Posts Tagged ‘economy’

I dream of Malden

Saturday, December 8th, 2012

Lately, Malden, Massachusetts has entered my consciousness. I’m not sure why. Maybe it’s because a few of my Yelp friends from Boston have told me this is the “in” place for Ethiopian, Sri Lankan or Moroccan food. Maybe it’s because Business Week has made noise about Malden being a great place for kids to grow because of its diversity. Maybe it’s because a member of my family has some political responsibilities there? Or perhaps I’m just tired or organizing business communities in India, Latin America and Europe and want to come home in the evening?

I don’t yet know how to fit all the pieces in the co-creation puzzle, but I’m eager to figure it out. My typical gig involves finding a central business player eager to orchestrate the development of a mini-economy around itself: a large business, a bank, sometimes a public entity (although a profit-seeking business with a community bent provides the best anchor). Maybe Eastern Bank or one of the local savings banks could play that role? Banks – community banks in particular – can become great community co-creators since they make money by attracting local savings and lending that money back to mortgage customers and businesses. By connecting all the parties with each other around local growth and utilizing the physical branch as a local meeting place, one can drain a lot more savings and generate a lot more loans, often at below market rates, simply because people are passionate about making their community a better place. I have done that in Saint-Etienne, France and Guadalajara, Mexico, for example. Why not Malden? Eastern Bank, you look like a supersized community bank with a great community bent. I’ll bet we could significantly increase the income of your savings and your lending business in your Malden branch if we could make you the center of Malden’s renewal.

On the business front, Malden does not have a lot of manufacturing businesses, but has great ethnic food restaurants that could grow and become anchor points for local employment. Could Malden become the food capital of New England? Could it engender the development of an ethnic food supply chain with ethnic grocery stores and perhaps some local manufacturing or distribution centers from the mother countries? I dream of Malden as a mini-Ethiopia, mini-Sri Lanka, and mini-Morocco, a diversity showcase attracting hard-core Bostonians to eat and shop there. (Malden has the advantage of having the Orange line connecting it directly to the heart of Boston).

Maybe we could get the young foodies from downtown Boston who already come to Malden for food to help us orchestrate the growth of these communities? Many of them are idealistic Generation X and Millennials generating good incomes from financial services, healthcare or service firms.  Maybe we can have a “Food for Thought” program (one of them suggested that name to me), where these idealistic foodies become business activists who help Habesha scale its outstanding Ethiopian restaurant business, or supports Moroccan Hospitality Restaurant in attracting more passionate people to its tagines?

Beyond the business imperative lies a social one: Malden needs help because the poverty rate there is quite high at 12%.  It’s a  neighborhood not far from where some of Ben Affleck’s and Clint Eastwood’s tough movies take place (the Town, Gone, Baby, Gone, Mystic River). Maybe we could get local boys Ben Affleck or Matt Damon to sponsor our Malden business community program?

I dream of this program as a business proposition, however, not a bleeding heart volunteer activity. There is business to be made at the bottom of the pyramid, and it happens to have positive social outcomes. I want the core business that anchors this program to double its profits, the owners of the Malden restaurants to become affluent and the employees who work there to derive good incomes from the new jobs created. I want the politicians associated with this program to become stars and sell the program as a model for other Massachusetts, New England or US towns. Personally, I want my wife and kids to discover what I do for a living and get to sleep in my bed at night.

Malden is the modern version of the American melting pot. It is a microcosm of our future economy, with its huge problems and the opportunity created by its diversity. The future of America does not lie in setting up the right tax rates in Washington, DC. It lies in weaving vibrant business communities at the local level. With politicians, bankers, restaurants, downtown foodies and citizens, let’s go co-create Malden.

 

We don’t know squat about economics

Monday, July 30th, 2012

 

We think of weathermen and stockbrokers as the two “often in error, but never in doubt” professions. Let me nominate a third: economists.

If stimulus or austerity policies worked, we’d know by now.  If Friedman and Keynes were right, our governments would long have adopted their policies, and our economies would be roaring like Formula 1 cars in the Monaco grand prix. The predictability of tax cuts or stimulus spending on economic growth has the reliability of Paul the Octopus forecasting soccer game outcomes: sometimes it works, and most of the time it doesn’t. Yet politicians everywhere hang on to these disproven theories as economic gospel.

What’s wrong with economics? To paraphrase Mitt Romney in one of his awkward statements, economics is people. Instead, we think economics is policies. From government to universities, we teach economics as a massively aggregated database from which we extract insights, then policies, at the level of a state or a country. This leads to lame assertions about interest rates, monetary mass, jobs, trade deficit, and vague concepts of rational expectations reputedly anticipating economic behaviors. If we understood the true causes and effects in the economic system, our Presidents would not be sweating the job numbers every month: they would tell us beforehand what to expect.

Do you wake up in the morning thinking about interest rates, inflation and trade deficit? Do you actually decide to buy a car, a house, or go grocery shopping on the basis of interest rate and inflation? Do you look at your Turbotax statement to decide whether the rise in the marginal tax rate just passed by Congress will authorize you to go to Wholefoods and buy the fresh organic tomatoes that day, instead of going to the regular grocery store where the tomatoes are cheaper? Of course not. Yet this is the micro-level at which the economy works. Unless we can begin to comprehend decisions at this individual level, we have nothing of value.

If I were an economist, I’d start by diving deep into understanding how five or ten of my neighbors experience the economy. I’d try to build a model of their income statements and their balance sheet, and figure out how they decide to patronize five or ten local businesses (say, restaurants, grocery store, day care, etc.), or why they decide to save and for what. I’d try to understand the economics of the five or ten local businesses my neighbors buy from, why these small businesses decide to expand and hire, or why they scale or shut down. If there were one or two big businesses in my local area (corporate headquarters, big hospitals, etc.), I’d try to understand how the success of those large businesses contributes to the local economy through local taxes and jobs. I’d then try to model how the local township or municipality benefits from all this, and what impact local people and businesses have on the finances of my town (school, public funds, etc.). If we could just model this microcosm of economic interactions, we’d have data on a real, living ecosystem of actual people and entities and begin to understand how a local economy is co-created through their interactions.

Would this be representative of the economy as a whole? Of course, not. There would be massive biases linked to local industrial fabric and wealth levels. To roll up this data into a state, national, or global economy, one would have to empower people to build their own model at the local level. Providing the structure and platform that allows this local modeling would be a great role for government, instead of pretending that it owns the economy or creates jobs. The role of government in economic policy should not be to build top-down expert models of the economy as a whole, but to empower local folks to build models of their local market and learn from their interactions.

Even more importantly, if we began to understand causes and effects at the local economy level, the “economic agents” involved would be able to do something about the economy, rather than passively describe it. Individuals could change their relationship to local businesses, for example, by forming communities around them. Local businesses could mobilize those communities by setting up platforms that better connect them to their local customers (for example, I’d love to rally a few of my local friends to help a local hotel improve a few things in their menu and rooms, and we’d collectively bring them our out-of-town business). If local officials were to facilitate this dialogue, this would do more to create jobs and get them reelected than repeating hackneyed Republican or Democratic theories of austerity or stimulus.

Unfortunately, the scarcest commodity in economics is humility. Witness for example the recent Business Week article on the discussion between Paul Krugman and the President of Estonia and on the value of austerity in running a country. I will not venture an opinion about who’s right or wrong in this debate, but getting rid of the condescension conveyed in this dialogue seems to me to be job 1.

I, for one, would like to understand the economics of my village.

The role of government: be a local economy activist

Monday, December 19th, 2011

 

 

I became interested in economic affairs by listening to my father’s speculation about where commercial trucks driving up our street in Eastern France came from. As a German teacher in the local public high school, his own finances were protected from any competitiveness consideration, yet he instinctively understood the power of business in creating local wealth for the community. He also taught at a local textile institute and learned through conversations with his students how tough it was for local plants to compete against rising Asian factories. Although the value system at our household was mostly academic – you were either a “good student” or you were not – he marveled at how a few of his “average” students had become local entrepreneurs and created jobs around our home town. He often quoted the example of a local industrial baker who, while not an A student in his German class, had grown to hire hundreds of local people, eventually providing a strong career to one of his sons-in-law. “My job is to help my students export by teaching them German”, he would say. This was the first public-private partnership of my young economic life.

When I hear how confused we have become about what makes an economy tick, I revert back to my belief in “it’s the local economy, stupid”. By now, we’ve all learned that jobs are created by small businesses, who are by definition local. Economic wealth is generated when a few entrepreneurs find local financing to hire qualified local workers trained at local schools, thereby generating income that can be spent in local shops and invested in local houses, thereby allowing local politicians to be popular and get reelected. The process of co-creation through which these people work with each other – the entrepreneurs, the employees, the bankers, the customers, the service providers, the politicians – is a lot more important than the economic policy set by a central government anywhere. Sadly, this is not how economists think, as they arrogantly keep searching for the next policy paradigm.

So why do we spend so much time devising policies about which we’ll never agree – the role of taxes, regulation, economic stimulation, consumption, or interest rates? Instead of fighting fratricide conceptual battles, let us forget about top-down policies such as reducing taxes and lowering regulation, since they have produced the current financial crisis. Ignore the dogmatic belief in stimulating the economy through spending and investment infrastructure, since this Keynesian prescription has pretty consistently failed in the past. Ignore the battle between austerity and economic stimulation that currently divides the world. All represent a bad framing of the economic challenge in the first place.

The role of government should be to provide the platform through which economic agents engage with each other at the local level. What we need is a process, not a policy answer. These entities are largely disjointed today. I dream of empowered local bankers acting as clearing channels between local savings and local lending and investment, rather than acting as anonymous branches in their global bank’s central policy. I dream of high schools that would be attuned to the needs of local businesses (I wish all high school teachers had been as aware of the local economy as my father was!). I dream of local entrepreneurs sponsoring scholarships for smart local kids and maybe personally setting them as entrepreneurs to be, not as a concession to the inevitable social responsibility requirement, but in the hope of breeding the next generation entrepreneurs and benefitting from their success. I dream of local corporations investing in local services and shops to help them develop by recognizing they are needed to provide a high quality of life locally. I dream of financial products that would help professionals develop their clientele and their clients afford their services. I dream of politicians facilitating the process of bringing together the financial managers of public projects, the local chamber of commerce, local talent, and local associations. I dream of engaging all of these people in the transparent development of their town or city and accepting joint responsibility for the achievements of the local economy.

Some industries are leading the way by becoming local again. Large international grocery stores are co-creating with local farmers because of the local food movement and the demands of sustainability. Even banks are attempting to become more local again to beg for the forgiveness of their sins, trying to reinvent the old-fashioned community banking model of yesteryears. The local trend is there for all to see.

Some of these local government processes exist in embryonic fashion – e.g., town meetings — but by and large, nobody has devised the process of local co-creation that would bring those people together. There are missing interactions everywhere, so local economies lie inertly by the side, waiting to be awakened. Government people have not been trained on how to become local economy facilitators and activists. What is needed is a giant government re-skilling process. We might as well start now.