Friday, August 26, 2011
Cross-posted on Amazon
Amy Cortese's fabulous tale of a new investing trend is one of those transformative books that changes the way you look at things, and gives you reason to hope amid gridlock in Washington and a sluggish economic recovery.
Just as "locavores" promote locally grown food, locavestors put their money to work in their communities. It is a phenomenon Cortese has covered as a journalist for the past several years. She coined the term "locavesting" to describe it in a 2008 piece she wrote for the New York Times Magazine.
What she has latched on to is a subterranean movement that has yet to break through into the national consciousness. But it is no less real for that.
Cortese describes the creative ways that people around the country are finding to invest in local businesses, from mom-and-pop shops on Main Street to sprawling cooperatives like Organic Valley, a major dairy producer.
She chronicles all of this in a lean, journalistic prose that lets the story speak for itself. She has obviously gone to these places, talked to these people and seen locavesting in action. Her book is alive with real people doing sensible, hopeful things - such a contrast to the cant and posturing that fills so much of the mainstream media reporting about the economy. Her book is a breath of fresh air and a promise of hope for a resilient economy.
Locavesting is in part a reaction to the outrage over the practices of Wall Street and the big banks that brought on the financial crisis. At the same time, communities have been devastated by the recession and foreclosure crisis and people don't want to stand by helplessly.
So they began looking for alternatives, especially for ways to keep their money in the community and put it to work there.
Cortese tells the story of a bakery in Clare, Mich., that was going to close. Members of the local police force - alarmed at the loss of their doughnuts - bought the bakery and have turned it around to the point that what is now called Cops & Doughnuts has expanded and employs more people than the police department.
The author recounts how an investment "club" in Port Townsend, Wash. began a series of investments to rejuvenate the local economy with a success that has made them a model for other communities.
In addition to the new term she coined for locavesting, Cortese employs a number of neologisms that have gained currency, from "crowdfunding" - using the Internet to collect small sums of money from a large number of people - to "foodshed" - the food equivalent of the local watershed.
One of the key terms in describing locavesting is "social return" - the recognition that an investment may have some intangible returns along with financial gain. People are looking for profit, but another part of the motivation is the wider social benefit that it brings.
Some local investments, however, can also yield significant financial rewards. Just ask the customers of a small ice cream maker in Vermont who bought cheap shares to help the company expand and cashed in when Ben & Jerry's became a household name. Investors in the virtually risk-free nonvoting preferred shares of the agricultural cooperative CHS Inc. earn an 8 percent annual dividend - practically unheard of in this low-interest environment.
Locavestors face numerous obstacles from securities regulations accumulated over decades to protect investors from fraud, stock market collapse and trading abuses. While all these regulations were well-intentioned when they were adopted, they often leave small and medium-sized companies with limited access to financing after consolidation has decimated the number of local banks.
Locavestors make use of existing exemptions like investment clubs or cooperatives that enable them to pool money without expensive and burdensome securities registration. Some companies have revived the practice of direct public offerings - selling their shares directly to customers or suppliers rather than paying a Wall Street firm a big percentage to make an initial public offering. And there's even a movement to get back to local stock exchanges to support trading in the shares of local companies.