Reviving the Homegrown Economy
By Stacy Mitchell, Institute for Local Self-Reliance
May 2002 Historic Preservation Conference, Rutland, VT

Community is one of those words so often used today that we rarely pause to consider its meaning. In her book, The Death and Life of Great American Cities, Jane Jacobs writes that what constitutes community is not any one particular thing, but rather the many small interactions that occur in our everyday lives.

“It grows,” she writes, “out of people stopping by 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 . . . "

“Most of it is ostensibly utterly trivial," she goes on, "but the sum is not trivial at all. The sum of such casual, public contact at the local level. . . most of it fortuitous, most of it associated with errands . . . is a feeling for the public identity of people, a web of public respect and trust, and a resource in time of personal or neighborhood need. The absence of this trust is a disaster. . .”

Although Jacobs was writing about a Manhattan neighborhood, what she describes could easily be a small town. And, although in 1960 it wasn't necessary to specify that the businesses were locally owned, clearly they were. When was the last time you got advice from Home Depot or borrowed a dollar from CVS?

The current trends are staggering. During the 1990s, 13,000 independent pharmacies disappeared. 40% of all independent bookstores have closed; two chains now control nearly half of all bookstore sales. Local hardware stores are disappearing, while Home Depot and Lowe’s have captured 40% of that market. Five firms control 42 percent of all grocery sales, up from 19 percent just six years ago. Three companies account for 75 percent of all office supply sales. Blockbuster Video rents one out of three videos nationwide. A single firm, Wal-Mart, now captures 7 percent of all consumer spending -- that's everything we buy from books and computers to clothing and groceries.

These trends have had a profound impact on the American landscape. Everywhere it seems one experiences a constant deja vu of Blockbuster Video signs, Barnes & Noble superstores, Rite Aid parking lots. Countless towns are ringed by identical big box stores and acres of asphalt. Urban neighborhoods are being overrun by The Gap and Starbucks. As Richard Moe, president of the National Trust for Historic Preservation, has said, "More and more.. every place in America looks like every place else, and that means every place looks like no place."

The displacement of local businesses by corporate chain stores is also having a profound impact on our local economies. Communities continue to allow sprawling retail developments on the edge of town on the grounds that they will create new jobs and tax revenue, only to discover that these developments often destroy as many jobs and as much tax revenue as they create by draining the vitality out of downtowns and neighborhood business districts.

Direct job and tax impacts are only part of the cost. Consider what happens to a dollar spent at a local store. Not only do profits stay in the community, but local merchants support a variety of other local businesses. They create opportunities for service providers, like accountants and printers and web designers. They do business with the community bank. They advertise through local media outlets. They purchase goods from local producers and distributors. In this way, a dollar spent at a locally owned business creates a ripple of economic benefits, and helps to sustain a diversity of local jobs and opportunities.

In contrast, much of a dollar spent at a chain store leaves the community immediately. Chain stores centralize all of these functions at their head offices. They keep local spending to a minimum. They bank with big national banks. They bypass local media in favor of national advertising. They deal almost exclusively with large manufacturers and offer few opportunities for local firms.

There's much to be said for the civic value of doing business with our neighbors---people who greet us by name, send their kids to school with ours, and have a vested interest in the long-term health and well-being of the community. Local merchants often sponsor cultural events and become involved in community organizations. Although we hear a lot about the charitable giving of big corporations, one study found that small businesses actually give more than twice as much per employee to charitable causes as do large companies.

Local ownership ensures that important decisions are made locally. Who decides whether to carry produce from nearby farms, stock a controversial book, pay a living wage, protect natural resources, or contribute to a local charity? In the case of chain stores, these decisions occur in distant boardrooms, where the values and well-being of the community carry little or no weight.

In a country hypnotized by the mythology of bigness, there have been few large empirical studies of the social and civic impacts of economic consolidation and the loss of locally owned businesses. One exception is a recent study by Dr. Thomas Lyson of Cornell University. He examined 225 counties nationwide, comparing those with economies dominated by a few large corporations to those with many small, local enterprises. He found that counties dominated by big businesses had greater income inequality, fewer owner-occupied homes, higher levels of worker disability, lower educational outcomes, and higher crime rates. Not only did the small business counties score higher on all of these socioeconomic measures, they had a larger independent middle class and higher rates of civic engagement, as measured by voter turnout and membership in community organizations.

Altogether, it's a pretty high price to pay in order to save a few bucks. And even that claim is rather dubious. Chain stores' low prices tend last about as long as the local competition. As Barnes & Noble and Borders Books have gained market share, both chains have sharply reduced the number of books offered at a discount. Blockbuster's rental fees are substantially higher in markets where it has a near monopoly. One survey found prices at different Wal-Mart outlets varied by as much as 25 percent depending on the level of local competition.

Given the many benefits of small, local enterprises, why are so many struggling, and all too often, failing to survive? There are many reasons, but one of the most significant, I believe, is the overwhelming bias in the economic and political system. In a variety of ways, at all levels of government, public policy has fostered the growth of large corporations at the expense of local businesses.

Land use and transportation policies, for example, often allow and even encourage large-scale retail growth on the periphery, while undermining the vitality of downtowns and neighborhood business districts. Chain retailers routinely demand and receive tax breaks and subsidies. Just a few weeks ago Wal-Mart received $17 million from the city of Lewiston, Maine. Target received nearly $20 million from the state of Wisconsin a few years ago. Walgreens received $2 million in state and county money to fund its expansion into Florida. All of the big chains have been recipients. No one keeps track, but altogether it amounts to hundreds of millions of dollars. Rarely are public funds made available to local businesses. Instead, they often see their tax dollars used to subsidize their biggest competitors.

At the state and national level, failure to enforce antitrust laws has allowed chain retailers to use their market power to undermine smaller rivals. There is substantial evidence that the major bookstore chains have pressured publishers for sweetheart deals and discounts unavailable to independents. This is illegal but the FTC has refused to take action. In Wisconsin, authorities tracked predatory pricing and other anticompetitive practices at several Wal-Mart stores for nearly a decade, but in the end gave the company little more than a slap on the wrist.

Or consider our current sales tax policy. Internet and mail order companies are exempt from collecting state and local sales tax. This essentially gives distant companies a 5 to 8 percent price advantage over local businesses.

The playing field is far from level. The future of our local economies depends not only on the decisions we make as consumers, but on the decisions we make as citizens. Across the country, a growing number of people are exercising the citizenship by saying no to chain retailers.

In Mountain View, California, residents voted 2-to-1 in March to reject a proposed Home Depot. In New Rochelle, New York, hundreds of residents turned out at city council meetings and ultimately forced Ikea to abandon plans for a giant furniture superstore. In Salt Lake City, small business owners joined environmental organizations to defeat a giant mall development. In Arlington, Texas, residents armed with a petition containing 1400 signatures convinced the City Council to vote against a proposed Wal-Mart supercenter. In Petoskey, Michigan, several downtown merchants organized a successful grassroots campaign to block a massive 400,000 square foot big box retail complex. In Portland, Oregon, Home Depot dropped its plans for one of its giant stores after residents gathered more than 3,000 petition signatures and turned out by the hundreds to voice their opposition at public meetings.

It's not just the large stores either. Dozens of communities are up in arms over smaller scale chains as well. In Ocean Beach, California, hundreds of residents rallied against a proposed Starbucks coffee shop and organized a ballot referendum on chain stores. In Flagstaff, Arizona, activists are holding regular picketing and information sessions in front of a Barnes & Noble in order to educate the community about the impact of chain stores. In a Madison, Wisconsin neighborhood last year, residents blocked plans to replace a local grocery store with a Walgreens pharmacy.

These are just a few examples of the hundreds of successful grassroots efforts to block chain store development in the last few years alone. Many of these groups have gone on after the initial battle to form permanent organizations dedicated to reinvigorating the homegrown economy. These include groups like Friends of Flagstaff's Future in Flagstaff Arizona; the Main Street Defense Fund in Northfield, Minnesota; the 5 and 10 Coalition in Hatfield, Massachusetts; and Citizens Organized for Responsible Development in Ellsworth, Maine.

Thanks to the work of these groups and a growing awareness among local officials of the importance of independent businesses, many cities and towns are now adopting new planning and zoning policies that support, rather than undermine, small, local businesses.

Many, for example, have enacted land use policies that steer new development to areas in or adjacent to the central business district. This ensures that new growth and investment compliments existing businesses and does not detract from the viability of the downtown and other established commercial districts.

Dozens, or maybe even hundreds, of cities have adopted laws limiting the size of new retail stores. Last week, Northampton, Massachusetts capped retail stores at 90,000 square feet. In a referendum last year, voters in Belfast, Maine limited retail stores to 75,000 square feet. That's roughly the size of two football fields and smaller than most big box stores. Other communities have chosen a lower threshold. Boxborough, Massachusetts bars new stores over 25,000 square feet, which is smaller than a typical Barnes & Noble superstore.

For urban areas, these size limits can also be set on a neighborhood by neighborhood basis. Kansas City, Missouri adopted an ordinance that limits retail stores in the Brookside neighborhood to 10,000 square feet. Two neighborhoods in San Francisco---Northbeach and Castro---likewise bar stores over 4,000 square feet. The Northbeach ordinance was prompted in part by rumors of an impending Pottery Barn. According to its sponsor, Supervisor Mark Leno, the purpose of the ordinance is to limit the expansion of national retailers and to “enhance future opportunities for resident ownership of neighborhood-serving businesses.”

Another zoning tool that many cities are using is to require that proposals for new development undergo a review and obtain a special permit. To pass, developers must meet specific criteria outlined in the law. The criteria vary from one town to the next. In Greenfield, Massachusetts, for example, proposals for stores that exceed 20,000 square feet or generate more than 500 vehicle trips per day must demonstrate that they will not negatively impact traffic, public revenue, the environment, the local economy, the downtown businesses district, and the character of the community. Public hearings are usually part of this process. Many towns also require an economic impact study conducted by an independent consultant, rather than just relying on the numbers supplied by the developer.

Another example comes from Santa Cruz, California, which reviews proposals for new retail stores and allows only those that will contribute to a balanced and diverse mix of downtown businesses. Specifically, the ordinance authorizes a new store only if it 1) adds a desired type of business or service, 2) contributes to an "appropriate balance of local or non-local businesses," and 3) contributes to an "appropriate balance of small, medium and large-sized businesses." The ordinance favors maintaining the community's unique retail character, and presumes locally owned businesses are more likely to accomplish this. The burden of proof therefore rests on a chain store to demonstrate that it really will benefit the community.

Still another approach is restrict “formula” business, which are defined as businesses required by contract to adopt standardized services, methods of operation, decor, uniforms, architecture or other features virtually identical to businesses elsewhere. While banning formula businesses does not prevent Starbucks from setting up shop, it does require that the Starbucks not look or operate like any other Starbucks in the country. This creates a significant deterrent to most chains, which refuse to deviate from their standard formats.

To date, at least half a dozen communities have enacted some kind of restriction on formula businesses. Port Jefferson, New York and Bainbridge, Washington, prohibit all formula restaurants. Coronado, California, allows no more than ten formula restaurants in the city at one time and requires that formula retail stores obtain a special use permit before being allowed to open. Approval hinges on demonstrating that the store will be compatible with the community.

In addition to revising local land use policies, many local governments are also restructuring their economic development programs to focus not on recruiting outside firms, but on strengthening and expanding local businesses. One of the more creative strategies I've run across recently comes from the town of Orono, Maine. In 1999, Rite Aid decided to close its downtown Orono location after failing to win approval to open a large, free-standing, drive-through box. Town officials felt a pharmacy was an essential component of the downtown. But residents did not want another footloose chain. A better option, they decided, would be an independent, locally owned pharmacy. "We felt it would be more reliable and create a better image for the community," the Town Manager, Gerry Kempen told me. So, the town sent letters to some 1,200 pharmacists licensed by the state of Maine, asking if they might be interested in opening a pharmacy in Orono. They got about half a dozen responses and soon identified the right candidate. In a matter of weeks, the Orono Community Pharmacy opened for business.

Orono's new pharmacy was one of 244 new independent pharmacies that opened last year, reversing more than a decade of decline. In fact, there were more new independent pharmacies last year than the net gain of new Walgreens, CVS, and Rite Aid stores combined.

Not only have we seen an explosion of grassroots activism and new awareness and involvement by local policymakers, but independent businesses themselves are starting to organize and to develop cooperative strategies to help one another survive.

At the national level, for example, independent bookstores have joined forces to create an e-commerce site called www.Booksense.com. It works much like Amazon, but every time you buy a book, the sale is credited to your nearest locally owned bookstore. The web site is part of a larger Booksense marketing campaign that includes in-store promotions and advertisements that tout the value of independent booksellers.

There are lots of examples of this kind of cooperation at the local level as well. In Tucson, Arizona, more than forty independent restaurants got together three years ago and started a joint buying program that has reduced their food costs by about 15 percent and helped them better compete against chain restaurants. The group, called Tucson Originals, has also undertaken a public education campaign that focuses on the importance of locally owned restaurants through ads in local magazines and a card included with each diner's check. The effort has been so successful that it has inspired similar organizations in Minneapolis, Atlanta, Providence, and Kansas City.

Another very successful example of this kind of cooperation is the Boulder Independent Business Alliance in Boulder, Colorado. The group formed in 1998 and now includes more than 150 locally owned businesses-- from bookstores and restaurants to hardware stores and local banks. The alliance has created a broad public education and marketing effort that promotes the importance of locally owned businesses. Window decals identify businesses as locally owned. Bumper stickers urge residents to Put Your Money Where Your House Is. Advertisements in the local newspaper list the top reasons for supporting independent retailers. The group also publishes a widely available directory of locally owned businesses sprinkled with messages about maintaining community character and keeping dollars in the local economy. Community Benefit Card. The Alliance has been a huge success and according to members, succeeded in making the choice "local or chain?" a significant consideration for residents in their spending decisions.

Similar alliances are now forming across the country. In Duluth, Minnesota, the newly formed Northland Sustainable Businesses Alliance, with nearly 100 members, recently organized a series of radio and community discussions on the city's economic development policies. In Salt Lake City, the Vest Pocket Business Association stopped a giant mall two years ago and more recently published a colorful map of the city illustrating the location of independent businesses. Here in Vermont, the Alliance of Country Stores is working to organize country stores for joint purchasing and marketing programs.

If you're interested in following this growing movement, I encourage you to visit our web site at www.newrules.org and sign-up for our free email newsletter. The site also contains information about all of the policies I described today and others.

All of this activity points to the fact that, although the current trends are dismal, trends are not destiny. Across the country, a growing number of communities are taking concrete steps to ensure that locally owned businesses continue to be a vital and thriving part of our local economies.

Thank you.