Living virtually for the last year has, paradoxically, made me more acutely aware of the importance — and vulnerability — of our actual, physical communities. While we are all working online, buying online, living online, what has become of the actual places we live and choose to call home? Can they remain vital?
Seeing the downtowns of Denver and Colorado Springs and Fort Collins and Boulder turn into ghost towns has made me realize how much we all have a stake in their full revival.
This isn’t a theoretical, existential worry.
We in Colorado know all too well how once wealthy, bustling places like Cripple Creek or Central City — once the “Richest Square Mile on Earth” — can become shadows of their former selves.
I’ve lived in a small town, and I’ve seen its main street absolutely decimated by the arrival of a nearby Walmart and online shopping and big box retailers 10 miles away. These “conveniences” have gutted main streets across Colorado. When the heart of your town is boarded up, emptied out and taken over by tumbleweeds, do you really have a town anymore?
So as we emerge from COVID, I hope we all see it as a time to Get Real.
If we want our communities to return to their former vitality, we may all have to participate in rebuilding the real world in which we want to live.
I recently spoke to an economist and author, Michael Shuman, who thinks the time is ripe for a rethinking of how we all can invest in our local communities.
“As I’m talking with cities about economic development policy, there is a greater openness on their part to thinking about local investment as one way of their being able to provide more service without raising taxes or with a diminished tax base,” Shuman told me.
Shuman isn’t just talking about Buy Local kinds of campaigns that many chambers of commerce have implemented to jump start their recoveries.
He’s talking about things like opening local stock markets that allow residents to invest in their neighbor’s businesses, crowdfunding local startups and business incubators, and creating local investment funds that you can put part of your retirement savings in.
His new book, “Put Your Money Where Your Life Is,” is all about how people can use self-directive IRAs and solo 401Ks to steer their investments into their own communities.
Its central question is: Do you know where your money spends the night?
“What I think is weird is when you look at the structure of private business in the United States, locally owned business is responsible for 60-80 percent of jobs in the economy,” Shuman explains. “That business is largely as profitable if not more so than Fortune 500.
“And yet, every time I give a talk I ask how many people have at least 1 percent of their life savings in local businesses, and all the hands go down.
What’s perverse about that is Americans have $56 trillion invested in stocks, bonds, mutual funds, pension funds and insurance funds.
“In a healthy, functioning marketplace, 60 percent of that money would be going to 60 percent of the economy, namely local business,” Shuman said.
“Now, none is.”
But changes are happening that are already clearing the way for people to keep their investments in their communities.
In 2012, Congress passed the Jumpstart Our Businesses Act, which changed securities laws to make it easier to invest in local businesses, and consequently turbocharged “crowdfunding” of such businesses. The law went into effect in 2016.
“In the last four years, because of that law, something like 700,000 Americans have invested half a billion dollars in several thousand companies, and the average company has raised $300,000, the average investment is about $800 a person,” said Shuman.
“The most successful beneficiaries of the law have been entrepreneurs who are women or people of color,” Shuman said, because the conventional capital markets have been harder for them to access.
It’s a pretty good track record. Then in November, the SEC redid the rules and allowed companies to raise more money via crowdsourcing, and allowed investors to invest higher amounts, too.
The reasons for making it easier to invest in local companies are pretty irresistible.
“With a non-local investment, the best you can get is a private rate of return that is healthy,” notes Shumann. “With a good local investment, you get a private rate of return and you get a social rate of return. And what I mean by that is, you’re building the tax base which is paying the teachers and the police and improving the quality of life. And that is something you would not get from a non-local investment.
“And I don’t think there is a person in the U.S. who, when you say, if I can get equal returns, plus the social returns, they wouldn’t do it. “
The idea of Shuman’s that captured my imagination was the notion of a local stock exchange that would allow me to go online and invest painlessly in my favorite coffee shop or, say, an exciting new startup media company! But for that to happen, more of the SEC’s laws will have to change, and that will require some pressure from lawmakers who see the benefit of creating a superstructure for local investment.
“You won’t have local stock exchanges until you have a critical mass of local securities, which we’re just beginning to reach right now,” Shuman said. By securities, he means any piece of paper that generates a rate of return such as loans, stocks, royalties, etc.
“We’re really at an early stage in all of this, but the law is headed in the right direction.”
But the necessity of helping communities dig their way out of COVID could turbocharge the movement of investment money from Wall Street to Main Street.
“This is the perfect time to innovate,” Shuman points out.
“We could easily create an exemption for a fund that invests in local business. The SEC already has one for non-profits,” Shuman said.
Or the SEC could just allow states to experiment right now. We’re in an emergency, let Colorado and Utah and Idaho and anyone else who wants to figure out how they want to experiment with funds and exchanges that are only dealing with in-state securities.
The whole JOBS discussion happened after the last economic crisis in 2008. The boom in crowdfunding was born of that crisis.
Shuman’s pitch is finding receptive audiences all over the country right now as he trains communities how to invest — and believe — in themselves better.
“I think people really hunger for community,” Shuman said. Before the pandemic, many people already had dramatically shifted their buying habits, flocking to local brewpubs, farm-to-table restaurants, local credit unions and cooperatives. Could a boom in local investing be next?
“As more people work from home, that has brought us closer to our families and closer to our neighborhoods,” Shuman noted, “so it will be interesting to see what happens post pandemic.”
We found a way to work from home successfully. Why can’t we use that same American ingenuity to find a way to invest in home while we’re at it?