An Economic Plan for Jackson County

20 10 2010

In the current race for County Commissioner seats, there seems to be some misunderstanding of what a “local-economy” strategy means for the Rogue Valley. Greater resilience, self reliance and local ownership of business is viewed by some folks as a throwback to an earlier age and out of step with a global economy.

This view is very mistaken.

One only needs to look at current day China, who continues to grow at 8 percent even while its number one customer, the USA, has been in recession for the past two years. One only needs to look at such ‘mini dragons’ as Taiwan, South Korea, Singapore, and Hong Kong; or European countries and regions such as Germany, Scandinavia and Northern Italy. All of these areas have taken a pronounced local-first approach to developing their economy. We should do the same here.

The local-first approach revolves around two important ingredients: local ownership of business and import substitution.

The crux of the local economy strategy is the ownership of business enterprise and other productive assets (such as farm land) by the people dwelling in the region. No other factor is as important as this. Local ownership allows for the greatest proportion of the added value stemming from enterprise and economic activity to accrue to the population that created and managed it. Added value is composed of wages, salaries and profits (and also taxes, as taxes come out of the former). This accrual to locals is the basis for further expansion, as when saved earnings can be channeled, ideally through a local bank, to new and expanded businesses.

For the people of the Rogue Valley to get the most out of economic development requires them to own the businesses and economic assets that generate incomes and profits. Inviting outside companies as a source of jobs – most of which would be minimum wage jobs – is NOT the best approach to development. To think that a country such as Taiwan became prosperous by inviting foreign companies in merely to provide its people with “jobs” is ludicrous. In all of these other countries listed above, there are strict requirements about ownership. Foreign firms, to operate in China, must have a local joint-venture partner that maintains 51% or greater control of the company.

The second crucial ingredient to a living economy is import substitution. This does not mean to become 100% self reliant in every conceivable good or service that we use here. Import substitution is an ongoing strategy that is never finished. It means for our local entrepreneurs to provide services and products – if profitable – that have been coming from out of our region. Energy and food production are two sectors of our economy where we have much potential to provide more for our own consumption. Certainly we will never become “off the grid” of the national and global economy, but to capture more of the value add in the consumption in these two areas can boost our prosperity immensely.

Japan provides a classic example of import substitution. At the beginning of the 1900s, every bicycle in Japan was imported from the USA or Europe. Over the decades, Japanese entrepreneurs went from building replacement parts, then full bicycles for the domestic market, to finally, building full bicycles for overseas markets. Today, Japan is a dominant exporter of bicycles and high-margin bicycle components.

Japan also underscores a third important aspect of the living economy model: that of exports. Living economies are export driven. This may sound like a contradiction. If every region attempted to reduce imports, how could any region sell its exports? Trade happens because every economy is dynamic. New products and services come and go. Entrepreneurs and investors have to be agile to global conditions and markets. Again, the living economy model does NOT mean “getting off the grid” of the global economy. It means the people of a region realizing the greatest return on their human, natural and financial capital through their own ingenuity and hard work.

Two other important ingredients to the local economy strategy are buying locally and creating local investment mechanisms. These act to keep local dollars circulating locally and through a multiplier effect, increasing local personal incomes.

For further detail about how the living economy can be applied to Jackson County, see http://www.goldenforjacksoncounty.org/local_jobs_agenda.html.





Capitalism Gone Bad in the Rogue Valley

27 09 2010

Yesterday’s Opinion Piece in the Meford Mail Tribune was right on target, if not sad, in its take on the situation of one of the area’s largest employers, Harry and David.

Purchased a few years ago in a private-equity leveraged buyout, the company was saddled with a $20 million-per-year interest payment. Ever since, it has been in the red.

A new chairman and CEO, appointed by the syndicate, lives in Atlanta and is hell bent on laying off folks, and apparently, turning much of the H&D orchards into tract homes.

We in this county have unwittingly become poster children of capitalism gone bad. The practices of Heyer and the Wasserstein syndicate are extractive, predatory and anti-democratic pure and simple, made possible by an era of cheap and free-to-roam money credit. They are lining their pockets while extracting and destroying value here in Jackson County. The situation is unfair and should be stopped. The fact that it is technically legal burns me to no end, and only underscores how upside down are the current laws regarding capital and ownership. The employees of H&D as well as all the residents of Jackson County are the victims of financial sleight-of-hand that, at present, is draining our county of assets and denying us of self determination regarding land, livelihood and lifestyle here in the Rogue Valley.

There are alternatives. We can create cooperatively owned ventures like the Grange Coop, the Medford Food Coop and the Rogue Valley Credit Union. We can use and encourage local banks to be more proactive in investing in their local community. We can use local investment mechanisms such as the Jefferson Grapevine, Community Resiliency Fund and micro-finance to back local entrepreneurs. We can create local and regional mutual funds, like Leslie Christian of Upstart 21 of Portland, where locals buy shares, and the fund buys local, privately held companies, thus keeping them locally owned. We can structure the ownership of a company, like is done in China and other countries, with two categories of shares: one for locals only and have controlling votes, and another for non local “foreigners” with no voting privileges. We can convert local companies into employee-share owner plans (ESOPS). As local business owners, we can band together in associations and marketing non-profits such as THRIVE to promote the local commercial class. Instead of playing victim and patsy to global predatory capitalists like Heyer, Wasserstein and company, we can take our own steps to local ownership, which is the right move to economic self-determination and democracy.





McKinsey Identifies S. Oregon Good for IT Onshoring

25 08 2010

A recent study by McKinsey identifies US based areas that are good for locating corporate IT services and server farms. Southern Oregon, particularly the Rogue Valley, is one of them.

The report states, “An increasing number of organizations with large IT infrastructures are now taking a close look at second-tier cities in close-shore locales in the United States as venues for future investments. Pools of high-level IT talent are available in such regions, wage levels are attractive, and generous government incentives are often available to spur local investment.”

In fact, the study identifies the Rogue Valley as one of the most attractive areas as it has a broad array of software and IT professionals but with wage levels in the bottom third of the national average. See map below.

Beyond lower wages, regions outside of the main metropolitan centers offer skilled engineers in specialized areas where demand is high, such as infrastructure management or application development and maintenance for new and legacy IT systems. Regional universities and community colleges have markedly expanded their IT curricula in these very areas, and many universities are forging partnerships with employers to guarantee supplies of talent for future needs. Federal, state, and local authorities, eager to reduce regional pockets of unemployment by attracting skilled jobs and IT investments, are offering incentives such as training grants, tax abatements, and subsidized loans.

Adding impetus to the broader close-shore investment trend is the fact that some organizations find themselves under pressure to diversify their portfolios of global IT service facilities. Many companies are heavily weighted in just one or two offshore regions, which exposes those companies to inflationary pressures, currency volatility, and operational risks. In 2008, for example, India’s inflation rate rose to 11 percent, while the rupee’s value against the euro and the dollar fluctuated by 20 to 30 percent.

Finally, for a small subset of skills—ranging from legacy to very high-end ones (such as subject matter expertise and senior-level system administration jobs)—companies are opting to develop and retain the work in low-cost close-shore locations. This development is driven by the ability to procure and develop these scarcer skills in locations where a regular supply of them is available, and at a cost-competitive price relative to offshore locations.

IT Onshoring Map

See the full report here:  McKinsey Study.





Capitalism at Bay: A Letter to the Economist

27 10 2008

Dear Sir/Madame:

 

Your summary of the worldwide debate on the financial crisis and your making explicit that capitalism is on trial, brings the usual Economist succinctness and wit (Leader Article of October 18, 2008). But you miss the underlying issue here through your broadbrush, unreflected concepts of what a capitalist economy is. You speak as if there is only one variety of capitalism: that it must be free-market globalism; that government is bad, private sector is good; that global capital mobility is a God-given commandment. These concepts completely miss important, albeit subtle distinctions. You thus keep concealed a genuine solution to our current malaise.

 

The key issue in this crisis is that unfettered free enterprise leads to concentration of power, whether by a single individual, a single enterprise, and/or a single industry over all other industries. That literally a couple hundred firms, mostly in New York City and London, abetted by policy makers in those two countries’ capitals – most of whom formerly worked at said firms – should send the entire world into an economic tailspin, is once again evidence of capitalism’s necessary instability stemming from overconcentration.

 

Economic liberty is indeed under attack, as you state in your editorial. But the attack comes from within the system and has been ongoing for years now. You are mistaken to consider that the discourse of the last several weeks is where the attacks are to be heard. Even after several centuries of recognizing this tendency in capitalism, there has yet to be a cogent institutional framework that effectively deals with it.

 

What needs to be recognized is that large, national governments don’t work. Indeed, national governments often accelerate the concentrative tendencies that cripple free markets. Government must indeed be of a size that they truly, operationally can be ‘of the people, by the people, for the people.’

 

True stability in a worldwide market culture will only come when cities and regions, with indigenous businesses owned by local citizens, are the locus of global political-economic power. In this picture, free enterprise and civic engagement naturally dovetail. Self determination by all people is maximized, and done so in the context of free enterprise and economic liberty. That horrid line between government and market that you speak of in your piece, thus becomes much more humanized, liberal and democratic. It is when you have people on other sides of the planet making decisions that impact your and your neighbors’ livelihoods, that there will never be an economic liberty nor reliable prosperity for all.





Reaganomics, Supply-Side, Free-Market, Monetarist, Neo-Liberal, Washington Consensus – All Gone with the Wind!

1 10 2008

In the space of one week (in October, 2008), the supply-side, free-market dogmatists went from “Government is the problem,” to “Government is the solution.”  They went from “There is No Alternative” – Margaret Thatcher’s remark that global markets rule – to ‘hurry up and let’s find some alternatives.’

What happened?

What happened was that an imaginative, but thoroughly ungrounded ideology ran into hard reality. Reality won.

The ideology is that ‘government’ is not necessary. The reality is that humans are social beings, and that we are all on this earth together. And, until we go elsewhere, we inhabit this earth as a group, not as a bunch of warring individuals.

Whenever two or more people live in proximity, people need to explicitly or implicitly make agreement about how they will live with each other. Even if the agreement is not written down, as in the case of tribal peoples, this is a form of ‘government.’

The challenge is not whether government is a valid concept or not, the challenge is whether government will be democratic or authoritarian.

We’ve gotten ourselves into an upside-down world because, for a long time now (30 years at least), the people who openly held government in contempt, were the very same people who held government power. We had government leaders who claimed they didn’t believe in government leaders. Not surprisingly, it has led to silly, cavalier and reckless behavior. Indeed, the ‘government-is-the-problem’ proponents represent an emotionally immature person, and at the level of an insolent teenager who bristles at any kind of restriction of his or her behavior. When this kind of person has the upper hand in setting the ground rules for how we are to live with one another, you can expect all hell to break loose.

Now, hell has broken loose.

Timothy McVeigh was angry that he had to drive according to a speed limit. He didn’t recognize all the other people who contributed to his power to drive a vehicle. The engineers who created the car, the roads built at taxpayer expense, the other people on the road who also had a need to use auto transportation infrastructure. For a slight bit of curtailment of his freedom (i.e. not drive at 100 mph, but keep it to 65), the social group who empowered him in the first place all could have gotten along using a commonly shared physical environment. But he didn’t see it that way.

Ronald Reagan, Timothy McVeigh, George Bush – these rugged individualist, anti-government proponents don’t want to recognize the community in which they live. The closest they get to recognizing a social dimension in their lives is when using such financial terms as “counter-party” or “greater fool.”

The real challenge that we face today is in creating genuine democratic government. There is too much centralized power, political and economic. Global corporations and authoritarian national governments have too much say over day-to-day living arrangements in communities, cities and regions.

There exists a solution and it is to decentralize power – political and economic – and cultivate strong, vibrant regional economies.

At the heart of this vision is local ownership of local enterprise. The Washington Consensus – the myth that is disintegrating before our very eyes – held that jobs were all that mattered for economic growth. A large retailer, manufacturer or a large World Bank project could be inserted into a local area, and the job creation from this would lead to economic growth and prosperity.

But now, with 30 years of hindsight on this idea, we know that this doesn’t work.

Strong, resilient economies depend on more than jobs. In addition to jobs, they depend on enterprises buying inputs from other local enterprises, and they depend on profits of enterprises being remitted to local owners as well. Then, as these three distinct flows of funds (wages, cost-of-goods expenditures, and profits) are channeled – as much as possible – to other local enterprises and households, the region’s aggregate income and wealth rises.

These three flows of funds, compounded through multiple cycles of transaction, also lead to solid capital formation in the region. Capital formation is necessary because it provides the capacity for seed investment into new enterprises in the region.

On the contrary, when only one of the three ingredients is present – job creation – and profits and cost-of-goods expenditures go outside of a region, that region’s ability to grow is severely limited. Over time, a highly concentrated, extractive global economy emerges. Ultimately, it collapses. Witness the collapse occurring around you.

Strong, interdependent local economies, based on local ownership of enterprises, are the way out of our current crisis.

This simple framework has been lost in the mad rush to globalization and privatization of the past 30 years. Yet, this framework has proven itself throughout the modern era. Look at “regional economies” such as Singapore, Taiwan, and Hong Kong and specialized regions such as Silicon Valley, Hollywood and the Emilia-Romagna of Northern Italy. Economist Jane Jacobs, as far back as 1984 put together the massive empirical evidence of this vision (in her book, Cities and the Wealth of Nations).

Multiple, strong regional economies, engaged in trade with one another, are resistant to global collapse due to overconcentration of power.

What we want to create going forward is a world economy that is metaphorically similar to the Internet. The Internet is a very strong, resilient device because it is highly decentralized. If any one server, patch of servers or subnetworks fail, the global system keeps on ticking. Network traffic is simply re-routed around the problem spots.

We want to have a world economy based on similar principles of decentralization.

The strategy of strong regional economies is pro-trade, by the way. The key distinction is to have the exporting enterprises be owned by locals, not by invisible offshore entities. Local ownership is key because it provides the greatest capacity for self determination and sovereign power to locals. Local people are the best stewards of the environment, and the best arbiters of social issues pertaining to the community. Giving sovereignty to the peoples of a given place insures the greatest balance in the economic system, both at local and global scales.

This simple framework is also the basis for good government. Government in this framework is where local citizens truly have power to establish their livelihoods, to manage public resources, and to make agreements about how they want to live together.

Ownership of the enterprises that generate and govern the deployment of capital (human, financial, natural) must be re-localized, re-regionalized and decentralized from today’s status quo. Today’s status quo is extremely vulnerable to collapse and it is non Democratic. It makes an increasingly smaller group of families very rich, while impoverishing the mass of humans and depleting the environment.

The Washington consensus that there is no alternative but to have all powerful global corporations running the world is an ideology whose time has come and gone.

A new day is dawning. It is in strong regional economies that retain individual personality, that give the greatest governance to the citizens of the region, and that creates the greatest well being for all.





The Medford Market Cooperative: An Investment that Restores Balance

1 02 2008

Speech Delivered

By Torrey Byles

Chairman, THRIVE

To the Friends of the Medford Market Cooperative

September 6, 2007

 

Why am I here tonight? I am committed to reforming our economic and financial system. And part of my strategy to do this is to strengthen local economies. That is why I am a volunteer board member of THRIVE. At THRIVE our programs aim to strengthen locally owned businesses and to empower communities to determine their economic destinies as they see fit.

 

My background and expertise is as a systems and business analyst who measures the economic impact of information systems on business performance, and how they can even alter industry structure, by for example, eliminating middlemen and transaction costs.

 

The ENRON scandal was my wake up call. And today’s current situation in the global financial markets, including the real estate bubble (the second bubble in the past 7 years) only strengthens my belief and commitment that strong local economies are crucial to our well being.

 

We have a disconnect between the FINANCIAL and the REAL in our economy. We value and emphasize the financial aspect – money – more than is appropriate. We have lost sight of the underlying resources, assets, quality of our work, quality of our commercial relations and quality of our community and life.

 

We want positive financial returns on our investments and our nest eggs. This is well and good. But we also want real quality of life and real human welfare.

 

To get back in balance, we need to remember that getting the REAL qualities and assets that we desire in our lives is not always the same as strictly getting a FINANCIAL return on investment. There are non-financial outcomes to our economic behaviors that may not be readily quantifiable with dollar signs but are nevertheless valuable to us.

 

We need to put more attention, effort, time and money into things that won’t always result in strictly generating more money, but rather generate a quality of life that we desire and think to be good.

 

Creating a grocery food market here in Medford is a perfect opportunity to create this new balance.

 Why is the Medford Market Coop a good opportunity to help us bring back balance in our economic lives? 

I will give you FOUR reasons.

 

ONE: Food retailing is a cornerstone to human life. By creating and owning a food distribution enterprise in unison with our friend and neighbors of our immediate community insures us of quality and control over the most basic requirement of our lives.

 

Establishing a community owned food market, owned and managed by locals, is akin to establishing a local hospital, schools, or other public infrastructure assets such as the Irrigation Ditches of the Rogue Valley that have provided such incredible value over the past 80 years. These are basic public goods that we all share.

In the coming years, we can expect dislocations in food distribution resulting from rising energy costs and contaminations. It will be a prudent move for us to have an active hand in managing our own food supply.

 

TWO: The democratic structure of a cooperative insures us as a community, a high degree of economic self determination and social equity.

 

There is no middleman, profits are rebated to owners, we pay only for cost of goods sold and administrative overhead. There is no remitting of profits outside of our region to non-local owners. The money in this operation is appropriately and equitably allocated to the work, energy, and material involved in delivering the final products to us, the customers. We are essentially users of our own collectively created and managed food delivery service asset.

 

Collectively owning it allows us to have active participation in its management and ongoing success. This means that we offer our direct feedback with purchasing and verbal suggestions on the products we want, we help market and publicize the enterprise, some of us or our children will work there, and importantly, some of us who are already business owners, will sell our products and services to the market.

 

This kind of direct participation by the community makes the Medford Market a democratic institution that gives us REAL democratic control over our economic destinies

 

Democracy and activism to insure the public good is not only about occasionally voting about this issue or that. It also means being engaged with each other and actively, daily managing the collectively held assets of our communities, including our schools, our health facilities, our food assets, and the enterprises where we work.

 

This restores balance and is important to building REAL value in our lives. It is part of the REAL return on investment in this Medford Market.

 

As an institution of economic democracy, the investment in Medford Market is greater act of social activism than the ordinary mutual fund or individual stock investment.

 

By contrast, there are major enterprises, in fact whole industries in the Rogue Valley that are completely out of our control. Harry and David is privately held by a New York City investment banker, Bruce Wasserstein. A French multinational, Sodexhu, runs all the school cafeterias in Jackson County.  An Australian, Rupert Murdoch, owns the area’s two major newspapers.

 

Outside ownership imperils our ability to make choices in our work, our communities, and our economic destinies.

  

THREE.  According to its charter, the Medford Market is “determined to include local businesses in its products lines.”

 

This is very important for three separate reasons.

 

I’ve already alluded to two of them.

 

i.) Sourcing product from local food producers minimizes the risk of food-price inflation due to rising fuel costs. Stuff is closer and doesn’t require as much transport as the usual chain supermarket. (The average distance a product travels to be sold in a supermarket is 1500 miles.)

 

ii.) When it comes to the public health issue of insuring the availability of healthy, nutritious food that is safe to eat, there is no better policy than sourcing food locally. Food contamination is almost a daily occurrence in the headlines these days. Did you know that one peanut butter plant in Georgia supplies 30% of the nation’s peanut butter consumption? This kind of big scale, global operation – which is the norm for modern business – constitutes a systemic threat to all of us. We may enjoy low unit costs – i.e. low prices – with such scale. But there are externality type costs associated with this. When a batch of product is tainted, whole swaths of the population are threatened. And that is what happened last year with this plant.

 

And, iii.) for the Medford Market to buy from local suppliers will have a multiplier effect on gross regional income.  The Medford Market buys from local companies, the incomes and profits of these local business owners rises. They in turn can spend more, some of which will go to locals. Typical multipliers range from 1.5 to up to five times the initial sales. The Medford Market anticipates sales of $2 million in its first year of operation. If it sourced half of its cost-of-goods sold locally, this could translate to a total increase in regional income of five to $10 million.

 

Multipliers can work in reverse too. Out-of-region companies, esp. big retailers who source all product outside of the region, can act to lower regional income. Many small towns around the country have been devastated and have even disappeared with the arrival of regional big-box stores that throw local merchants out of business.

 

While lower prices from these stores temporarily increase our net incomes, as we and our community members lose our businesses, our collective income falls.

 

Low prices and their effect on disposable income is a superficial and short term phenomenon. In the end, such business models concentrate wealth into fewer hands.

 

My last and FOURth point about the Medford Market is that I believe their sales projections for this store are very achievable. I believe that they are being way on the conservative side in fact.

 

I want to say in conclusion, that in making your decision about investing in the Medford Market, please consider that the FINANCIAL rate of return of invested money, which in this case is FOUR PERCENT, is not the REAL rate of return on your investment. There are valuable things that will result from the creation of this asset, even though their value may be difficult to quantify precisely.

 

  • Local control, governance and economic self determination.
  • Protection of public health and food-price inflation by direct control and local sourcing of food supply.
  • The added flourishing of local businesses that sell product thru the market.

 

The Medford Market is a perfect example of a triple bottom line company. It is financially viable. Its social-equity bottom line is that we are all part owners and we control it, and with it, our health and economic destiny. And, its environmental bottom line is that its scale of operation is intended for the local population and community. It does not plan to grow infinitely to dominate the world.

 

Finance can be defined as economic actions indexed by money. The danger of this is that we get fixated on money only, and not the other systemic and intangible values that are not indexed solely by money.

 

Because of externalities and subsidies, low prices don’t necessarily reflect low costs to society. High returns on investment do not necessarily deliver us true wealth.

 

We can certainly make a lot of money by investing in:

 

         tobacco companies that focus on getting teenagers addicted to nicotine,

         big banks whose greatest profit center is credit-card debt interest rates of 35% and higher,

         big pharmaceutical companies that have unbreakable annuity streams of patent-protected products,

         military-industrial companies whose profits surge with war,

         agribusiness giants whose chemicals and genetic products we effectively have to purchase with every meal we eat,

         privatized prisons whose number-one operational metric for performance is OCCUPANCY,

         big retailers that throw local merchants out of business and suck subsidies from local municipalities,

         corporations that move operations out of the country to low wage areas.

 

We can make a lot of money by putting our money into these kinds of enterprises. These business models are cash cows.

 

But God help us and our offspring as to the world we create by such investments.

 

Our economic choices concerning what we build, produce, how we work, the relations we have with each other, what we collectively want in our community transcend merely the FINANCIAL.

 

The Medford Market is an opportunity for us to move away from these traditional investment alternatives where it is only about money and financial return. The Medford Market is about empowering us to control our economic destinies, to self-strengthen our community, and to generate the valuable assets, infrastructures and qualities of life that are REAL to us.

 

Thank you.