Sheering the Wool off Going Local
by Peter Menzies
John Leder, ultimately, broadcasts two compelling points.
The first is that, as he says, "the calculation of spinoff wealth is just too woolly." Agreed.
The second is that most corporate metaphors (an interpretation, not a quote) are at best aspirations and at worst insincere platitudes stated primarily for the purpose of recruitment and marketing. Again, agreed.
Nowhere is this latter point more clear than when Leder points to corporations that describe themselves as "family"—a preposterous theft of identity that can only be justified if the company in question is staffed entirely by employees related by blood and/or marriage. This may apply to small "local" businesses but it cannot apply to a publicly traded corporation, much as it may wish to sell itself as such. Families are sacred structures. Corporations, all sensible people would agree, live in a world somewhere between the sacred and the profane and their critics are likely to see them as more inclined to the latter than the former. Indeed, as mere entities they can only adopt the frequently flawed character and varied moral codes of the human beings who operate them.
This was aptly illustrated in Vicky Ward's book The Devil's Casino: Friendship, and the betrayal and high stakes games played inside Lehman Brothers. In telling the story of some of the key Lehman Brothers players prior to and following the company's spectacular failure in 2008, Ward noted how the company's leadership always spoke of "family." Ward also recalls, tellingly, how this "family" concept worked: one of the principles was recalled to the office while on the way to be with his wife while she gave birth to their first child. Something important had come up and, in the interpretation of the Lehman leadership at the time, "family" meant the company, not the wife and kids.
Anecdotally, I recall the tale of an Ottawa tech CEO who, in a television interview spoke of the "family-friendly" nature of his company. All his employees, he said, were out the door by 5:30 so they could have dinner with their families and he had equipped them with laptops so that by 8:00 p.m. they could all be back online and at work. The warm fuzzies there are pretty overwhelming.
No doubt there are corporations and companies—great ones—that walk the talk, but as in all things, investors, analysts, and observers need to focus more on the walk and less on the talk.
Similarly, healthy skepticism is helpful in analyzing the motivations of the thinkers and activists inspiring the traction being gained by the "going local" concept as it is currently being recycled. Just as with the corporate "family" metaphor, "going local" is capable of conjuring warm images of happy High Streets filled with neighbourly bakers, vintners, butchers and fishmongers contrasted with the cold distance of major corporate chains using their buying power to offer lower prices.
The choice between the two, ultimately, is made by consumers who freely choose between the High Street option with its pleasant ambiance and the larger chains that offset their social disadvantage with efficiency and price.
There is a reasonable argument, however, that the movement to local is at least in part (others may debate how large) a reactionary and relatively bourgeois play against the free choices of citizens, the inevitable forces of globalization, and North America's increasingly obvious disadvantage internationally when it comes to the cost of labour.
There are clear trends toward shipping over-priced work offshore where it can be done at a fraction of the price it would cost "locally." Within my own field of experience, for instance, the straightforward function of "journalism" inspired by press releases was once conducted primarily in major city newsrooms by labour that cost $35-$40 an hour plus benefits—a commercially tenable cost only during the passing industrial age and pre-internet/email era. However, modern communications and an increasingly educated and linguistically skilled foreign workforce (from India, Poland, the Philippines, you name it) is now readily accessible and more than happy—grateful even—to do the same work for a fraction of that cost.
North American journalists, faced with this realty, mourn and decry the need to "go local" (a cry many refused to heed, by the way, when editors of yesteryear begged and pleaded for something meaningful locally in frequently sloppy rewrites of the same press releases now shipped offshore). Foreign-based journalists, on the other hand, have uncovered a virtual mother lode of wealth in which their productivity and multilingualism is rewarded.
On the face of it, the economics are straightforward: journalists in wealthy countries grow poorer and their counterparts in poor countries grow wealthier. International social justice is no doubt being served by this trend and, paradoxically, would normally be embraced philosophically by many of the "progressive" activists suddenly donning the cloak of a conservative "going local" movement aimed at the preservation of jobs and lifestyles in North America.
Not that there's anything wrong with that. Human instincts, common sense, and therefore politics dictate that the primary role of "local" (in a globalized world, "local" may also be "national") officials is not the opportunities created for journalists in India or car manufacturers in South Korea: it is the common welfare of the people whom they represent. That fundamental social/political imperative articulates the fine balancing act that is required in a world of increasingly global trade and economics that is nevertheless still defined socially, culturally, and politically by nation-states.
So, while ideologically "pure" libertarians may bristle at the thought, interventions aimed at the preservation of "local" prosperity and social order become inevitable.
Those preservations and interventions can, however, carry a significant price tag (think about Greece for a few seconds), as do virtually all social goals that societies set for themselves. The burden of that cost leads to the necessity for compromise. Some economically unsustainable jobs or industries may be deemed too important or big to fail and win subsidy; others will be allowed to fall by the wayside.
And therein is the root of the competition for survival that has spawned the current era of "spinoff wealth" reports and studies.
Spinoff wealth is certainly real. It exists. Yet in the public arena and media these studies are frequently funded by and presented on behalf of lobbyist attempting either to maintain an existing public subsidy or to justify a new one. That reality adds, to use Leder's term, considerable wooliness to the lens through which we must view them.
Professional sports teams looking to improve their bottom lines use spinoff wealth studies, for instance, to argue in favour of the construction of new stadiums or arenas in which to house their teams. They are usually willing to concede they will enjoy a private benefit and that the economics of such ventures are such that raising private capital is not a viable option. And they are conscious of the fact they are asking for money from people far less wealthy than themselves and must therefore create a value proposition for those people in exchange for increased taxes.
In seeking a new downtown arena, for instance, executives from the National Hockey League's Edmonton Oilers made a presentation to city council this year that spoke of such a venue as part of a broader revitalization of the city's civic core. The argument, overall, was that an increase in property taxes required to support the venture would provide an improved civic aesthetic for citizens and ensure a much-loved but privately held cultural asset—the hockey team—would be able to thrive. In other words, a new arena might mean it will cost a little bit more to live in Edmonton, but it will also be a more pleasurable place in which to live.
This can be a persuasive argument in Canadian cities when it comes to professional hockey because, culturally, Canadians are prone to viewing their hockey teams as public trusts, albeit privately held. That sensibility makes decisions to assist them with public funds easier to sell at the political level. The same "lifestyle spinoff" argument, however, is much more difficult to make in places such as Long Island and Phoenix where the presence of a healthy NHL franchise is less likely to be viewed by the local people as vital in any way to their enjoyment of life. The socio-cultural value proposition just doesn't have any broad appeal. In those cases, the economic "spinoff" value proposition gets pushed even harder just as it would in Hamilton if, for instance, a group were seeking public funding for an Opera House. Some may perceive a socio-cultural benefit but most won't, which forces the proponents of the venture to seek a strong "spinoff wealth" argument in order to justify their venture.
Thus the line between the presentation of a socio-cultural value proposition and an economic value proposition gets, well, "woolly."
A NHL team, for instance, may speak of all the hotel rooms that are booked by visiting teams and fans, the bars that are filled on game nights, etc. It is true that all this takes place. The challenge for those dissecting these studies and arguments is to discover which of the "spinoff" arguments actually involve the generation of wealth and which of them merely represent its redirection. And which of them are purely financial/economic bargains and which are financial/socio-cultural bargains.
During the 1994 Major League Baseball strike, for instance, dire consequences were forecast for Toronto. And yet there was evidence that while the option of attending a Blue Jays game didn't exist due to the strike, Torontonians instead attended restaurants, theatres, and cinemas more frequently. In other words, they diverted their disposable income away from baseball and into other activities that gave them enjoyment while Toronto continued to create wealth and, therefore, their income. This led some to conclude that the money that was being spent on baseball was, in fact, money that fell into a much larger spending basket called "fun" that people wished to invest in whether or not baseball existed.
In Montreal, those same short-term behaviours became long term, and when baseball returned, the money that was being spent on it did not. The Expos, a decade or so later, ceased to exist. The argument could be made that this was the consequence of a social disruption: that being that the faith bond that existed between citizens and their city was broken. This had social consequences but, in terms of economic impact, some would argue that the burden was borne almost entirely by the Expos ownership group and not the community. Either way, Montrealers continued to spend on "fun," as anyone who has visited the city will attest.
Similarly, during the NHL lockout of 2004-2005, people in Canadian cities tended to divert their "fun" money to other activities, some of which no doubt involved spending on southern winter vacations. And, as an unintended consequence, the phenomenon of TV and online poker was born. There was some impact, for sure, but the cities continued to create wealth; what was different was where it was distributed. There may have been fewer part-time jobs at the Saddledome, but the ski hills were booming.
What makes this maze all the more difficult to negotiate is the blurring of the lines between socio-cultural benefits and value propositions and "spinoff" economic arguments. This is due, in part, to the tendency of those advocating for their positions to use a "stop me when you hear something that works" sales approach to win the day. Journalists, ill-trained as they are in economic matters (although there are some praiseworthy exceptions), must try to make sense of this for their readers.
Finally, and perhaps more troubling, is that within society and virtually in tandem with the ascendancy of individual rights over collective rights, it may be becoming more difficult to clearly define and sell collective socio-cultural benefits to individuals more likely to ask, "What's in it for me?" than, "Will this be a worthwhile contribution to the collective good, the common welfare?"
In other words, we can expect to see increasing numbers of "spinoff wealth" studies and arguments put forward that attempt, simultaneously, to appeal to individual bottom lines on a very practical basis and to collective socio-cultural net benefits on a more emotional level.
This is an uncomfortable mix both for economists and for public policy makers, both of whom would be well advised to clarify—strongly—the line between the two. Sound arguments can be made on both counts, but failure to distinguish between the two will only add to the "wooliness" and mixed metaphors that currently diminish the chance of either of argument being accepted.