Burgess COMMENTARY

Peter Burgess

Post by  David Richins 0 Responses  Saved in  Business, Society Reinventing Our Economy: Part IV — Local Self-RelianceOctober 30, 2013 The last core value I would like to discuss is local self-reliance. This is not just about localism or self-sufficient living. It’s about a special kind of group dynamic. Social networks have value. The term social capital is used to describe the benefits that come from the relationships and interactions that we have with other people. According to the World Bank, “social cohesion is critical for societies to prosper economically and for development to be sustainable. Social capital is not just the sum of the institutions which underpin a society – it is the glue that holds them together.” Some of the questions we should be thinking about include: How can we achieve greater cohesion as a society? What type of structure or organization provides the greatest economic and social benefits? An ideal social structure, in my opinion, balances individualism with collectivism. We shouldn’t say one side is more important than the other. Self-reliance Self-reliance is a valuable principle, and it starts with the individual. We each have certain resources available to us, and we should try to use those resources to the best of our ability. But why is self-reliance important? Some people use the principle of self-reliance to justify selfish accumulation. They look at poor people with disdain, and they see wealth as a sign of good character. They say that the best way to help the poor is through tough love, which basically amounts to doing nothing. Others want to help people unconditionally, but they fail to recognize that when you give to the poor without helping them become self-reliant, you are robbing them of their dignity. Neither approach is sufficient. To really help others, we have to do more. Self-reliance is important because it helps us overcome materialism. This might seem like a paradox at first. When we are dependent on others, we become slaves to external circumstances. We can’t focus on the more meaningful aspects of our lives – the non-material – because we are constantly preoccupied with meeting pressing needs. This principle applies not only to our economic situation, but also other aspects of our personal well-being. Joined HandsHow does self-reliance fit in with the broader group dynamic? It’s clear that we can’t just be a society of self-reliant individuals. Once an individual becomes self-reliant, it becomes his or her duty to help others achieve the same. What we need is a social system in which people help each other achieve success, which we have defined as personal self-reliance. We need self-sufficient communities. In a self-sufficient community, rich and poor live and work together in close proximity. Those who achieve success stick around and help others until poverty disappears. Today, unfortunately, those who achieve economic success tend to separate themselves from the poor. The “white flight” from the inner cities to the suburbs is an example of this. The end result is that the rich remain rich, and the poor remain poor. Why Localism Matters The late John Logue from the Ohio Employee Ownership Center said the following to me in an interview in 2009: There’s a certain set of bedrock ideas in American economic culture. We do think it’s better to buy from Main Street than from Walmart even when we’re buying from Walmart. We often [violate] these ideas by omission rather than commission, but we still have them. They’re still deep set. A lot of the people who support localism approach the issue from a leftist perspective. They decry the excesses of corporations such as Walmart that wreak havoc on local communities. I understand this perspective and I agree with it. But localism should be of interest to conservatives as well, especially in the U.S. 447px-Alexis_de_tocquevilleThe “bedrock ideas” Logue mentioned seem to hearken back to an earlier period in American history, when localism played a more important role in society. When Alexis de Tocqueville visited the U.S. in the early 1800′s, he was impressed by the role of self-reliant townships and municipal institutions. He said, “Municipal independence in the United States is … a natural consequence of [the] principle of the sovereignty of the people. ” The American Founders were very particular about the system they set up. The country they established was not to be a pure democracy, but rather a republic. That means that representatives, not the people themselves, were to participate in government. At first glance, republican government seems like an excuse for wealthy elites to take control. But the real intent of the republican system, in my opinion, was to support the populist notion of bottom-up governance. Every major aspect of the Constitution – popular sovereignty, separation and division of powers, rule of law, a written bill of rights – was designed to prevent the elites from taking too much power unto themselves and abusing the people. Bottom-up governance means that local communities and families take care of themselves as much as possible. They request help from the higher-ups only when absolutely necessary. The system of representation simply holds the bottom-up structure in place. The Problem with the Crowd Over time, our society has moved more toward a democratic system of governance. This has brought certain benefits, such as greater participation from women and minorities, but it has also caused certain problems. stadiumOne such problem is what I call the “stadium effect.” In a stadium full of people, if everyone tries to talk at once, no one can hear each other over the noise. The only way communication can take place is if one person uses a microphone to speak to the entire crowd. The person holding the microphone has a tremendous amount of power, because he or she can influence the whole mass of people. Likewise, a purely democratic structure can lead to a concentration of power, because a small group of people can influence the entire population. James Madison explained in Federalist #58 what happens when a legislative body becomes too large. He said: …the more numerous an assembly may be…the greater is known to be the ascendency of passion over reason…In the ancient republics, where the whole body of people assembled in person, a single orator, or an artful statesman, was generally seen to rule with complete a sway as if a sceptre had been placed in his single hand. On the same principle, the more multitudinous a representative assembly may be rendered, the more it will partake of the infirmities incident to collective meetings of the people. Ignorance will be the dupe of cunning, and passion the slave of sophistry and declamation…The countenance of the government may become more democratic, but the soul that animates it will be more oligarchic. When I read Madison’s description of the “ascendancy of passion over reason,” I can’t help but think of modern crowdsourcing and crowdfunding. These tools use technology to democratize society. They open the door to new possibilities, but they operate based on emotion and social trends. On rewards-based crowdfunding platforms such as Kickstarter and Indiegogo, it’s a constant clamor for attention – a popularity contest. Some campaigns bring about positive and unique innovations, but others border on the ridiculous. Perhaps this is harmless, but as investment-based crowdfunding takes shape, this type of emotional decision-making could lead to a poor allocation of resources. On the one hand, it’s important for investors to feel connected to the companies they buy into. But a company’s access to capital should not be dependent on popularity. One way to combat this problem is to add a local element to crowdfunding. Technology is helpful, but online interactions should help us connect offline. Chance Barnett, CEO of Crowdfunder, is advocating for local online ecosystems: In some ways, the Internet has made “place” irrelevant. We live and work in a global marketplace — we can connect, interact and collaborate with virtually anyone, anywhere. However, as we all know, just because we connect with a person or company online, it doesn’t mean we have an actual relationship. Real connections are forged under many circumstances, but relationships built in local communities are more important than ever for entrepreneurs. Local communities can foster collaboration, innovation, and serendipity, adding essential fuel to the entrepreneurial fire. If you’re a small business entrepreneur looking to raise money, it’s unlikely that you’ll find funding in the global marketplace. You’re much more likely to secure funding through somewhat local connections. Your local community is also a quicker way to connect with the resources you need to grow your business. Global vs. Local Cloud labor, as with crowdfunding, creates new possibilities. But the reality is that sites like Elance, TaskRabbit, and oDesk are causing a tremendous erosion in wages. From Salon: …for those people who belong to the slice of the work force in which wage growth has been imperceptible for decades, it’s not clear at all that the super-efficient, super-cost-effective distribution of work through the cloud is applause-worthy. This is not like Henry Ford paying all his workers $5 a day so they could afford to purchase Ford cars. This is the opposite, the exploitation of new technology that enables employers to pay the least amount possible to get a job done by tapping an unlimited pool of labor willing to work for almost nothing. This desire to extract value out of workers while paying the lowest wage possible is the same motivation that leads companies to outsource jobs to low cost regions of the world. This exploitation often goes by the euphemistic term globalization. For some people in the business world, globalization is an inescapable trend. Some theorists have even suggested that various regions of the world should specialize in different activities. For example, we might say that China is good for mass-production and that Japan is a good source of new technology. The U.S. is typically described as a “service economy.” madeinchinaHowever, a more accurate description would be “consumption economy.” The reality is that the U.S. has forged relationships with foreign countries in order to fuel materialism and keep America at the apex of the food chain. America’s message to China is: “We would like you to produce cheap goods for us, AND we want you to loan us money so we can afford to buy those goods.” It might seem like the U.S. is getting a good deal out of this arrangement. Never mind that China is a communist country with a history of suppressing free speech and violating human rights. But in reality, China is amassing huge piles of cash, and that’s making them much better off. China has become the bank, and America is a great customer. But the situation is precarious for both countries. The system only works when the U.S. keeps consuming and keeps borrowing. Any deviation, such as a credit default or a failure to obtain the needed debt, could have disastrous results. Indeed, when America sneezes, the whole world catches a cold. The only antidote to this situation is a renewed emphasis on local, self-sufficient communities. Toward an Ideal Structure How can we best organize local communities? I mentioned at the beginning of this series that core values help hold groups together. toadlaneThe Rochdale Pioneers provide a great example of applying values to local economic activity. In 1844, they formed the first consumer co-operative. The principles and values they espoused are applicable today. In my opinion, the unique contribution of the co-operative philosophy is the combination of self-help and solidarity. In other words, people help themselves AND help others at the same time. Free market conservatives and libertarians tend to get nervous when cooperation is discussed. This apprehension is understandable, because some people value equality to the point where it suppresses individual achievement. But I think that the principles of cooperation can have application in a free market. We need to seek out that application. The practice of group lending in micro-finance is an example of such an application. Most banks are unwilling to lend to poor individuals who have no collateral. But micro-credit organizations such as the Grameen Bank have found that when people are held accountable as a group and made to co-sign on each other’s loans, the risk of default goes down substantially. Another application is the peer evaluation model used by Village Capital. When startups are seeking capital, they will often participate in competitions in which judges or panelists decide who gets the money. But in Village Capital’s approach, the startups themselves decide. They evaluate each other and vote on the winners. This encourages everyone to be transparent and to receive constructive feedback. I think that this principle of transparency could work well when combined with online crowdfunding. Many of us depend on reviews and ratings when we buy a product online. What if entrepreneurs evaluated each other’s businesses and posted the results of their findings online? This would benefit the entrepreneur by providing him or her with valuable feedback, and it would also help investors make better decisions about where to put their money. Entrepreneurs tend to have apprehensions about sharing the details of their business with others. Transparency can only happen when people have the values that I mentioned: self-help combined with solidarity. At the heart of local self-reliance is the idea of reducing distance – the distance between producers and consumers, management and labor, investors and business owners. Distance is a problem because it represents an abdication of responsibility. Companies are unwilling to pay an honest wage, so they look overseas. Investors are unwilling to do their research and get involved with the companies they own, so they use the services of an investment manager who buys on the stock market. Consumers are unwilling to help their neighbors by buying locally, so they instead shop at a big box store, overlooking the fact that the products were made in a sweatshop. Even among those who care about sustainability, there is still a dependence on third-party metrics for evaluating social and environmental responsibility. I think that such metrics can be helpful, but investors should avoid using them as a justification for not getting involved in the companies they have bought into. advisorWho should be allowed to invest? If you can afford to invest, that means that you have achieved personal self-reliance. You have reached the point where you actually have a surplus. Now you are in a position to help others. In my opinion, investors should be mentors to the companies they’ve invested in. In this way, they can truly work alongside their money. Social finance and impact investing are bringing us closer to an ideal economy, but we still have a long way to go. In the next section, I will try to sum up and identify some specific changes we can make. Reinventing Our Economy Series Part I — The Need For Core Values Part II — Alignment Through Ownership Part III — Long-term Focus on Value Creation Part IV — Local Self-reliance Part V — Summing Up Images by Cushing Memorial Library, Michael Mandiberg, Scarletharlot69, and University of Michigan