Declarations of Independents
Twenty-Sixth Annual E. F. Schumacher Lectures
October 2006, Stockbridge, Massachusetts
Edited by Hildegarde Hannum
Copyright © 2006 E. F. Schumacher Society (now New Economics Institute) and Stacy Mitchell
By Stacy Mitchell
Introduction by Starling Childs,
Vice-President and Member of the Board,
New Economics Institute
I am honored to introduce Stacy Mitchell, who comes to us from the Institute for Local Self-Reliance, where she is a senior researcher for the New Rules Project. Stacy champions the cause of local community economics. In her books about big-box stores and large corporate retailers that have effected so much change in communities across the United States, she not only illuminates the problems we face but also outlines the tactics and policies for changing course to protect our downtowns. We all know too well the homogeneity of urban/suburban sprawl, the icons and economies of scale, the huge buildings—whether blue with yellow smiley faces, orange with oversized “O”s, or red concentric circles. Located on land where, generally speaking, there were formerly productive farms or forests that supported local economies, they target areas of our growing population. Those square structures are wedged into round circles of what these corporate giants judge to be population draws. Far from community centers, they depend on automobiles and predatory pricing policies to attract customers to their doors and their shelves. Local family-run businesses are unable to compete, and our downtowns struggle to reinvent commerce within an existing infrastructure that was formerly far more energy efficient, community based, and human scaled. Battle lines have been drawn all over the country by forward-looking individuals determined to preserve their local economies and their downtowns. In her work Stacy Mitchell has gone behind the scenes and joined in these countless community struggles. Proposing policies and rules for change, she brings a message of hope that fosters the commitment needed to win back our lost self-reliance.
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Two hundred and thirty-three years ago a group of colonists forced their way onto three ships docked in Boston Harbor and dumped more than 90,000 pounds of tea into the sea. This is familiar history to most of us, but what many do not realize is that the colonists' actions that night were as much a challenge to global corporate power as they were a rebellion against King George III.
The ships were owned by the East India Company, a powerful transnational corporation that had recently suffered losses, in large part because the colonists had boycotted its merchandise. In order to rescue the company and restore its profits, the British parliament passed the Tea Act, which exempted the East India Company from paying taxes on the tea it sold in the colonies. The aim was to enable the company to undercut small local competitors, all of whom were subject to the tax, and drive them out of business.
The British government and the East India Company were counting on the lure of cheap tea to overpower any sense of principle, but they misjudged. The colonists continued to support their independent merchants and boycott East India tea. Their actions in the harbor that night and the British retaliation that followed ultimately led to an organized boycott of all British goods. Homegrown and locally made became the fashion of the day. The Declaration of Independence soon followed; the rest, as they say, is history.
Our fore-fathers and -mothers understood that local self-reliance was essential to democracy and that concentrated economic power was as much a threat to their independence as the British crown, but sometime in the past two centuries we seem to have lost track of this vital truth. Today our communities are fast becoming colonies once again, subject to a new crop of powerful transnational corporations with names like Wal-Mart and Target, Home Depot and Barnes & Noble.
The pace of corporate retail expansion over the past fifteen years has been staggering and unprecedented. Lowe's and Home Depot came from nowhere to capture half of all hardware and building-supply sales. Barely blips on the radar screen in 1990, Barnes & Noble and Borders now control half of all bookstore sales. The top five grocery chains had one-quarter of the market as recently as 1998; today they account for one of every two dollars we spend on groceries. Every category of merchandise, it seems, is now dominated by two or three national chains, and Wal-Mart dominates them all. With six-thousand stores and $300 billion in annual revenue, Wal-Mart captures a stunning one of every ten dollars we spend. It is the country's top retailer of groceries, furniture, clothing, music, toys, jewelry, movies, and countless other products.
Chain retailers are even more powerful than their market shares suggest. Because they are the keepers of the gate through which products must pass to reach consumers, the chains control not only retailing but also manufacturing. They have near absolute power to dictate what goods the global economy produces, how they are made, where they are made, and by whom. The retail store is therefore the place where our households intersect with much of the rest of the economy. In deciding whether to patronize a locally owned business or a chain store, you are choosing between two economic systems.
Shop at a locally owned toy store and you may well find wooden toys made by Beka, a small family-owned manufacturer in St. Paul, Minnesota. Some years ago Beka's owners decided not to sell toys to the chains. Doing so, co-owner Jamie Kreisman explained to me, would require moving production to China, and that would mean eliminating the two aspects of the business he and his siblings most love: working with wood and the relationships they have with their suppliers, employees, and customers. "I know the people I order lumber from on a personal basis," he said.
Shop at a locally owned grocery store such as Catalano's Market in Fresno, California, and you are likely to find produce grown by nearby farmers like Paul Buxman, a second-generation grower of peaches and nectarines. Buxman nearly went bankrupt selling to big supermarket chains. "When you talk to a man in a cubicle who has never tasted the fruit, who has never been on a farm, there is no relationship," he told me. This distance enables the supermarket buyers to drive a brutal bargain, demanding cut-throat prices and truckloads of identically sized fruit—the kind of perfect-looking but tasteless output that only industrial farms can supply.
Buxman nearly lost his farm trying to comply. Then, a few years ago he took a radical step. He stopped selling to the chains and forged relationships with the handful of locally owned grocery stores still left in the region. He bends over backward to give them the freshest, best-tasting fruit possible, and they honor this relationship by paying a fair price and being flexible about the natural ebb and flow of supply. A peach tree, after all, is not an assembly line.
Or visit Coffee By Design, a local roastery and coffee shop in Portland, Maine. Lining the walls are photographs of the Central American coffee farmers who supply the beans. There they stand in front of their coffee bushes, smiling, arm-in-arm with the Coffee By Design's owners, who—having recognized the often unsustainable and exploitive conditions under which coffee is harvested—have opted for direct relationships with the family farmers growing the beans they buy.
Small is beautiful in part because it facilitates an economy built on personal, face-to-face relationships. Not all local retailers can source everything they carry on that basis, but such relationships are utterly impossible in the chain-store economy. If we want to live in a world where there are small farms and small manufacturers who care about their products and their employees, then we must be adamant supporters of independent retailers because their stores are the lifelines on which these producers depend. As toymaker Kreisman told me, "Without them, none of us would be here."
When we shop at a locally owned business, we connect to an economy that operates on a human scale. A much larger share of the dollars we spend there remains in the local area. Local retailers not only source some goods from local suppliers; they also buy many other services locally. They hire local accountants, they patronize local banks, they advertise on local radio stations and in area newspapers. Studies have found that if you spend a dollar at a local store, it creates anywhere from 54 to 68 cents of additional economic activity in your community.
When corporate retailers come in and displace local retailers, they sever the webs of exchange that link local businesses with one another and with residents, replacing them with a single-track economy in which wealth flows in only one direction: out. Studies show that upwards of 86 cents of every dollar you spend at a corporate chain leaves the area.
The big-box stores have little need for local services or goods produced by small manufacturers. Indeed, they have no room for domestic manufacturers of any size. Home Depot and Lowe's recently pressured the toolmaker Black & Decker to slash its costs by moving production out of the country. Because the two chains account for more than one-third of its sales, Black & Decker decided it had no choice but to comply. It laid off more than four thousand employees. Makers of everything from televisions to toaster ovens have done the same thing. Since 1990, the U.S. has lost about 3 million manufacturing jobs. Those who lose their jobs are unlikely to find new work that pays as well as what they had been earning. In all but two states, new jobs being created today pay substantially less than those being lost. Along with small-business owners, manufacturing workers are the other key pillar of this country’s middle class that are being undercut by corporate retailers.
The chains' relentless drive to cut costs does not end with shipping jobs to low-wage countries. Even in places where the legal minimum wage is less than 50 cents an hour, retailers still press factories to lower their prices. Workers in these factories not only suffer miserable wages and working conditions, they also have little hope for a better life. Should their wages rise, the chains can cut their ties to a place and move production to another factory or even another country in a matter of weeks.
One of the great tragedies of a far-flung system of production and distribution is that the workers who make what we buy are largely hidden from our view. They are not revealed by the red, white, and blue banners floating over racks of clothing at Wal-Mart or the brightly lit shelves at Best Buy. The chains count on us to ignore their plight. We are told that big-box stores represent progress, that they are the product of a kind of natural market evolution. But what I have described does not look much like progress. It is not an economic system designed to foster broad prosperity. In fact, what the big boxes most closely resemble, as I have already suggested, are the old colonial economies of the European superpowers, which were organized, not to improve the lives of the local inhabitants but to extract and appropriate their wealth.
One of the best studies of the civic consequences of concentrated economic power was conducted sixty years ago by Walter Goldschmidt, a sociologist working for the U.S. Department of Agriculture. Goldschmidt spent months studying two farming communities in the fertile San Joaquin Valley of California. The towns, Arvin and Dinuba, had much in common. They were the same size, possessed the same rich soil and balmy climate, and produced an identical volume of agricultural crops. Both were about the same distance from major cities and were similarly served by highways and railroads. The two towns differed in only one major respect: Dinuba's economy was composed of many small family-owned farms, while Arvin's was dominated by a handful of large agribusinesses.
Goldschmidt discovered that Dinuba, with its family-farm economy, enjoyed a better standard of living. Not only was the median income higher but there was less income inequality. Dinuba also possessed far superior community infrastructure. The town's paved streets, sidewalks, and garbage services exceeded those in Arvin in both quality and quantity. Whereas Dinuba maintained four elementary schools and one high school, Arvin had but one elementary school and no high school. Dinuba had three sizable public parks, while Arvin had only one meager playground. Perhaps most significantly, Goldschmidt discovered that Dinuba had a richer civic life, with more than twice the number of civic and social organizations. It supported two newspapers, each larger than Arvin's single newspaper. And Dinuba's citizens were much more engaged in public affairs; their counterparts in Arvin lacked structures for political participation and had largely surrendered decision-making to county bureaucrats.
What Goldschmidt's research demonstrated is that ownership matters. Communities that possess a degree of economic self-reliance care more competently for themselves, whereas concentrated economic power threatens their social well-being and even democracy itself. One might expect such findings to have had a powerful influence on public policy, but in fact Goldschmidt met with a hostile reaction. Under pressure from powerful Congressmen affiliated with giant agribusiness, the USDA not only declined to publish Goldschmidt's study but even fired him. The federal government then proceeded to spend the next sixty years fostering the expansion of big business.
Today it is hard to imagine the federal government even considering the question of whether big corporations might have a detrimental effect on democracy and community well-being. Fortunately, a handful of sociologists, including Thomas Lyson of Cornell University and Charles Tolbert of Baylor University, have rediscovered Goldschmidt’s work and picked up where his earlier research left off. Rather than focusing on case studies, they are conducting large-scale statistical analyses. Their findings consistently show that communities with a larger share of their economy in the hands of independent businesses are healthier than those dominated by large corporations. These communities have less income inequality and lower rates of poverty, crime, and infant mortality. Their civic life is also much more vital. Residents are more likely to attend school-board and city-council meetings as well as to join neighborhood organizations. They also vote in higher numbers.
What accounts for this? How is it that locally owned businesses strengthen community life and democracy? Or conversely, what is it about having one's local economy colonized by the likes of Wal-Mart and Walgreen's that undermines the social fabric and makes people less likely to become involved? There are multiple, interconnected answers to this question. Let me suggest two that I believe are particularly significant.
One is that local ownership helps to ensure that what's good for business cannot be uncoupled from what's good for the community. For local owners the place where they do business is not simply a source of profits; it's home. Because of this, their business decisions usually reflect a broader range of concerns than simply maximizing the bottom line. Consider, for example, a city that is weighing a proposal to cut property taxes. A chain operating in that city has nothing to lose and much to gain by lobbying for passage of the tax cut. But a local owner must weigh the financial benefit to her business against the impact that the loss of city revenue will have on the schools her children attend.
Independent business owners routinely make decisions that sacrifice profits for community benefits. This is not the case with corporate chains. They routinely sacrifice valuable community assets, such as a beautiful view or the quiet of a neighborhood, in pursuit of their own expansion and profitability. Their decision-making is governed by a single, overriding purpose: to maximize profits. The directors and executives who make the decisions do not have to live with the effects of their actions. If they opt to pave a wetland and pollute the groundwater, it is not their own families who are left with compromised drinking water. If they inundate a neighborhood with traffic, it is not their own property values or quality of life that suffers.
A second reason why communities with a larger share of locally owned businesses are healthier is because independent retailers provide a setting for casual interaction among neighbors. For those fortunate enough to live in a place with a thriving local business economy, running one's daily errands is not so much a chore as it is a chance to socialize. Local businesses fulfill this purpose because they are generally small in scale and embedded within traditional neighborhood business districts or, in smaller cities and towns, along Main Street. In these environments people tend to get around on foot and are likely to have chance encounters with their neighbors.
No one captured the flavor of the public life of a neighborhood business district better than Jane Jacobs. Drawing on observation of her own Manhattan street, she noted that a sense of neighborhood trust "grows out of people stopping by at the bar for a beer, getting advice from the grocer and giving advice to the newsstand man, comparing opinions with other customers at the bakery and nodding hello to the two boys drinking pop on the stoop . . . hearing about a job from the hardware man and borrowing a dollar from the druggist . . . .” She continued, “Most of these small interactions are ostensibly utterly trivial, but the sum is not trivial at all." Chatting with a casual acquaintance at the hardware store may not seem important, but it would be difficult to overstate the community value of such neighborly interactions. They create what sociologists today refer to as "social capital." Cities and towns that have social capital are much better at solving their problems and are far more resilient in times of adversity.
In places that have a robust informal public life, residents are apt to know a large and diverse range of people. This helps to reduce social divisions and to foster empathy, camaraderie, and ultimately a sense of responsibility for one another. It's not surprising, then, that people who live in communities with an abundance of local businesses, healthy downtowns, or neighborhood business districts are far more likely to become involved—to volunteer, join a neighborhood group, attend town or city-council meetings, or run for local office.
Spaces that support an informal public life are no longer common in the United States. They are almost entirely absent from today's suburbs and corporate retail developments. Walking is not an option in much of the built environment, so we drive, usually alone, arriving in a vast parking lot, a place that could not be less hospitable for human interaction. Once inside the store, we negotiate a vast interior. These stores are sized to serve regions, not neighborhoods, and thus the likelihood of the person ahead of us in line being a neighbor is very slim. In this hyper-individualized existence it is no wonder that we feel increasingly alienated and disconnected from one another, that we feel no sense of responsibility for our neighbors and no desire to become involved in our community.
Sensing our growing unease about the demise of community and keen to capitalize on our longings, corporate retail developers have started building places like Easton Town Center. Situated on the outskirts of Columbus, Ohio, Easton Town Center looks, at first blush, like a traditional downtown. It has stores situated around a town square with upper-story offices and nearby apartments. There are benches and street lamps. But this town center is a fake. Rather than housing local businesses, Easton has dozens of national chains like Abercrombie & Fitch and Williams-Sonoma. Pan back from this Main Street scene and you will see that the whole complex is surrounded by thousands of parking spaces. All of these stores—some 1.5 million square feet of retail—were not designed to serve the few dozen households that live nearby but to draw shoppers from the entire region. Despite its name, Easton Town Center is not the center of anything. The only geography governing its location is its proximity to the confluence of Interstates 270 and 670. Some eighteen million shoppers visit Easton each year, making its town square at one and the same time a kind of celebration of walkable places and a major inducement to more driving.
Artificial Main Streets represent one of the latest trends in chain retail development. More than a hundred of them have sprung up around the country, and dozens more are being built right now. Every few years, it seems, corporate chains unroll new shopping formats. First there were the strip shopping centers; then came the enclosed malls, followed by a series of ever larger regional malls. Big-box stores came next, first in single outlets and then grouped together in what the industry calls "power centers." Each successive wave of development has undercut traditional business districts. Now these same developers have decided to take the very thing they destroyed—Main Street—and sell it back to us in the form of places like Easton Town Center.
All of this retail development has consumed hundreds of thousands of acres of wetlands and forests, farms and fields. Here's an astounding statistic: Since 1990 the amount of retail store space per person in the United States has doubled from 19 square feet to 38. By comparison, Great Britain has just 7 square feet. And the land-grabbing binge is even worse than these figures suggest because most of this new development is designed with cars in mind. This means that for every square foot of new store space we have built, another 3 to 4 square feet has been paved for parking.
It is not growth in spending that’s propelling this expansion. Over this same period median household incomes, adjusted for inflation, rose less than 10 percent while retail has doubled its space. The culprit is a kind of development arms race, as each chain tries to out-do its rivals by building newer and bigger outlets that can draw shoppers from other outlets. The chains know that by flooding areas with excess retail space they can more easily capsize local businesses and steal market share from older shopping centers.
We do not need or utilize all of this excess retail, and indeed much of the country is now strewn with the fallout. More than one hundred malls are now dark; another 250 are teetering on the edge of financial collapse. Hundreds of strip shopping centers are vacant. Thousands of big-box stores have been abandoned as well, usually because the company opted to build an even bigger box nearby. Wal-Mart alone has some three hundred empty stores, most sitting idle only a mile or two from a new supercenter.
This pattern of land use and the way of organizing our daily lives it imposes are fundamentally unsustainable. Here's another astounding statistic: Between 1990 and 2001 the number of miles driven by the average family for shopping each year increased by more than 40 percent. Driving in general has been expanding rapidly, but driving for shopping has grown more than twice as fast as for any other purpose. For the country as a whole, shopping-related driving rose by almost 95 billion miles in just eleven years. Not only are we moving more miles, so are the goods we buy. Each year chain retailers ship, truck, and fly more goods around the world and across the country. Global shipping has been expanding faster than the world's economic output and is one of the fastest growing sources of greenhouse-gas emissions.
Perhaps most disturbing, corporate retailers are intent on replicating their business model the world over, replacing long-standing traditions of shopping for locally produced wares in local markets with big-box stores that source globally and induce people to drive to them for their daily errands. Wal-Mart is busy right now in India, a country where 90 percent of retail sales is still in the hands of local retailers. Wal-Mart is pressuring the government of India to abolish laws that prevent it from opening superstores in that country, and they are doing this elsewhere as well.
Our hyper-mobility—as manifest in the sprawling, car-based settlement pattern that we have favor and the distance that most of the goods we buy are transported—probably constitutes the greatest environmental threat we face. It certainly accounts for the bulk of the greenhouse gases we emit. But it's a threat that our current approach to environmentalism seems unable to solve. Making incremental improvements to an inherently unsustainable economic system will not get us far. Gains in automobile fuel efficiency, for example, would have to be dramatic to outstrip the rate of growth in miles driven. Likewise, new regulations are expected to lead to cleaner diesel fuel and therefore lower truck emissions, but if shipping continues to expand at its current rate, these gains will be more than offset by increases in cargo volume.
We must find a new way of approaching the environmental crisis. What is needed, wrote Bill McKibben in a recent essay for National Geographic, might be described as a kind of "convivial environmentalism," a movement that taps into our deep aspirations for connection and community in order to rebuild locally rooted economies, a movement that celebrates the experience of buying carrots at the farmers market and chatting with the farmer or the pleasure of running into neighbors at the pharmacy down the street. What is encouraging about this vision of how to approach the environmental crisis is its ability to unite a broad range of concerns. No matter what keeps you awake at night—whether it’s the melting ice caps, peak oil, the threat of terrorism, the power of corporations, or the demise of civic engagement—the solution to all these problems lies in rebuilding our local economies.
The rewards of reviving local enterprises are many. They include a more diverse culture and a richer customer experience. Walk into Box Office Video in St. Paul, Minnesota, and you will be greeted not by a wall of the latest blockbuster films but by a rack of hundreds of documentaries. While chains like Blockbuster Video carry only a small number of documentaries and relegate them to the back aisles, at Box Office documentaries get the best real estate in the store. That's because the owner happens to be a fan. He also believes that the 1970s represent the best era in American cinema. He's delighted to tell you why and has even started a special section just for 1970s films. His enthusiasm is infectious; in addition to renting a broader range of movies than they may have intended, his customers often leave the store having learned a bit more about film.
We are so hypnotized by the notion that the chains are somehow a superior and more advanced form of business that we are blind to how much we lose when locally owned businesses disappear. More often than not, local stores are owned by people who possess a level of expertise and passion for what they sell that is unmatched by corporate retailers.
Independent retailers play a crucial role by insuring that we have access to a diverse range of products .Collectively they stock far more than the chains. Each independent toy store, for example, has a unique mix of products selected by the owner. Add up all the independent toy stores across the country and you get a huge variety of toys, including many made by manufacturers not big enough to supply the chains, but they can supply, say, one hundred local stores. In contrast, Wal-Mart, Target, Toys R Us, and other major toy retailers stock basically the same set of toys, almost all made by big manufacturers, in each of their outlets nationwide. As these chains take over more of the market, the diversity of toys available on store shelves has declined, and there are fewer opportunities for new products, no matter how innovative, to reach customers.
Much the same trend is occurring in virtually every product category. It is of particular concern in the context of film, music, books, and other works of expression. Although typically smaller than Borders and Barnes & Noble outlets, independent bookstores as a group carry a much broader range of books. They each make their own decisions about which books to feature at the front of the store and promote to their customers. Many of our most important and beloved authors would quietly have gone out of print had it not been for a small number of independent booksellers who discovered their work and thrust copies into the hands of customers. Without these booksellers we would face a world where three global corporations—Barnes & Noble, Borders, and Amazon—control which books are published and promoted. "That seems so un-American,” said novelist Barbara Kingsolver, just one example of a writer who believes she owes her successful career to a handful of booksellers who read and loved her first book. Although independent bookstores account for only about 10 percent of all book sales today, they play an inordinately large role in introducing us to new authors and to important books that wouldn’t have a chance with chain stores.
Some argue that we will soon be reading, listening to, and watching a vastly broader range of works, thanks to on-line purveyors like Amazon and Netflix. The issue is not so much one’s access to a particular work, however, but rather how one learns about it in the first place. I doubt that a couple of on-line mega-retailers can nurture and sustain a truly diverse marketplace of books, film, music, etc. The passion of thousands of independent owners, each talking to customers about books and film and music as well as making thoughtful recommendations adds up to so much more than a set of computer algorithms could ever deliver.
Often independent owners are far better at what they do than their corporate rivals. If you are a customer of Sullivan Drugs, a 150-year-old pharmacy in Lancaster, New Hampshire, chances are good that pharmacist David Rochefort knows you by name. He keeps a close eye on his customers, talking with them about their health and often compounding special dosages and drug combinations to meet their particular needs. Sullivan Drugs is not an anomaly. According to a year-long study by Consumer Reports most independent pharmacies provide a level of personal attention and health care that goes well beyond dispensing drugs. The study found that on the basis of a variety of factors—from the pharmacist’s knowledge to the quality of the health information provided to the speed with which prescriptions were filled—independent pharmacies out-scored, by "an eye-popping margin," all other types of pharmacies, including chains like CVS, supermarkets, and mass merchandisers like Target and Wal-Mart. So overwhelmingly superior were the independent pharmacies, Consumer Reports found, that its report opens by bluntly advising readers to stop going to a chain and to find a locally owned pharmacy.
Supporting locally owned businesses does not necessarily entail paying more. You might be surprised to learn that Consumer Reports conducted a nationwide survey of appliance prices last fall and reported that the best place to buy was not Home Depot, Costco, Target, Best Buy, or even Wal-Mart. The lowest prices were offered by independent appliance dealers. Similar studies of hardware stores and pharmacies have likewise found that independents often match or even beat chain store pricing. How can this be? Many independent retailers now belong to wholesale buying cooperatives, which give them access to the same volume efficiencies that chains enjoy. Local retailers who carry locally produced food and other goods also cut out distribution and shipping costs—a savings that will only increase as oil prices rise.
Meanwhile, the chains employ a variety of sophisticated merchandising strategies to create the impression that their prices are lower than they actually are. Big-box stores price key items and even whole departments below cost, making up the difference in other product categories. Once they have eliminated competitors and attained a dominant share of the market, their prices rise. In 1999, at the end of a decade that saw nearly three thousand independent bookstores close their doors, Barnes & Noble and Borders quietly put an end to the across-the-board 10 to 20 percent discounts they had been offering on books. Surveys in Nebraska and Maine have found that prices at some Wal-Mart stores—those located in places where there is no longer much local competition—are as much as 15 percent higher than at others.
Uncle Sam's Invisible Hand
The conventional wisdom is that the rise of the chain stores and their growth over the past fifteen years are the result of consumer choices, but in fact that growth has been aided and abetted in no small part by public policy. It began in the late 1950s with a tax trick called accelerated depreciation, which fueled an explosion of suburban shopping malls and then escalated dramatically in the 1990s as cities across the country started funneling billions of dollars in subsidies to chain-store developers. These giveaways continue today, taking many forms such as free or reduced-price land, property tax breaks, sales tax rebates, free infrastructure, and low-interest loans. Target recently was given $7 million in public funds to build a store in Fort Worth, Texas; over $9 million in subsidies went to a Missouri shopping center anchored by Lowe's; and in Arizona the Chandler Fashion Center, home to chains like Barnes & Noble and Pottery Barn, received $42 million. Always an industry leader, Wal-Mart has been first at the public trough, taking more than $1 billion in public subsidies to fund construction of its new stores and warehouses. Rarely are subsidies given to independent businesses, which are told that they must learn to compete in the so-called free market.
The favoritism does not end there. More than twenty states have provisions in their tax codes that enable chains, but not independent retailers, to avoid paying income taxes. This tax loophole has been so heavily utilized by the chains that tax experts have nicknamed it the Geoffrey Loophole after the Toys R Us mascot, Geoffrey the Giraffe. The Geoffrey Loophole is one of several corporate tax-sheltering schemes that together save companies $8 to $12 billion a year, according to the Multistate Tax Commission.
If you opt to buy a book at Amazon.com rather than at your local bookstore, you will be rewarded with a 5 to 9 percent discount because Amazon.com is not required to collect a sales tax (in the 45 states that have one). Why should we give a company that has no local employees, does not occupy a local storefront, and hosts no author readings or other events a competitive advantage over a local store that does all of these things?
The playing field has been tilted too by the failure of state and federal officials to police predatory pricing and other abuses of market power, which has allowed the big chains to force out smaller rivals simply by being bigger, not by being better competitors. In a country that values fairness and independence, where every politician espouses the value of small business, it's distressing to realize the degree to which government has stacked the deck.
In one respect, however, this is good news, for it indicates that local businesses are not the obsolete entities some make them out to be. In fact, given the uphill terrain they have faced, the remarkable wonder of the last decade is not that so many have failed but that so many have been skilled and scrappy enough to survive. It's good news too in that policy is something we control. We can opt to end the favoritism by enacting policies that support locally owned businesses. Indeed, across the country there is a growing grassroots movement afoot to do just that.
Earlier this year, two young mothers in Damariscotta, Maine, heard a rumor that Wal-Mart wanted to build a 187,000-square-foot supercenter in their town. Damariscotta is a coastal village of just two thousand people. Its downtown is home to numerous locally owned businesses, including a grocery store, hardware store, pharmacy, and department store. "When I heard about Wal-Mart, it was like a punch in the gut," said Jenny Mayher. She and her friend Eleanor Kinney decided to fight back. When they called a community meeting, more than eighty people turned out and formed a coalition called Our Town Damariscotta. Over the next few months they led a spirited campaign to persuade residents that the town should reject big-box retailers by adopting an ordinance that would prohibit stores of over 35,000 square feet, about one-sixth the size of a typical Wal-Mart.
As you might imagine, Wal-Mart didn't take this lying down. The company spent over $100,000 on a slick campaign of glossy mailings sent to every mailbox in town. It conducted what are called push polls, pretending to be an independent polling agency but actually feeding residents propaganda about how good the store was going to be for the town. It intimated that it might sue if the ordinance passed and even threatened to build its store just beyond the town's boundaries in an adjacent community, which would still cause the same damage to Damariscotta’s economy. But that strategy backfired when residents of neighboring towns also began organizing and advocating for retail-store size limits.. In March residents of Damariscotta passed the size-cap ordinance by a two to one margin, and the movement then swept up the coast as citizens in one town after another voted overwhelmingly to ban big boxes.
What happened on the Maine coast this year was a modern day Boston Tea Party. The good news is that such tea parties are occurring across the country. Since 2001 citizens groups have succeeded in blocking corporate retail development in some two hundred cities and towns. At the Institute for Local Self-Reliance we have been advising many of these groups, helping them not only to beat the big box but to go a step further and implement long-term strategies for rebuilding and strengthening their local economies. Today I'd like to tell you about the steps I think must be taken if communities are to reverse the corporate take-over and revive local economies.
Today I'd like to tell you about the steps I think must be taken if communities are to reverse the corporate take-over and revive local enterprise.
First, we need to stop thinking of ourselves as consumers. At the Institute we've noticed that, despite differences in local circumstances and demographics, successful campaigns against big-box retailers all have one striking commonality: a core part of their strategy involves getting people to see themselves not just as consumers but as workers, producers, business owners, citizens, and stewards of their community. When people walk into a voting booth or city council meeting with this vastly expanded sense of their own economic and political identity, they are far more likely to reject big-box development projects and to endorse measures that force these companies to adhere to higher standards. This is a crucial lesson as we work to knit these local efforts together into a broader movement to counter the power of global corporations.
In contrast, when the big chains win, they do so by getting people to assume the familiar and narrow role of consumer and to view their relentless expansion and radical restructuring of the economy as simply a matter of shopping options. Although pervasive in its influence today, this consumer identity is a relatively recent invention. It did not become a powerful force in U.S. politics until the years after World War II. To a large degree it was created and propagated by the first generation of chain retailers—companies like A&P, Kroger, and Woolworth that encountered such strong public opposition to their initial growth in the 1920s and 1930s as to call into doubt their continued existence. The chains responded with a massive public-relations campaign that managed to transform American citizens into consumers—a sharply circumscribed identity that corporations have used to augment their power ever since.
Second, people need to join together to transform government policy. Among the most powerful tools we have for shaping the nature of economic activity in our communities are our local planning and zoning policies. Winston Churchill once said, "We shape our buildings; thereafter they shape us." The same could be said of zoning ordinances. For decades, they have undermined community, favoring large-scale over small, driving over walking, distance over proximity, and absentee over local ownership. A growing number of communities are now revising these rules. Some, like Damariscotta, are adopting ordinances that insist on humanly scaled stores. Many others are barring retail development on the outskirts of town and insisting that new investment flow instead to traditional neighborhood and downtown business districts. Some require that retail development proposals pass a community impact analysis that scrutinizes the probable effect on other businesses, jobs, the environment, and the social well-being of the town. Those projects found to be harmful are then rejected.
More than two dozen towns and cities have enacted ordinances that either limit the number of or prohibit altogether so-called formula businesses—those that operate according to a standardized formula that makes them virtually identical to other business establishments. The list includes small towns like Port Townsend, Washington, and Bristol, Rhode Island, as well as larger cities. San Francisco, for instance, has barred formula businesses in several neighborhoods and requires them to apply for a special permit to open in other neighborhoods.
Coalitions of local business owners, labor unions, and environmental groups are working in several states to prohibit subsidies and other favors from flowing to corporate chains. This year Vermont became the first of what will hopefully be many states to close the Geoffrey Loophole, which chain stores use to escape their tax liability. This action was taken in part because of the advocacy of independent businesses.
Third, we need to help new local businesses get started. It is not enough for land-use policy to prohibit what we don’t want; we also need to actively nurture new businesses in order to achieve what we do want. Imagine if those hundreds of millions of dollars that cities and states spend each year subsidizing corporate retail growth were instead channeled into the development of entrepreneurship programs aimed at rebuilding our local economies.
Every community in this country should have an active, well-funded program to revitalize its historic downtown and neighborhood business districts. If they are well-maintained, these compact and walkable areas provide the ideal habitat for locally owned businesses to take root and grow. In 2004 such a program in downtown Culpeper, Virginia, enabled Julie Simpson to start a local market that sells meats, produce, and cheeses from local farmers. This was something she couldn’t have done even a couple of years earlier because this was a downtown that was boarded up and totally inhospitable to any kind of business. But thanks to a local Main Street revitalization program called Culpeper Renaissance the area was brought back to life.
We should also establish mentorship programs that pair veteran business owners with a new generation of entrepreneurs. One of the best examples is an initiative of the National Community Pharmacists Association that enables pharmacy students to start their own drugstores right out of school, thanks to hands-on assistance and financial help from an established pharmacist in their region.
Another need for many new business owners is affordable start-up space. Every community should have a retail incubator, a large, centrally located storefront where new entrepreneurs can rent a small kiosk space at low cost, build a customer base, and then move into a full-size storefront elsewhere in the community. I saw the results of one of these incubators in the Andersonville neighborhood on the north side of Chicago. Over the years this once derelict commercial stretch has been repopulated with many local independent businesses. As for how best to structure and manage these incubators, we might look to Community Land Trusts, which have been very effective in creating affordable housing and could serve as a model for carving out affordable commercial space in our towns and neighborhoods.
We also need to find ways to better capitalize local businesses. Even if you believe strongly in local enterprise, much of your savings is probably invested in the stock market through a mutual fund or 401K plan. Right now we have virtually no mechanisms for investing in our local economies. Cities could help solve this problem by using part of their reserve funds to invest in portfolios of local businesses. Public pension funds could do this as well and could begin to establish investment vehicles for capitalizing local businesses. These vehicles could eventually be made available to individuals in the form of a kind of local-business mutual fund. A handful of towns have found innovative ways to finance specific local ventures. Rather than let in a Wal-Mart store, residents of Powell, Wyoming, launched a community-owned department store. The store, which sells affordable clothing and housewares, was capitalized by 800 local families who bought shares at $500 a piece. It opened in 2002 and has turned a profit every year since.
Fourth, and in some ways most importantly, we need to arouse public awareness of the importance of locally owned businesses and the hidden costs and dangers of the corporate economy. Spend a little time in Austin, Texas, and it won’t take long for you to notice the messages. Bumper stickers advise, "Think Independently. Shop Locally Owned." Banners hanging on storefronts read, "Local Spoken Here." T-shirts urge, "Keep Austin Weird." Circular yellow decals on the entrances of local businesses feature a blue armadillo in sunglasses and the words, "Austin Independent Business Alliance." Indeed, the armadillo is everywhere—in newspaper ads, on the cover of a free guide to locally owned independent businesses, on posters that urge, "Break the Chain Habit." All of these messages are part of an ongoing educational campaign by the Austin Independent Business Alliance, a coalition of some 350 local businesses. Launched four years ago, the campaign uses the media, local events, in-store marketing materials, and advertising to detail the benefits of local businesses and urge residents to support them. According to business owners, the campaign has had a remarkable impact on people's shopping choices. "Locally owned" has become a selling point, something that many residents actively seek out.
Similar initiatives have been launched in more than four dozen cities and towns across the country, from Bellingham, Washington, to Portland, Maine. Perhaps as many as twenty thousand independent businesses are participating. These coalitions are having a profound influence on people's shopping choices but are giving independent businesses a newfound voice at city hall and more clout with local developers and other private entities.
All of this activity may well herald a sea change in our priorities as a society. There are tantalizing signs that growing awareness of the value of independent businesses is beginning to have an effect. Over the past couple of years independent bookstores have stopped losing market share. Last year for the first time in memory Ace Hardware, a wholesale cooperative owned by independent hardware stores, reported that it broke even in terms of membership—that is, as many new independent hardware stores opened as closed. Since 2003 the United States has experienced a net increase of over three hundred new independent pharmacies. This suggests that the decline of local enterprise is by no means inevitable. Implemented more broadly, the kinds of initiatives I have described today could usher in a future that is not dominated by a handful of global corporate giants but instead is characterized by thriving local economies and vibrant self-reliant communities.
Excerpts from the Question Period
[Question inaudible on the tape]
The program area that I work for at the Institute for Local Self-Reliance is called the New Rules Project, and its thesis is that many public policies in place today at the federal, state, and municipal level undermine local economies, subvert democracy, weaken our sense of community, and ignore the costs of our decisions for the next generation. We believe it's time to change the rules. The centerpiece of the project is an on-line clearing house of more than three hundred policies that we consider models. These are actual policies—ordinances, state laws, federal regulations—that support small-scale agriculture, community banking, independent businesses, and sustainable transportation systems.
Two things I think we need to do are, first, to make the price of gasoline reflect the full cost to society and, second, to take the money we spend subsidizing the car and use it to fund better public transit systems. One of the great benefits of doing that would be to support the local economy. If we had not favored our predominantly car-based mode of development over the past fifty years, we would still have the occasional large store, but big-box retailers as we know them would not exist.
I have good friends who are Ecuadorian, and I was complaining to them about Wal-Mart and the outlets. One of their children said, “But they employ my brother and my father and my mother.” I couldn’t think of what to say. Can you tell me how to respond to that?
One of the most challenging aspects of the global corporate economy, and Wal-Mart's business model in particular, is that it creates the very conditions that make people so hungry for the low-quality jobs it offers. For example, cheap exports of subsidized farm commodities from the United States to Mexico and Latin America have kept so many people from being able to earn their livelihood from the land and driven them into the cities, where unemployment is high and people are desperate to find jobs at factories that produce export goods for Wal-Mart and other companies. These jobs barely keep workers alive and contribute virtually nothing to the development of the local economy.
Communities in the United States that have lost manufacturing plants and small businesses are similarly desperate for the jobs that a new Wal-Mart store creates. These jobs are not only low-paying, but something of a mirage. There is now convincing research, a new study by University of California economist David Neumark, that tracks Wal-Mart store openings in over three thousand counties across the United States since the 1970s. It finds that each new Wal-Mart causes an average net loss of 150 retail jobs in a community.
How can this be? Well, if a new store is built, it doesn't mean that people have more money to spend. They're not going to buy more rolls of paper towels or more gallons of milk just because a big new store has opened. The amount of spending in a community is a result of how many people live there and how much income they have. A new superstore does not increase spending; it merely reapportions the pie. Existing businesses are forced to downsize or close, and the resulting job losses actually exceed the number of job gains at the new store.
It is a self-reinforcing cycle. The only way out of it is to focus on building an alternative economy, one rooted in small-scale enterprise, dispersed ownership, transparent relationships, and fair trade.
How can the Institute for Local Self-Reliance use some of the work it’s done in the area of retail to increase renewable energy production companies, small local companies that produce electricity from renewable sources, from liquid or gaseous biofuels?
That's actually a much longer-standing part of our work than the retail piece, which didn't begin until about nine years ago. ILSR was founded in 1974 and has been working on energy policy from the beginning. One of the founders of the organization, David Morris, who was a Schumacher lecturer in 1996, has done terrific work in helping states look at how their electricity regulations work, with the goal of supporting renewable power production, particularly that which is scaled to the community level. State and federal policymakers are now writing rules that will determine not only how much of our energy will come from renewables but also how this sector will be structured. Will it consist of giant wind farms that feed into a far-flung transmission system? Or will it be dispersed, localized production, with every community developing its own mix of small-scale wind, solar, biofuels, and other sources of energy? We think the latter makes much more sense because it will benefit both the environment and local economies. The kinds of policies that states adopt today will play a major role in determining which future we usher in. If you want to know more, I highly recommend David's book Seeing the Light and the "Energy" section of our web site at www.newrules.org.
I think the politicians and the developers are in league with each other. It doesn’t seem to matter how much the citizens of the towns are opposed to more development, don’t want the big boxes, don’t want the $500,000 houses taking the place of the woods. I’ve lived in two towns where citizens have done serious work trying to keep those things from happening, but the local politicians just don’t respond, and the developers, a lot of whom live locally, are allowed to do whatever they want. We don’t have control over what happens even when we band together and hundreds of people flood the city halls. I didn’t hear you make the connection between local developers and local politicians. Do you have any statistics or research on that?
Your comments speak to the fact that most people in this country pay relatively little attention to local elections. We do not get involved, and we often don’t even know much about the candidates. Many of us don’t vote in city council races. The result is that we have a shocking number of elected officials at the local level who do not protect the interests of their communities. Planning boards across the country are filled with developers and other real estate interests. I think the problem is that citizens are not engaged enough and are not themselves running for local office.
The Institute for Local Self-Reliance believes that politics at the local level needs to be reinvigorated. That’s the way fundamental change comes about in society: it begins in our own communities and moves upward from there to the state and federal level. Much of ILSR’s work is focused on arming citizens with the information and tools they need to create policy change in their own backyards.
Last year we started a new project called Big Box Tool Kit (bigboxtoolkit.com). It has two parts. One is an interactive map that identifies hundreds of citizens groups across the country that are fighting large-scale retail development projects, working to change local policy, or organizing buy-local campaigns. You can click on each marker to see more information about the group and go to its website. The other part of the Tool Kit consists of resources to help citizens groups be more effective at blocking big-box development and advocating for better land-use policies and local business development initiatives.
One of our primary goals with the Big Box Tool Kit is to make sure that these citizens groups do not disband once they either win or lose their particular fight but that they go on from there to run people for local office, to make changes to their land-use policy, to develop pro-active programs for growing local businesses. We are trying to transform what began as defensive struggles against particular development projects into grass-roots campaigns to change local policy and local politics.
I live in a place where the fight has already been lost, at least the first round. What advice do you have for opposing big-box retailers when they already exist where you live?
Many communities do not realize the degree to which these companies want to saturate the market. Wal-Mart, which is already a dominant force in the state of Maine, is trying to build stores in communities with only two thousand people because it wants an ever bigger piece of the pie. Communities tend to think, We’re too small, or We’re just an urban neighborhood, or We already have one, so Wal-Mart won’t build here. Well, the message is that they’re not done. No matter what kind of community you live in, no matter how much retail you already have, big-box retailers want to build even more. As an example, Wal-Mart captures 10 percent of all retail sales nationally, but in Arkansas it accounts for 20 percent. That would suggest that it anticipates doubling its market share—doubling the number of stores—in the rest of the country. There’s virtually no end to how much the company intends to expand.
Stockholders expect these megacompanies to add about 8-10 percent to their store footprint every year. For Wal-Mart that means building 65 million square feet of stores this year alone. This will be done by going into cities, by going into smaller villages, and by building overseas, so no matter where you are, it is never a done deal. Now is the time to find out what your comprehensive plan says. What does your land-use ordinance say about that kind of development? What steps is your community taking to protect itself. Don’t wait.
The other strategy I strongly recommend is to form an Independent Business Alliance and launch a buy-local campaign. As I mentioned, these campaigns, when executed well and sustained over several years, are having a remarkable influence on people's shopping choices.
You’ve been very clear about how to strengthen local communities. Could you comment about urban areas?
An urban neighborhood is not that different from a small town. Ideally it has a business district that meets the basic day-to-day needs of people who live in the immediate area. I think that land-use and zoning policies in urban areas ought to be—and in some cities they are—established on a neighborhood-by-neighborhood basis to reflect the needs of each area and to encourage more citizen participation in setting those policies. Big–box retailers are increasingly targeting our cities, you know. Wal-Mart and Target want to build in Manhattan, and they want to build in Los Angeles and Chicago. That’s the new frontier for them, and it's where many fights are underway. There's plenty of evidence that these massive stores are as destructive to cities as they are to small towns and, in certain respects, even more so. They destroy the diversity provided by the small stores that animate the streetscape and, in doing so, shred the urban fabric.
Is anyone linking the enclosure of the social commons and the natural commons as it relates to privilege and the externalities that are created? When people gained the privilege of being able to pool their capital resources, what we gave them in exchange was limited liability. Essentially what we do by giving a privilege like that is take risk off of individuals and shift it to society.
Our whole system is designed to make costs public while privatizing profits. One of the areas where this notion of the commons is most urgently needed right now is the development of wireless broadband internet networks in many cities. Will cities give control of theses networks to corporations that have no obligation to the public interest, or will they own and operate these systems themselves? The rules and structures that cities adopt today will determine for a long time to come the nature of our information infrastructure. The New Rules Project is advocating for public ownership. We believe that a city-wide wireless broadband network ought to function as a commons that serves the broad public interest. We also believe that the concept of the commons should be a framework applied to many policy areas.
I’m feeling enormously stimulated and inspired by having heard Will [Raap] and Richard [Heinberg] and by the conversations I’ve had with many of you. It's crucial, I believe, that when we come away from an event of this kind, we not just think about what we have heard and discussed but we take some steps in the right direction. I thought I would conclude today by suggesting three things you might do when you get home.
One is to take some kind of political action. I think all three of us in one way or another touched on the importance of public policy and the extent to which the rules we devise create the kind of world we live in. It’s time that we change those rules. I suggest that you ask an elected official at the local level—a city planner or a city council member—whether there are rules in place having to do with retail development and what your comprehensive plan says in that regard. Do you need a store size-cap in your community? Do you need to have economic impact requirements for a developer who wants to come in so that you can carefully scrutinize the proposal and have the option of saying no? Maybe you’d like to call a state representative instead. You might talk to her or him about a state policy that would require all state institutions, universities, and administrative bodies to have a local purchasing policy in place that would call for locally grown food and other supplies. Or you might talk about outlawing the types of subsidies that commonly flow to corporate retail developers. If you’d like to call a member of Congress, you might talk about the need to revive antitrust enforcement, something that has long been ignored in this country.
I want to mention something in particular that most people have not heard about. A commission has been set up by the current administration and Congress called the Antitrust Modernization Commission. One of the things the Commission will probably recommend in its report is abolishment of the Robinson-Patman Act, which was implemented in the 1930s. It’s one of the most important laws we have from the standpoint of independent retail. Rather than getting rid of it, we should be enforcing it. That would be something to talk to a Senator or Congressperson about.
Now, if you don’t know much about these subjects or are a little nervous about calling, go to our web site newrules.org, and click on retail. You can find the information you need. Pick an issue and become an advocate for change by making a call in the next couple of weeks.
The second action I'd like to suggest you take is to start organizing independent businesses in your community. In general, business groups have tended to represent the interests of big business. Although these groups, including many Chambers of Commerce, may have many small-business members, they spend most of their resources advocating for greater corporate power and for policies that undermine the survival of independent businesses. There are, however, two entities that are helping local businesses organize and create a voice for themselves. One is the American Independent Business Alliance, or AMIBA (www.amiba.net). The other is the Business Alliance for Local Living Economies, or BALLE (livingeconomies.org). They both have information about how to organize business groups in your community to become advocates for change.
The third action is to raise public awareness. Simple fact sheets about the impact of corporate retailers are available from the web site I mentioned, bigboxtoolkit.com. You can download and distribute them far and wide. Give them to your city council members.
In the context of education, I think it’s important to become a member of the E. F. Schumacher Society if you’re not one already. Support this Society that’s done such fine work, and let other people know about it.
Thank you very much. It’s been wonderful to be with you today.
Stacy Mitchell is a senior researcher with the New Rules Project (www.newrules.org), a program of the nonprofit Institute for Local Self-Reliance (www.ilsr.org), which challenges the wisdom and inevitability of economic consolidation and works to advance policies that support strong local economies and vibrant communities. A frequent speaker at conferences and public forums, she has advised numerous communities on strategies and policies to strengthen locally owned businesses. Her latest book, Big-Box Swindle: The True Cost of Mega-Retailers and the Fight for America's Independent Businesses (2006) (www.bigboxswindle.com), was named one of the top ten books of 2006 by the Seattle Post-Intelligencer, which described it as "a galvanizing eye-opener that deserves the widest possible audience."
Mitchell regularly contributes articles and commentaries to magazines and newspapers as well as producing an acclaimed e-mail newsletter, "The Hometown Advantage Bulletin." She chairs the American Independent Business Alliance and is a co-founder of the Portland Independent Business and Community Alliance. She lives in Portland, Maine.