration believes that the best way to repair our financial system after the Great Crash of 2008 is to i

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Need partner(s) for oil spill cleaning apparatus

From: Robert Lambert, May 26, 10 06:32 PM

I am searching the internet to try to find anyone with anywhere as strong of an interest in helping clean up the enormous oil spill on the coast. I live just a short trip north of there and regardless of the terrible impact that it will have on the people and creatures there, I constantly think of the importance of coastal estuaries in the total food chain, especially the total of the oceans. Anyway, I have for many years been considering a process that is probably a little similar to the one used by Kevin Costner and his company. My idea will be more nimble and operate in shallow or deep water. We need to get as much help on this problem as soon possible, my best way to help would be this. All I want is to get in touch with the right people that are as driven as I am and present my idea which could be used now and later. Please help me if possible. Thank You.

A downside to buying and investing locally

From: Anonymous, Aug 1, 09 10:36 PM

Although buying locally is not the same as investing locally, it is widely believed to be the way to go for our coming post-carbon age and accomplishes some of the same goals outlined in Mr. Shuman's article.

Indeed, spending locally builds local wealth, enriches the tax base with sales and property taxes, increases employment and does everything local chambers of commerce hope for--which include, of course, a robust jump in population and business growth. And this frames the problem of geometric growth a finite world. So what are we to do? The more that's done locally to improve quality of life the more people that region will attract which will, in turn, degrade the quality of life for all citizens who live there.

Wherever you live, ask yourself this question: Is life better here now than it was 10, 25 or 50 years ago?

I live in the in the Great Valley of California. Here we suffer from very poor air quality, poor health services [each physician serves many more people here than in the coastal parts of the state and they are more poorly paid], rotten schools, bad roads [my county has more potholes per mile than any in any other county of the state. Unemployment is way over 15% and headed for over 20% as it was in the recession of the early 90s. The summers are hot and miserable with temperatures exceeding 100F for many days--records show as many as 30 100F+ days in a row in the southern parts. But even all this has not been enough to keep people from flocking in and covering our farmland with paving.

But for those hip on peak oil, I'll share some secrets. Please don't tell! Most all of the counties here are net food exporting areas-- one of the first things one needs look for if she is thinking of moving from a densely populated coastal area. Also, here on the east side of the valley, water flows down from the Sierra Nevada in rivers, canals and below the surface to irrigate some of the most productive land on this earth. The US Geological Survey has just published a scholarly paper, "Groundwater Availability of the Central Valley Aquifer, California. I've not yet finished wading my way through the whole 250 pages of it but so far it looks very encouraging if one has an eye for a reasonably sustainable water supply. One could easily bring up their own copy with an internet search. In my county, half the developed land has been subdivided into "ranchetes" -- properties of say 1 or 2 to 20 acres that would make excellent locations for relatively independent living. My property is but a 8 mile bicycle ride to Fresno but others are closer in as they were surveyed out years ago before towns and cities grew out. Water where I am is about 250 feet below the surface but, when the lights go out, I can pull it up by hand with a rope and a bucket a whole lot faster than I can drink it.

I share the work I'm doing on my website at

But please, if you should decide to move here, don't get any ideas about fixing up the roads and schools and paying the doctors a decent wage. Let's keep the Central Valley of California a rotten place to live.

Good wishes all,

John Warner, hand-scale market farmer since 1996