The realities of the modern economy, an economy primarily dominated by large nationally branded, investor-owned companies, is plagued with several stark realities. These realities vary in size, scope and range depending upon one’s economic contribution, but the overall impact to society is systemic.
There is a sense of comfort and convenience that comes from the very existence of large national brands. Life before the “golden arches” is unknown and mostly incomprehensible for most of us. For the rest, the comfort and convenience of those “golden arches” has become commonplace in our societal landscape, and while there are positive aspects to the comforts and conveniences afforded by these national brands, an increasingly important question remains: If we truly understand the impact these national brands have on our communities, would we vote to continue their existence by spending our money with them?
One way to approach this topic might be to present an infographic similar to this one, where we can see the relative impact of spending choices. Organizations like Local First Arizona (www.localfirstaz.com/studies), the National Cooperative Business Association (www.ncbaclusa.coop), the Institute for Local Self-Reliance (www.ilsr.org) and many others have conducted extensive studies on the monetary cycle and impacts of spending at nationally branded businesses versus spending with locally owned businesses.
While it can be revealing, if not alarming, to learn the ratio of dollars that leave a community when a non-local brand is chosen, I believe more people can relate and are, therefore, more willing to take action, if a stronger emphasis is placed on demonstrating how these ratios impact a person’s, a family’s or a business’s ability to create wealth.
With its breadth and depth of experience in business and economic development, RBI actively pursues projects that demonstrate to civic leadership and community members alike, the power of shared and employee ownership. The most critical factor in determining the success of a project is community member participation and a willingness to educate others when it comes to making choices that either build the long-term regenerative capacity of a community for future generations or making a choice that ultimately leads to dollars leaving the community.
In order to illustrate this point, let’s take a look at the available “dining out” spend in Apache Junction and translate that into regenerative wealth building capacity for each scenario.
According to the U.S. Census Bureau, 16,550 households in Apache Junction have a median household income of $39k. We can use this information to evaluate how the average household spends that income by looking at the Consumer Expenditure Survey (CES), conducted by the Bureau of Labor Statistics. The following chart presents CES data for the region most applicable to Apache Junction, the Phoenix metropolitan area. The “Food Away from Home” spend is similar throughout the Western Region of the U.S., meaning that we can reasonably assume that households in Apache Junction are going to allocate a relatively similar amount to their “Food Away from Home” budget.
With this information, we are now ready to analyze the regenerative capacity for local versus non-local spending in the “Food Away from Home” category. The chart below simplifies this analysis, using the following assumptions:
• All spending is at one establishment, respectively, to simplify the math.
• An average of $2,400 per year spent on “Food Away from Home” by each household.
• Spending by surrounding communities, tourists or seasonal visitors is not included.
For the residents that call Apache Junction their home year round, they create an available dining out spend of approx. $40M annually. The choice of spending that dining out budget locally versus non-locally equates to approx. $10M annual circulation ($827,500 per month) remaining in the community.
That $10M is immediately available for investment in other areas of Apache Junction’s economy without the costs of borrowing from a lending institution. If it was used for job creation, it would create ten jobs at $50k per year, when employer taxes and fringe benefits are included. Those ten jobs further contribute to and accelerate the monetary circulation effect, thereby increasing the regenerative capacity of Apache Junction’s economy.
The final component that must be taken in to consideration relating to prosperity in Apache Junction is ownership structure. In a co-operative, the members of the co-op are the shareholders of the organization. They are the controlling voice of the company and the beneficiaries of the company’s performance. If the co-op does well, the board of directors (elected by the co-op membership) can elect to declare a patronage dividend. This dividend can be thought of as the “short-term” wealth building vehicle for the co-op membership.
To use our example above, let’s assume that the board has declared an 8% dividend, and that you, as a faithful co-op member, spent your entire “Food Away from Home” budget ($2,400) at the co-operatively owned restaurant(s). This would mean that you would have a total of $192 of the $2,400 you spent returned to you that year.
Next, let’s assume that the other 16,549 households were in the same situation. The co-op, by declaring a patronage dividend of 8%, will return a total of $3,177,600 ($192 x 16,550 households) (minus capital reserve requirements) back into the local community, who can then choose to spend that in the local economy. This is in addition to the approx. $10M that is already staying in the community because we chose to spend locally.
The $192 dividend per household ($3.1M total) can either be saved by the household, invested back in the restaurant co-op or invested in other goods/services the community wishes to make available under the same principles (i.e. entertainment, utilities, insurance, grocery, etc.). This is the short-term regenerative component of economic development that civic leadership and the community will benefit from.
Beyond the short-term wealth creation described above, there is a long-term wealth creation component, tied to the equity of the co-op, that we will explore in more detail in the final article.
Creating prosperity in Apache Junction, and any community for that matter, requires keeping the monetary cycle local to the maximum extent possible. Equally important is the ownership structure(s) of the local businesses as it is the structure that either creates built-in incentives to patron those businesses or makes patronage with those businesses indifferent. The ability to use consumer dollars that households spend on goods and services as a means to develop short-term and long-term wealth is not only possible, but necessary if we are to close the income gap that restricts households from gaining access to the resources needed to create wealth.
In this article, we have explored a few of the current economic trends that present major challenges for creating economic prosperity. For those willing to brave a new frontier, shifting their mindset from consumer to investor, the future can be full of possibilities. Co-operation is not a new concept and has been used successfully in various parts of the world throughout recorded history.
In the next article, we will discuss the proposed project to develop a co-operatively owned restaurant industry in Apache Junction. The intent is to describe how the co-op would benefit Apache Junction and gauge the community’s desire to participate.
In order to comment on this article, please go to: