In a lot of episodes of the Building Local Power podcast, we’ve talked about how there’s an urgent need to overhaul public policy. Now, in this episode, host Nick Stumo-Langer sits down with Community-Scaled Economy initiative director Stacy Mitchell and senior researcher Olivia LaVecchia to talk about exactly what communities can do.
In the episode, Nick talks with Stacy and Olivia about their new Guide to Policy Tools that Strengthen Independent Businesses, which outlines a five-plank platform to make the U.S. more equitable, dynamic, and locally rooted. The group talks about all five areas of the platform, and also digs into specific policies to pass at the local, state, and federal levels, along with examples of places that are already using these tools.
“Federal level policy ought to work to decentralize economic power,” says Stacy Mitchell in the episode, “to structure the economy in ways that open up opportunity, that encourage competition, that create more room for people to come in and find work, that [create] greater diversity and dynamism. That used to be the goal.”
This conversation is based on a recently released policy guide from our Community-Scaled Economy initiative team. It’s called the Guide to Policy Tools that Strengthen Independent Businesses. The guide contains organizes policy strategies into these five planks:
- Create a Built Environment that Supports Local Businesses
- Reorganize Economic Development Programs
- Enable Access to Sufficient Capital
- Implement an Equitable Tax System
- Promote Fair and Open Competition
ILSR has many other resources aimed at strengthening locally owned, independent businesses:
- In Boston, City Council Members Introduce Proposal to Regulate Chain Stores — The city of Boston is enacting a formula business restriction, a policy referenced in this podcast discussion as a way to protect independent businesses. They are currently the largest city enacting such a policy. Explore their story.
- New Toolkit Helps Independent Businesses Advocate for Policies that Support the Local Economy — Developed in conjunction with the Advocates for Independent Business, this toolkit takes policy recommendations that independent businesses can us to advocate for a better local economy. Explore and share with local businesses in your community.
- Why Care about Independent, Locally Owned Businesses? — Here, we outline five important reasons for local officials to support independent businesses, based on a growing body of research.
This episode references a number of previous Building Local Power podcast episodes, including:
- Want Your City to Prosper? Then Forget Everything You Think You Know about Economic Growth (Episode 37)
- San Francisco Breaks the Chain Stores, Strengthens Neighborhood Economies (Episode 31)
- Beating the Monopolies: Barry Lynn Explains How We Will Win (Episode 30)
- How Big Businesses Get Big Subsidies (Episode 23)
- Small Banks, Big Benefits (Episode 16)
The group ended the conversation with recommendations for something that changed the way they viewed the world. Olivia talked about seeing the migration of the alewife fish, while Stacy shared this video from the New York Times on how spiders fly on their silk:
|Hello, and welcome to Building Local Power, a podcast from the Institute for Local Self-Reliance. I’m Nick Stumo-Langer, ILSR’s communications manager and I’m really excited for you to hear this week’s podcast, where we are going to delve into a new guide developed by our Community-Scaled Economy Initiative.
My guests this week are Stacy Mitchell, a frequent host of this very podcast, co-director of ILSR and the director of our Community-Scaled Economy Initiative, and Oliva LaVecchia, a research associate and excellent writer for our Community-Scaled Economy Initiative.
Stacy and Olivia, welcome back to Building Local Power.
|Hey Nick, nice to be here.
|This week we’re going to discuss a new resource developed by YouTube called A Guide to Policy Tools That Strengthen Independent Businesses. So Olivia, why don’t you just give us an overview about what this resource is and why you developed it?
|I think it can be difficult to look at just a bunch of different policy tools and to know where to start or what is the right fit for your community. So we’ve decided to take what in the past have been a bunch of different separate resources on our website and organize them into a platform with five planks. The idea is that it’s a place where anyone could start and get a handhold on how to think about these issues and how policy can change to play a really important part in rebuilding our local economies.
|Well, that sounds great. Olivia, why don’t you just give us an overview of all these different planks so that we can get the breadth of this?
|We start on the most local level and then work our way out with these planks. The first one is about creating a built environment that supports local businesses. The second one is reorganizing economic development programs. The third is enabling access to sufficient capital. Fourth, implementing an equitable tax system, and fifth promoting fair and open competition.
In each of these planks we have policy tools at the local, the state, and the federal level, so there are a lot of different places to start.
|Well, that sounds really interesting. I think that it’s an attractive thing for us, at least the resource guide, to be able to say these are all things that we’ve been talking about on this podcast and throughout our website, and getting them all into one spot is useful as we look over this type of thing to say like, “Okay, here you go. Here’s a consolidated package of all the things that you could have your community do to build your local economy.”
|That’s right. I really think this policy toolkit works on a couple of different levels. It works as a very practical tool, so if you’re a citizen’s group and you’re looking to figure out how to address these issues in your community, or your state, or what it is that you should be asking your congressperson about, this is a great guide for being able to do that.
It also works on another level, which is it really speaks to ILSR’s overall thesis about what’s happening in the economy. As we’ve seen more and more consolidation, a handful of companies that have gained control of a lot of different industries, this loss of small businesses and the decline of local economies, growing inequality, our analysis shows is that those things didn’t happen by happenstance. They didn’t just come about. That these really are products of deliberate policy choices that have been made over the years that have favored big businesses over small, that have favored consolidation over local economies.
So this policy guide is a way of illustrating how that is. Of showing what are the big, major areas of policy that have driven consolidation and undermined local economies, and what would it look like if we made different decisions in each of those areas of policy?
So it works on both of these levels, both as a guide and as an explanation for what our research overall has found. The last thing I want to say about this is that this is really a living document, and so we’ll be adding to it over time and we’d love to hear from listeners. If you have ideas or things that you think are missing, let us know.
|So yeah, let’s dive in. I think one of the areas that it seems that this is most evident what you’re saying, that it kind of tackles these systemic things that maybe a lot of people don’t notice about their local economies, is in the section on enabling access to sufficient capital. Talking about who is going to be lended to and what kinds of businesses or developments are going to get that funding. I’d love to hear a little bit more about that.
|Yeah, one of the things that we have found that’s very much undermining local businesses is that they don’t have access to loans to finance their businesses the way that they used to. The reason for that is largely that the banking industry has consolidated. There are just a handful of banks now that control most of the assets in the banking industry, and those giant banks really don’t do a lot of lending at the local small business level. It’s as though the scale of the banking system is really mismatched to the scale of the needs in the economy.
One the things that we’ve seen is that small business lending has declined sharply over the last 20 years and loans to large businesses and capital availability to very large companies has expanded dramatically. So this is one of the things that’s really fueling the structural changes that we’ve seen in the economy. Figuring out how to change that and open up more financing and get financing, get our collected capital really directed into the right places, is a key part of this plank, and we outline a number of different ways to do that.
|Yeah, and I recall from an earlier Building Local Power Podcast episode that we had with Justin Dahlheimer of the Osakis Community Bank. He really discussed the benefits of being a community bank and being able to say, “I know what kinds of things are going to be valuable to this community. I know what kinds of things are … I’m going to be able to see my neighbor at the grocery store and talk to them about these types of things.” I think that that local focus is really, really key.
What do you think one of the most exciting policy recommendations you have in here on this capital question is? I see a few of these things in here that are at some of the more federal level, but what can communities do?
|Yeah, as you noted, there are important banking policies at the national level that we need to change to really break up these big banks and restructure our financial system, but we don’t have to wait for congress, we can start acting at the local level.
I think one of the more exciting policy tools that we see out there is the idea of starting a public partnership bank. We’ve written a lot about the Bank of North Dakota, which is the only publicly owned bank in the country. It’s a wholesale bank you could say, it actually partners with local banks and makes local banks and credit unions much stronger as a result of that partnership.
North Dakota is a state where 83% of the deposits in the state are held by locally owned banks and credit unions. That’s compared to less than 25% nationally, so a really big difference. North Dakota also has much higher levels of small business lending and lending to farms than any other state does. It’s really quite remarkable.
This is a model in North Dakota that’s been around for decades and decades, it dates back to about 1919, but now what we’re seeing is a lot of cities are beginning to look at this and say, “If North Dakota can do this, than we can do this at the city level.”
We know Oakland is talking about this, Santa Fe is looking at it, and in fact this fall residents of Los Angeles are actually going to vote on whether or not to establish a city-owned bank. It’s a really great solution to basically taking control back from Wall Street and bringing our financial capacity back to our communities.
|Yeah, and it seems like such a sea change to say there’s actually this focus locally on what’s going to be best for the community, and even if you can bring it from Wall Street to Bismarck, that’s a little bit closer to your hometown, that type of thing. I think that that’s really exciting and it’s good to see good, local activism burgeoning this momentum. I know that our research on the Bank of North Dakota gets cited all over the place when they’re talking about these types of things, so that’s good to see.
That transitions nicely into another plank of this, which is the built environment that supports these local businesses. You need a better development to enable small businesses, more walkable communities, those types of things. So maybe you could just give us a sense, Olivia, on what this built environment question looks like for small communities, and big communities as well?
|Really, in a similar way, as when we’re talking about what types of businesses can access capital, the built environment has a lot of impact on the types of businesses that are able to succeed. When we’re talking about the built environment, we’re talking about how big are the storefronts? What types of buildings are getting built? How are places connected? Is it sidewalks? Is it really car oriented? All of these questions, they’re impacted a lot by decisions that cities make, and it also gives cities and other forms of local governments a lot of capacity to shape them.
Independent businesses, they generally do really well in a built environment that is varied, is diverse, is walkable, made up of a lot of storefronts of different sizes, and particularly small sizes. Cities can design an environment that looks like that.
In our guide we have a bunch of different examples of different tools to use here. There are policies that cities can use to encourage commercial diversity, so to say we want a lot of different types of businesses.
There are also policies they can use to ensure that new construction includes space that is appropriate for locally owned businesses, and not just the big spaces that are much more suited to a national chain and not accessible to them, both because those spaces are more expensive and because it’s a somewhat different kind of business model.
One thing about these built environment policies too is that they kind of work as solutions to a range of different problems. Some communities are trying to revitalize downtown’s and figure out ways to bring businesses into vacant storefronts, and others have a lot of development and rapid investment and are trying to figure out how to mitigate displacement, or ensure that that growth is distributed equitably. But a lot of the built environment tools that we talk about in this plank of the policy guide work for both situations and for a range of situations in between them.
|So it seems like a really solid way to move forward in a place that maybe there hasn’t been a lot of development in the past, but you want to revitalize an area. I think that that’s really smart. There’s a number of different things on here, policies that you can do. I’m talking about community ownership of these spaces, talking about reusing maybe empty box stores that have left, or something like that. There’s an interesting opportunity it seems in a lot of communities that we hear about all the time in the news to kind of take back some of these spaces I think. I’m glad that you’re able to offer so many different things.
I’ll note that for listeners of the podcast, we also interviewed AnMarie Rodgers, who is in San Francisco, that helped develop a [inaudible 00:12:04] business restriction, as well as Chuck Marohn of Strong Towns, who talks a lot about good, solid development in cities, and talks about maybe where people have gone wrong in the past.
So it seems to me as well that some of these development programs, they necessitate a little bit of an infusion of cash, some tax dollars that are going to be able to help build some of that new development program and those solid things for the community. So Stacey, can you get into the tax system? I know it seems like that’s a big question, but what can local communities do to improve their situation?
|How we structure our tax system has a lot of impact on business and on the economy. Just to give you a couple of examples of how this is playing out right now, one example is that we have a lot of loopholes in our corporate income tax system, both at the federal level, and in many cases also at the state level.
One of the consequences of these loopholes is that a lot of global companies are able to pay much lower tax rates than independent businesses are. Amazon, for example, benefits from what a Newsweek investigative reporter has described as an extremely advantageous tax rate by virtue of having subsidiaries in Europe and elsewhere where it shifts around its profits and thereby gets out of having to pay income taxes on those profits.
Over the last five years Amazon’s paid an average effective tax rate of 11%, which just to give you a sense is, a typical independent retailer without a subsidiary in Luxembourg or the Cayman Islands, they’re paying twice or three times as high a federal tax rate as Amazon is.
So it’s a very un-level playing field, and to just take a very different and very local kind of example of how this plays out, if you think about our property tax system. Property taxes supply a large share of the revenue that local governments rely on. How we structure our property tax system really has a lot of implications for the built environment and then ultimately independent businesses.
One example of this is that we typically don’t tax land at a very high rate, we tax the value of the building. So what that means is that a big box store with huge acres and acres of parking around it, that’s relatively low value. It’s a cheap building, parking lots are not expensive, so the amount of tax revenue that a typical big box store pays is quite low per acre. Whereas if you have a mixed use, multi-story, downtown building with either underground parking or no parking, that per acre is a lot of property tax revenue.
Likewise, there’s a disparity that a big box costs a lot more in terms of the services that you have to provide to it because it’s so sprawling, everything that it needs is a lot more intensive use of the services, whereas that compact downtown block doesn’t require nearly as much expenditure and services.
The result of this favorable treatment of the big box stores and the property tax system is that that type of development is essentially incentivized, and is cheaper to create. We could think about reversing this. Say we made service parking lots super expensive from a property tax standpoint. Say we actually valued land as a higher share of the overall property tax bill. That would change those dynamics, and it would make that kind of development less attractive, and it would make the mixed use, small scale, walkable development more attractive.
Those are a couple of examples. In our policy tool kit we talk more about this issue of how cities, states, and federal government can approach the issue of taxes, but that gives you a sense of why this matters and the landscape that’s out there.
|Yeah, and I think that this policy guide does a really good job of helping un-glaze peoples’ eyes when you’re talking about a tax system. I think that it’s a really useful way to think about it, that we have a certain tax system, people complain about it all the time, or they have lots of opinions on it, but we are valuing certain entities over others, when we’re valuing big surface parking lots and giant big box stores less for property tax purposes than more vital independent businesses, and mixed use development.
I think that that’s a really useful thing for our audience to hear, because it almost inherently says you look at a local hardware store, or you look at a local printing shop, you know there are spillover benefits. You look at a local, I should say a not very local Best Buy store, or something like that, and you’re saying, “Well, I don’t really know what the spillover benefits are besides like if my nephew works there,” or something like that. I think that it’s a useful thing that those are not parts of the community in the ways that independent businesses are.
Along that same track of those big box stores, I’m wondering … there’s a plank in here about economic development incentives that I think fits nicely with this, and fits nicely with some of the conversations that we’ve been having on this podcast about what kinds of retail we preference. I’m hoping you can get into that a little bit, Olivia.
|This plank of the policy guide, it’s all about how to reform economic development, because we need to reform it, we need to change how we do it. Right now, local and state governments spend just so much money every year subsidizing large companies. Sometimes it’s a 20 year tax incentive, sometimes it’s saying, “Okay, you don’t have to pay property taxes if you build on this location.” Sometimes it’s making improvements to the location. Sometimes it’s a direct handout.
|The Amazon HQ2 plank.
|Exactly. Right. Estimates put the figure of all of these handouts at about $70 billion dollars annually, and research has also found that this money flows disproportionately to the biggest competitors. One study from our allies at Good Jobs First found that even in economic development programs that say they’re open to businesses of all sizes, it’s still large companies that are getting the overwhelming portion of the subsidies from those programs.
A lot of other research has found that on metrics like job creation and other really vital ways to measure these programs, they also aren’t even that effective. They don’t work that well. How do we rethink economic development? In the guide we go over a few ideas, and they cover sharply reducing incentives and subsidies that go to economic development, but in cases where they are still used making them a lot more transparent and more equitably available to different types of businesses. The ideas include ways to make economic development more about investing in the kinds of public goods that benefit all employers.
Then finally, some of the ideas here also include ways to make targeted public investments, particularly in communities that have been economically marginalized. One of the examples that we give in that area is a program in Pennsylvania, the Pennsylvania Fresh Food Financing Initiative. This was a loan program that was seeded with state funding that provided financing for more than 80 grocery stores in low income neighborhoods in both urban and rural parts of this state. It’s a great example of how public financing was involved here, but it worked to advance multiple goals that were in the public interest, along with economic development.
|Yeah, and it seems to me that there are a number of ways that giving large companies these kinds of incentives, these public subsidies, just shoot these communities in the foot. They reduce their tax revenue so that they can’t implement other economic development programs, and just to entice a certain amount of small jobs like Foxconn in Wisconsin, or a lot of the cities vying for Amazon HQ2.
There’s a lot of downsides to trying to just attract these large companies, when in a lot of ways it’s choking out some of the really great things in independent businesses and retailers that could actually be improving the local economy and making it more resilient overall, because if that plant or if that larger company shuts down, leaves, decides that it’s more economic to do something somewhere else from a far away decision, than that community can be devastated. I think that’s something that, Stacey, you’ve written a lot about in terms of Walmart overbuilding and then retracting back as well as we see moving forward.
So I think that that’s a really useful plank for this, saying that if don’t do these local things, your community could really be harmed.
|I think that’s absolutely right, and just this week I saw a story that I tweeted about. A community where Walmart came in several decades ago and the entire downtown just about was wiped out. It used to be a place that had a central square, historic square, and there were lots of different kinds of businesses on that square. Walmart showed up in the 1980s and most of those businesses disappeared, and now today Walmart’s actually leaving. They’ve decided to get out of this town, decided they’re not making enough money there apparently, and are just going to go somewhere else.
So yeah, you’re absolutely right. As we think about these policies it really is about how do you build a resilient community and how do you have a level of community self determination really about your future?
I think this is one of the most profound feelings that you encounter out in the country right now is that a lot of people and a lot of communities really feel that they’re at the mercy of these outside forces, and a big part of what we’re working on here at ILSR is what are the tools you need to take charge of your local economy, and to actually have ownership and decision making local, and have that control into the future?
|The final plank of this guide talks about promoting fair and open competition, and I think we’ve touched on it in all of the different other sections. I’m wondering what that more systemic perspective looks like when we’re talking about these policies at the local, state, and federal level, to promote open competition?
|Yeah, back in the 1970s and ’80s we really had this sea change in the ideological thinking behind our economic policy, and as a result of that we radically altered how we interpreted and enforce our anti-trust laws, and we also changed a lot of other sector specific laws about our banking sector, about our media sector.
We used to really embrace the idea through much of the 20th century that policy ought to work to decentralize economic power, to structure the economy in ways that opened up opportunity, that encouraged competition, that created more room for people to come in and find work, find jobs, that there was a greater diversity and dynamism. That was the goal.
Also, that we really wanted to have economic capacity dispersed across all the different regions and areas of the country, that having it highly centralized in specific companies in specific locations was not good for the country, and was not good for democracy. So that was the reigning thinking for many decades through the 20th century and that really shifted quite radically beginning in the 1970s.
So the last plank of our policy guide is really about how we need to reclaim competition policy, anti-trust, and really make this idea of an equitable, decentralized economy once again central to how we interpret these laws and how we make new laws in this area.
A big part of that, as I’ve already described, is that we need to reform anti-trust in a big way, and we’ve of course talked about that in a number of different episodes of this podcast, but there are other things too. Some of the kinds of ideas that we talk about at the state and local level include things like having a pharmacy ownership law, and we highlight North Dakota as a really innovative state that has prohibited pharmacies from being owned by corporations. If you want to operate a pharmacy in the State of North Dakota you have to be a pharmacist, and the result is that they have a pharmacy network that is entirely made up of locally owned independent pharmacies and our research has found deliver lower prices and better outcomes than what you see in other states.
We also highlight ways to approach this at the local level. We talked a little bit earlier about formula business ordinances. An example of that is in Jersey City, where the downtown area they have an ordinance that says that no more than 30% of the ground floor retail space can be inhabited by formula businesses or chains.
So they have a way of essentially saying, “We know that chains have a lot of advantages in this market. We know that real estate and financing all work to favor chains, and this is a law that ensures that there’s going to be ample room for independent businesses and that we really have a balanced, dynamic, open economy for those businesses to thrive.”
|Yeah, it’s so great because I think that all of the different planks of this policy guide feed into this more open competition, promoting this fair and open competition. I think another thing that a lot of folks really maybe get from our work and some of our allies work is just pointing out all the ways that monopolies rule our lives.
I think that it’s a really useful thing when you think about airlines, when you think about … one of our co-founders’ favorite example is toothpaste. When you think about beer. All these type of things are really ruled by monopolies, and pointing these things out and making people aware of them is really important from just the personal level.
I know I’ve had many conversations with people in my life where they had no idea that all these different … I’ll use a personal example, beers, are owned by the same company. It’s just useful to point out and say, “There is really something we can do about this. There is something that we can encourage our elected officials to do, encourage our local leaders to do, as well as people at the statehouses all throughout the country.”
I think that these are a number of really, really great recommendations for all of our listeners to print out, bring to their city councils, to their state legislature, their elected officials, on the federal level as well.
|That’s absolutely right, and as I said earlier at the top of the podcast, this is a resource that’s going to be growing over time. This is our first collection of what we have, and we know there are more things that we’re going to be adding to it. I really encourage people to check back and also to sign up for our Hometown Advantage Newsletter if you want to keep up with new research and new developments that we’re adding to this policy toolkit.
|One thing I’ll add there too is that this policy guide is kind of an entryway into a lot more depth and a lot of other resources about all of this. So we’ve mentioned some of the specific policy tools that we have within each of these five categories, and listeners, when you go to the guide you’ll see all of those specific tools are links and they take you to a page that does a deep dive on these individual policies too, including examples of communities that have implemented them and the exact text of what the policy looks like in that community.
So we hope that this guide offers some ways to be hands on too, and to really get the tools you might need to start thinking about this or doing it in your own communities.
|Thank you so much for going through this policy guide with us. I really appreciate it. As we move into the last segment here, the reading recommendation, I want to do something a little bit different and prompt you with a big question, since we’ve been talking a lot of big questions this podcast. If you can give our readers a recommendation on something that you read or experienced recently that changed how you viewed the world?
|The first thing that comes to mind for me is an experience and something I read. A couple of weeks ago at the end of May, beginning of June, here in Maine there is an annual fish migration of a type of fish called an alewife. One night just after work I hiked out to a river and there were just thousands of these fish along the river and gathered in one of the pools there.
The really amazing thing about this is I went home and started to read more about this fish migration and it was actually interrupted for many years by dams along the river that I had gone out to. Reading about those dams and then the real local and grassroots efforts to remove those dams and to restore this fish migration, I thought it was a really good example, a hopeful example of local activism, and the kind of change that people can make on the local level.
|That’s great, Stacy?
|Well, mine’s a little bit different. Mine’s more in the category of just having a moment of pure wonder and leaving it at that for your mental health. It’s a mental health break. Which is drop whatever you’re doing right now and go to the New York Times website and watch this video about how spiders fly. It’s astonishing.
It’s not just some spiders that fly, lots of spiders fly, and they fly for miles and they can cross oceans. They do it by extending this little piece of their silk thread, I’m probably explaining the physics wrong, but it’s kind of like a really good parachute so that they actually stay aloft and they can float for miles and miles and miles on currents of air. There’s this incredible video of it.
|Alewife fish and flying spiders, I love it. Those are changing the way you see the world. Thank you so much to both Stacy and Olivia for joining me today.
|Thanks Nick, it was great to be here.
|Thanks for the discussion, Nick.
|And thank all of you for tuning into this episode of the Building Local Power Podcast from the Institute for Local Self-Reliance. You can find all the links to what we discussed today, including the policy guide, at ILSR.org and clicking on the show page for this episode. That’s ILSR.org.
While you’re there you can sign up for one of our many newsletters and connect with us on social media. Finally, you can help us out with a gift that helps produce this very podcast, gets us great guests like Stacy and Olivia, and produce original research on the way monopolies are impacting our economy.
Once again, please help us out by rating this podcast and sharing it with your friends on iTunes, or wherever you find your podcasts. This show is produced by Lisa Gonzalez and me, Nick Stumo-Langer. Our theme music is Funk Interlude by Dysfunkshunal.
For the Institute for Local Self-Reliance, I am Nick Stumo-Langer, and I hope you join us again in two weeks for the next episode of Building Local Power.
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