Can businesses be too small to fail?

04 May 2010

Big companies are starting to portray themselves as local—or hiding that they’re big companies in the first place. As Stacy Mitchell writes in Yes Magazine:

Hellmann’s, the mayonnaise brand owned by the processed-food giant Unilever, is test-driving a new “Eat Real, Eat Local” marketing campaign. Frito-Lay is using farmers to pitch its potato chips as local food. Barnes & Noble, the world’s top seller of books, has launched a new campaign under the tagline, “All bookselling is local.” Winn-Dixie, one of the largest supermarket chains in the U.S., has a new slogan: “Local flavor since 1956.” The International Council of Shopping Centers, a global consortium of mall developers, is pouring millions of dollars into television ads urging people to “Shop Local”—at their nearest mall.

Most astounding of all, Starbucks, a company that has spent untold millions developing one of the most recognizable brands on the planet, is now beginning to un-brand some of its outlets. The first of these reopened as “15th Avenue Coffee and Tea” in Seattle. Unless you read the fine print on the menu, you would quite easily assume it was an independent coffee house.

First there was greenwash: companies painting themselves green—that is, green as in organic and crunchy and earthy—but inside, through and through, they were still green—as in money.

You could call this new trend “localwash.” But what it tells me is that businesses see real trend forming for local foods and local business, and they want to catch this wave.

The good news, as Mitchell points out, is that this does seem to be a real movement of substance that’s been picking up steam over the past decade. I think that with rising oil prices, we’ll only see more of this.

But, as Mitchell points out, we don’t have to wait for oil prices to kick our butts. We can make policy changes to encourage local business now, and help build the kind of economy we want.

Instead of “too big to fail”, maybe we’ll decide that businesses really are “too small to fail”—that is, that we can’t afford to let small, local businesses fail, because they help sustain local communities.

In The New Economics by David Boyle and Andrew Simms, they cover the benefits of small businesses—a few surprising side-effects of the giants.  The chapter is called “Community: Why Do Fewer People Vote When There is a Wal-mart Nearby?”—that’s one of the findings they talk about. Researchers at Penn State, in a study called “Wal-mart and social capital” (140 KB pdf), set out to see if having a new Wal-mart built in an area would have an effect on that often-mentioned but often-elusive quality, social capital. It’s a term coined by Jane Jacobs, who wrote penetrating books on the nature of cities, that tries to capture the wholesome, positive connections between people in a well-functioning neighborhood. It’s the “community cohesion and mutual suport that makes neighbourhoods work,” as The New Economics puts it.

The Penn State researchers found that, surprisingly, when a Wal-mart came to town, people voted less. If that was the only finding, it might be hard to make sense of. But given what they and others have found, it fits. “All the research suggests that communities with higher levels of social capital are healthier and more resilient, and their members are more engaged and better able to work together to solve problems.—and this contributes to thriving economic life and helps reduce poverty.”

It’s easy to dump on Wal-mart, so here’s another finding from the book. It’s a classic one, which I’d heard of before, but I hadn’t realized Elinor Ostrom—last year’s Nobel Prize winner in Economics—was the one behind it. In 1970s Chicago, crime rates spiked, and when Ostrom investigated, she tied it in with the start of policing by car, rather than walking a beat. The distance and disconnection between the police and the people was the problem.

Mitchell, who works for a group called the Institute for Local Self-Reliance, has three prescriptions:

  • Encourage real competition (or, as Boyle and Simms put it: “launch radical anti-trust action at every level”)
  • Reshape communities to foster local connections and basic neighborliness
  • Encourage solid, local investments rather than speculation or the consolidation of ever-bigger firms.

And don’t forget to buy from the cool shop down the street. From The New Economics:

When Jane Jacobs was writing her ground-breaking The Death and Life of the Great American Cities in the 1960s, she was inspired by an ebullient man called Bernie Jaffe who ran the sweet shop on the ground floor of her apartment building. On a typical day, she wrote, he could be counted on to lend a dollar or an umbrella, safeguard a neighbour’s keys, offer directions, and advise a mother not to buy a ship model kit because another child going to the same birthday party was giving the same present, and much else besides. Local stores were part of the social glue, a communal memory and consciousness. They watched the street, knew everyone and played a major role in reducing crime. Not all small shops played a role in this—some were depressing and inefficient – but many did, and the supermarkets now free ride on this social capital that lends community cohesion and resilience, and they undermine it.

One thing I’ve learned from game theory and behavioral economics—and from regular life, too—is that no one likes a free-loader. If we can see big businesses like Wal-mart for what they are, then that could help break the spell of low, low prices.


books I've read on failure & grace

The World Without Us
The Last Oil Shock: A Survival Guide to the Imminent Extinction of Petroleum Man
A Paradise Built in Hell: The Extraordinary Communities That Arise in Disaster
Hell and High Water: Global Warming--the Solution and the Politics--and What We Should Do
The Worst Hard Time: The Untold Story of Those Who Survived the Great American Dust Bowl
The Tipping Point
Three Cups of Tea: One Man's Mission to Promote Peace... One School at a Time
The Upside of Down: Catastrophe, Creativity and the Renewal of Civilization
Out of Poverty: What Works When Traditional Approaches Fail
The Little Ice Age: How Climate Made History, 1300-1850
Confessions of an Eco-Sinner: Tracking Down the Sources of My Stuff
Deep Economy: The Wealth of Communities and the Durable Future
The Geography of Bliss: One Grump's Search for the Happiest Places in the World

Mason's favorite books »