Wednesday, March 25, 2009

My New Favorite Book

Tina vs. Lois
An Exotic Seductress vs. the Constant Lover

In my new favorite book, The Small-Mart Revolution (, Michael Shuman pits Tina against Lois, and Lois kicks *ss.

As you might guess by the title, this is a book about local businesses competing against the likes of Wal-Mart and other “big box” stores. TINA is Shuman’s acronym for the status quo view of globalization – “There Is No Alternative.” LOIS stands for “Local Ownership Import Substitution.”

For many communities’ chambers of commerce and economic development corporations attracting Tina businesses is the brass ring. From states in the deep, south clamoring for foreign auto manufacturers to locate in their humble burgs to neighboring communities vying to outdo each other to land the next Home Depot or Super Wal-Mart, Tina gets a lot of attention. And, why not, she’s the glamorous gal from out of town making big promises. Jobs and money, jobs and money, jobs and money..

The promise come with a price, Tina sure NEEDS bling – grants, low interest loans, loan guarantees, industrial development bonds, tax breaks, preferential zoning, streets, sewers… You name it Tina wants it. Baby, can you throw in some regulatory reform and reduced red tape to provide a friendly “business climate” for me, too? Translation: let me erode your public standards related to health, labor, environmental protection and product safety so I can improve my margins.

Are the costs worth it? Michael Shuman doesn’t think so, and he offers some compelling data to support his opinions – his book is well noted with a couple of excellent appendices. Of course his reasoned ideas haven’t (yet) stopped the escalating bidding wars for Tina businesses. Southern states spent from $59,000 to 193,000 per job for auto plants. New York governor George Pataki gave IBM $500,000 per job to keep them from leaving the state (can you say extortion?). Jeb Bush of Florida gave $1,000,000 per job to attract Scripps Biological Research Center. Over the last 10 years, Wal-Mart (the world’s richest company) has extracted over $1 billion dollars from state and local governments in 244 separate deals.

Economic developers argue that these incentives are long term investments that will pay dividends in the long run. Their point would gain validity, if these firms stayed around for generations. Unfortunately, Tina is a fickle mistress with wandering eyes and obligations to distant managers and shareholders following every quarterly report. She can be lured away by a community with shinier baubles (read bigger incentives) or “friendlier” business climate (read Mexico, China, or other places with cheaper labor and lower environmental standards). Huge net losses accrue to the community, when a Tina a firm leaves after 5, 10, or even 20 years.

Chambers of commerce and EDCs, also, posit that they love Lois business just as much as Tina and are even handed in their approach. Shuman says the current approach is akin to making “elephant-mouse casserole.” Because of the great disparity in scale between Tina and Lois enterprises, the incentives are disproportionate as well. Local politicians are seduced by the front page media attention and photo ops afforded by grand multi-million (or billion) dollar projects. New Lois projects are usually relegated to a small square buried in the business section of the local paper. For Lois to prosper, this recipe needs to change.

Why is Lois a better option?

Local Ownership –

When a business is locally owned, the owners and managers are tied to the community. They attend local churches and social events. Their children attend local schools. Their employees, customers, and business associates are their friends and neighbors. Their business decisions affect the community in which they live.

A beneficial push/pull dynamic is set up by proximity and connection to community. Business owners with deep ties (social, economic, and spiritual) to community, don’t move their businesses to chase incentives, cheap labor, or easier regulation. Nor are they inclined to mistreat workers or damage the environment as their friends and neighbors and customers can are there to see their actions – scrutiny and transparency count. As many Lois businesses span generations sustainable business models are typical.

Import Substitution –

Locally owned businesses buy a much higher percentage of supplies and services within their own community/region than their Tina counterparts. Prosperous local businesses foster complementary businesses and lead to vibrant interconnected economies. When local inputs are processed/manufactured into higher value products within the same community, more dollars accrue to and circulate within the community. This increased wealth and monetary circulation has positive effects on wages, tax bases, and community investment – schools, roads, civic institutions.

Rising wages and improved community services, retain talent, and alleviate the “brain drain” experienced when skilled jobs are exported by Tina entities. With thriving Lois businesses and growing tax bases providing improved infrastructure, social, and educational institutions; people will want to join the community. Talented newcomers will join existing innovators to build on the comm., unity’s success. Goods and services will continue to be traded across regions and countries, however; having Lois businesses with strong communities ties negotiating the deals these transactions will garner net benefits to the community rather than padding the profits of distant shareholders and boards of directors.

Jody Osmund
March 2009