Small business owners and entrepreneurs struggle for money everywhere. Yet, this is perhaps more true in rural communities than anywhere in the developed world. Adam McKenty, head of CCEDA, shared a creative solution that is allowing people to invest their money in their local communities while providing capital for small businesses and entrepreneurs.
‘To Produce Innovative Creative Things’
It is “clear form the LEAP report and many, many other conversations, that people on Cortes do not want to become more dependent on the tourism economy. They want us to be able to produce food, to produce energy, to produce value added wood products, to produce innovative creative things that islanders love to invent and make and share with the world. These are our gifts. They want to have ways that money serves us, rather than us serving money,” says McKenty. “In order to do these things, we need a way for capital to flow into local investments. We need a way for islanders to finance island businesses that’s reliable, accessible, and not too difficult to set up.” On Cortes, using numbers based on the national average, there is about 15 million dollars of investments between the individuals retirement accounts, mutual funds, and other investments. “Because of the demographics here, we can be quite sure the actual amount is much much higher than that,” says McKenty. “What could we do if we bring some of that productive money home to the island?”
The Global Economy
What if the world were viewed from space and on top of clouds and water and infrastructure, we were able to see the flows of money and resources and other goods? The flows would be even larger than the trade winds, jet streams, and Hadley cells as material such as computer and electric parts, wood and oil, and agricultural goods flow from certain places and money flows back. If the Earth were watched over time, something else would be visible: the loss of ecosystems, glaciers and ice-caps, and species. The flow of capital and resources has also changed over time, getting longer and longer. Lost are the details. Now a person that walks into a store in Vancouver or Cortes or just about anywhere in the world exchanges money for a product, whether it be a toothbrush, tomato, or telephone. These products may have come from anywhere in the world, made of materials from other places even, and are paid for with money that will then mostly leave the local community and flow in part back across all those long, invisible trade flows, disappearing into the “global economy.”
“There is another flow of money that is even harder to see. It doesn’t power the flow of goods. It powers the *capacity to make the goods in the first place.* That is not the money that’s used to pay for things, but the money that’s *invested in companies*. About 300 trillion,” explains McKenty.
“On the investment end, this money allows companies to grow. To use a gardening analogy, it is like a seed: a seed is a packet of nutrients that the plant can live off of until it gets its leaves into the sunlight and its roots into the soil. Without that packet of nutrients, there would be nothing to power the plant until it started its own profitable enterprise of collecting sunlight.
In reality, the massive flow of investment capital is the driver and enabler of some of the worst excesses of the global economy. This is why a key component of campaigns to end human rights violations, to slow down climate change, or to protect indigenous rights focus on *divestment*. The power of investment capital is enormous. Without it, industries would collapse.”
The Enabler Of economic capacity
“Investment money is a powerful, two-edged sword,” says McKenty.
“Here too, though, the long loops are invisible. If I invest in a registered retirement savings plan or RRSP, I may have no idea what sort of work my money is doing. It might be funding an oil pipeline that’s being bulldozed through an indigenous site in North Dakota; it might be funding Facebook to capture and sell more of our attention and personal data; it might be funding Lockheed Martin to make missiles, or Goldman Sachs to lobby congress against stricter rules on financial services.
There’s a lot that’s unknown about what my money is up to, but there is one thing we can be almost completely sure about: my investments are definitely *not* going to be put to work helping grow ethical sustainable enterprises here on Cortes Island, where I live.”
But What If They Could?
“Throughout Canada, and more recently in BC, there is a movement to create mechanisms that allow *Community Investment*. This means that local people can put their money to work in the places where they live, without having to start their own investment fund or search out fledgling businesses to invest in.”
Nova Scotia CEDIFs
In Canada, the pioneer of this approach was Nova Scotia. Faced with a faltering resource economy and rural depopulation, the provincial government created a program called Community Economic Development Investment Funds, or CEDIFs. This was in 1999. These were a simplified way to create an investment fund for a local area that would invest in local businesses. The CEDIFs were supported with a tax break, so if you invest in a CEDIF you get a tax credit that’s equivalent to some portion of the amount you invest.
The CEDIF program was quite successful. There are currently about 70 CEDIFs in Nova Scotia, managing about $80 million in investments.
Three of them failed, one of them somewhat spectacularly, but the success rate of enterprises within CEDIFs is about 90%, which is much higher than the 36% success rate of SMEs in general in Canada.
FarmWorks In Findhorn
“Now if we can zoom out again, I want to look at a community investment project in Scotland. I spent some time at the Findhorn Ecovillage in Scotland last year,” says McKenty. “I started noticing interesting things there with my economic curiosity.” These included a wind farm generating energy, a local currency, and a co-working “hive” built with community offices, space for workshops, spaces for food production/craft activities and facilities such as hot-desking.
“I eventually found out that all of these things are tied to a community investment co-op: Ekopia Social Investments. This is one of the examples I find most inspiring. Their co-op has about 250 members, and manages about a million pounds (or close to 2 million canadian dollars). They have some amazing projects,” including:
- Wind Farm. They built a wind farm with three large windmills, which powers a community with about the population of Cortes, which is now a net exporter of electricity;
- Cafe and store. The cafe and store at the Findhorn Ecovillage were in financial trouble, so they invested in both of those businesses and brought them back to profitability.
- Local Currency. The community investment co-op manage the Ecovillage’s community currency. The currency is sort of a novelty. £20,000 in circulation. It’s on a par with the pound, and they use the money that people exchange to buy currency for low-interest loans to local people and businesses. Reducse the amount businesses (who accept the local currency) pay in payment processing fees, which is an interesting side effect.
- Affordable Housing. The community investment co-op has built three affordable housing developments.
- Findhorn Hive. This building was built by the co-op and is a combination of shared and rentable office space and studio spaces, including a commercial kitchen.”
Ekopia currently has about 250 members, and manages assets of about £1 million. Windfarm powers the whole ecovillage, which has about as many residents as Cortes.
“Ekopia is an investment fund, but it’s also more, in that it starts an to some extent runs enterprises as well. This is an example of the kinds of really interesting things that you can do once you have the capacity for local investment,” says McKenty.
Closer To Home
Coming a little closer to home, there are a couple of interesting community investment examples in Alberta
Battle River Railroad
In 2010, CN rail decided to close the spur line that served the grain farms in Battle River area in Alberta. This is an ongoing trend, with small rail lines being sold (often for scrap) and the town-scale grain elevators replaced with larger terminals. So the farmers along the line got together and formed a co-op and bought the line from CN, so now they run their own rail line.
This example is interesting because it illustrates something important about community investment. You would think that CN, with its massive economies of scale, would know how to run a railroad profitably. But instead, what you have is CN selling off the line for scrap as unprofitable, and then local people buying it and running it as a profitable business.
Sangudo Opportunity Development Co-op
Another interesting example from Alberta is in the small town of Sagundo. 300 people. They raised about $750,000, initially to invest in a local meat processor whose owner was about to retire, and since 2010, the co-op has invested around $800,000 in projects in Sangudo, a hamlet of about 300 people. The co-op itself has grown from 21 members to 39, with investments ranging from $3,000 per person up to $50,000.
Why Isn’t The Power Of Community Knowledge Working In BC?
The power of local investments in local enterprises is the power of community knowledge: you know your neighbours and everyone—investors and members of the community who benefit from the service or product—all want the business to thrive.
BC represents 4.5 Billion in RRSP contributions every year. With various inspiring examples from around the world, you might think that community investment would be more common. Why not just recruit some wealthy people to put money in a pot, and start investing it in local businesses?
The securities regulations make it illegal. Like most laws, the securities regulations are there for a good reason. As it is people lose billions of dollars of investment fraud. But, like most regulations that are intended to protect people, they also limit some well intentioned efforts as well.
In order for a “regular person” to invest directly in community enterprises, it requires the person to file a prospectus, an enormous mountain of paperwork involving teams of lawyers and accountants. Alberta and Nova Scotia have regulations that have specific exemptions that facilitate community investments.
The BC Workaround
Though there aren’t specific rules that are intended to allow community investments in BC, there is an exemption for co-ops. This is to allow co-op members to invest in their co-op.
So, although there are no tax incentives like in Nova Scotia, and the co-op exemption puts some severe restrictions on how local investment funds can operate, in recent years this co-op model has been gaining ground in BC. We’ll look at a few examples:
- Eden Yesh
- Climate Action Loan Fund
There are numerous other examples of successful uses of the Community Investment Coop form of investment in local enterprises in BC. The key points seem to be that co-ops are invested in helping other co-ops, including extensive research on how to set them up in communities that’s available for free to help other community coops start their work, and the lean startup costs and ease in finding invests when it’s possible for local people to invest in their local businesses. “Community Investment Coops are the inverse of normal investment fund situation,” says McKenty. In CICs, it is easy to get the initial investment but harder to find businesses ready for investment; the repayment rate is good for those who receive investment dollars and McKenty says he hasn’t yet found an example of a business that has failed to repay its loan to a CIC.
Community Investments for Cortes
CCEDA, Cortes Community Economic Development Association, is starting a Community Invesement Coop for Cortes. This is where they are at:
Documents – assessing structures, putting together a version that makes sense for Cortes
The lean approach – take what we can from elsewhere, do it fast, don’t invest much, iterate as necessary
Reaching out to potential investors for an initial membership
Starting to keep an eye on the entrepreneurial scene to be aware of who is close to ready for investment
Extraordinary Potential Here
“We have a choice: we can ignore the economic flows that are driving us or, as a community, we can learn how they work, and start making our own choices” says McKenty. “That is our choice: either we are at the mercy of these larger forces, or we start understanding how money and economics and investment works, and put it to use on our own terms, for the benefit of the island we want to live on. That is economic sovereignty. That is real localization, and real resilience.” He reiterates that creating a mechanism to relocalize capital is a key piece of that.