Way to Grow

Local Communities

An article caught my eye today, Independence from the Global Corporate Economy. It was in the GreenBiz newsletter which I follow for alternative energy stories, but as a trained economist, I was interested. It starts out looking like a rant against globalism and capitalism, but it really isn't. It's a bit of an ode to the local economies that are out there flourishing.

The articles speaks of Community Market Economies—networks of exchange built from small businesses and cooperatives that are accountable to their communities through social ties, innovative ownership models, and mutual support.

This rang bells because in a recent interview for my book, I heard from a woman who operates a retail franchise business in a small town on the outer edge of Silicon Valley. It became clear that in her bedroom community, people prefer to do business locally. She said,

"Because it’s a small market, it is important being part of the Chamber [of Commerce], and there’s a Women in Business group. I thought when I went to these kinds of meetings I would be connecting to the people who would be coming in and placing orders with me. And interestingly enough, because a lot of them are small business owners, they’re really not spending a lot of money, but they’re talking. So if somebody mentions that they need a framer, they’ll say, “Oh, you have to go see Leah.” And I do the same thing. I tend to refer people to these businesses that are involved in these groups.'

I, myself, recently joined an association of home-based businesses in my district in my city. And I have become a user of Yahoo Local when I want to find a business in my own community. I prefer to find a business near me rather than get in the car and drive to the mall. I have a hunch that I'm not alone. I believe we'll be seeing a great deal more of local economies in the next decade.

Top 10 U.S. Spending Trends

No matter what your business, it is fascinating if not downright relevant (and for some, critical) how U.S. consumers are spending their money. Read in Small Business Trends a report from Cheryl Russell of New Strategist Publications about consumer spending trends in these key buying-decision categories:

• Apparel
• Alcohol Beverages
• Entertainment
• Groceries
• Health Care
• Home Furnishings
• Information
• Pets
• Restaurants
• Transportation

The Semi-Rational Economic Human

Can we all finally agree that not all economic actions are rational, i.e. to obtain the highest economic good for ourselves?  Classical economic theory a la Adam Smith taught that was the case. But David Cowan points to research by behavioral economist and Harvard professor, David Laibson, that shows time needs to be factored in. Here are several examples from Laibson's work:

1. You are in a shopping mall next to your home and you win a drawing, which pays out either $10o today or $105 tomorrow. Which do you think you would select? Not surprisingly, many people would choose the $100 today (probably because there is something they immediately want to buy). But what if the choice of prizes is $100 credited to your account in 90 days, or $105 credited 91 days from now? Almost everyone (even the people who selected the immediate $100 payoff in the previous situation) figure that they might as well wait the extra day for $5 more. (Of course many will evidently change their minds if given the chance on day 90!)

2. It's time for dessert, and you have just enough room left for the slice of pie presented before you. Of course, sometimes you eat it and sometimes you don't. But if you make the choice well in advance of the meal, you are much more likely to make the longer term choice of declining dessert. We all intuit that it's easier to avoid putting the treat in your shopping cart than it is to avoid the treat at mealtime.

Thanks to Erick Schonfeld for catching this post.

I'm not surprised. The inter-temporal choices concept has been alive and well in folklore for eons.  My favorites are:

"A bird in the hand is worth two in the bush." (I apply this one to urban parking places), and

"A sure nickel is worth a possible dime."

Pricing Power

Does the market afford you pricing power just now?  If your business sells to consumers, read this from Reuben Swarz about how the current consumer and producer inflation positions give you an opportunity to raise your prices now, if you need to.  The window of opportunity may be small, so don't delay.

U.S. Gasoline Use Fell 4% Last Week

Joseph Weisenthal's post, "Gasoline Use Elastic", suggests that gasoline use may be price-elastic after all, and oh-by-the-way, it may not be true that reduction in petroleum supply will bring a proportional reduction in the economy's productivity.  I love to see challenges to the prevailing "wisdom" on energy use.

The statistic in the title of this post is from a story in the Wall Street Journal, and you must subscribe in order to read it.

Young Entrepreneurs Drain Labor Pool

Dane Carlson put together two posts about a new trend: Significant numbers of young people are joining the entrepreneur world and providing outsource services instead of the labor force:

"The Herman Trend Alert:

Early indications suggest that the Millennial Generation, born after 1985, has a strong orientation toward entrepreneurship. They feel confident that they can achieve great results–at least earn a satisfactory living—by going into business for themselves. This population cohort is showing itself to be self-aware, astute, creative, and comfortable taking the risks involved with businesses.

This scenario is a “good news — bad news” situations. While it is inspiring to see young people with a desire to create something, to try new business ventures while they are young, there is also a downside. These entrepreneurs, full of intellectual curiosity and energy, are often ideal employees for existing companies. However, if they are business for themselves, these unique human resources are usually not available to work for other employers. They are simply not interested.

via Jeff Cornwall, who adds:

What is interesting is that this is leading many employers to outsource functions that they just cannot adequately staff. And guess who is at the helm of the small businesses that large employers are looking to for such outsourcing? That’s right, the young entrepreneurs who they cannot attract to hire!"

Whither the Economy?

As a one-time Economics major, I like the idea of writing about the economy. The problem is that it's almost impossible to nail the trends because each study or analysis points a different direction. Last month, every article on the economy fretted about the housing bubble.  This month, it's all about oil prices. Some are gloom-and-doom pessimistic, but Jeff Cornwall at The Entrepreneurial Mind is more up-beat, concluding:

"An interesting outcome of the high price of gasoline is that voters in many states (for example, Washington, New Jersey, Oklahoma and West Virginia to name a few) are now beginning to pay more attention to these taxes. If an outcome of the higher price of gasoline this summer is a series of mini-tax revolts, I guess there will be at least one positive outcome from all of this.

While the recent spike in fuel costs is causing some concern about its potential impact on growth, there is no evidence that this is happening. The entrepreneurial economy continues to roll along."

Is Dell the Canary in the Coal Mine?

Despite overwhelming cost increases in the airline industry, there's still Southwest Airlines, defying the odds and remaining profitable. Despite tough times in the tech sector, there's always Dell racking up profitability and growth. Companies that undeperform just aren't as well managed as the best of breed. Until now?

"Does the Bell Toll for Dell" in Fresh Inc. raises the question that Dell's disappointing quarterly results announced August 12 may signal concerns about the vitality of the tech sector. -- Even though Dell's profits were up 15% over the same quarter last year, they were lower than expected.

Keep one eye on Dell. And keep the other on Southwest. I believe these companies are canaries in the coal mine. If they start to lose steam, the economy will too. 

Small Business Hiring Is Flat

According to the 15,000 small business customers of SurePayroll, an online payroll service, hiring in June 2005 was flat, suggesting a possible economic slowdown in this sector. Average paychecks were down for the first time this year. Their survey also reflected a reduction in the use of independent contractors by small businesses for the first time in over a year. Read more...