Oct./Nov. 2002 - VOLUME 23 - NUMBER 10 & 11
An Interview with Stacy Mitchell
Stacy Mitchell is a researcher with the New Rules Project, a program of the Institute for Local Self-Reliance in Minneapolis. The New Rules Project provides research and innovative policy solutions for building strong local economies and healthy communities. Mitchell is the author of The Home Town Advantage: How to Defend Your Main Street Against Chain Stores and Why It Matters. She advises communities nationwide on strategies for strengthening their homegrown economies and produces an e-mail newsletter that tracks grassroots efforts to curb the spread of corporate chains and revitalize locally owned businesses.
|There are fewer and fewer people in distant corporate boardrooms who are making decisions that profoundly affect our lives, local economies and communities. It's that concen- tration of power, both economic and political, that is the concern.
Multinational Monitor: What do you mean when you refer to localism?
MM: What's the relationship between absentee ownership and long-distance
transport, and democratic rule?
It's that concentration of power, both economic and political, that is the concern. If you want to talk about what makes a strong community or what makes a strong democracy, you're talking about a place where people control their own futures. We're moving increasingly away from that as global corporations gain greater power.
MM: Whether corporations are local or not, you still have to confront
business power. In what ways do you find small and local business more
compatible with democratic values?
If you look at retail, for example, in places dominated by chain stores, all sorts of decisions that affect our communities -- whether to close a store in a distressed neighborhood, protect a watershed, stock a controversial book, pay a living wage or contribute to a local cause -- are made in distant boardrooms where the values and needs of the local community carry little or no weight. In the case of locally owned business, those decisions are made locally by people who live in the community and who are going to feel the impacts, whether it is a polluted water source or social distress.
Small, local businesses also keep dollars in the local economy. If you shop at a local store or support a local farmer, those dollars in turn tend to be spent with other locally owned businesses, and so they help support a network of community-based enterprises. This enriches the community as a whole and diversifies the range and quality of jobs available.
MM: Your project has suggested an array of tools to try to restrict
chain stores and superstores. What are some of the things that communities
have done, or might be able to do, to restrict a large Wal-Mart, say,
from coming in?
Hundreds of cities and towns in the last few years have recognized the impacts that chain stores and big box retail in particular have on local economies and communities.
They're implementing a variety of policies in response. One example is a size limitation, which prohibits construction of stores over a certain size. Some communities have simply banned the big boxes, the stores like Home Depot and Wal-Mart that are over 100,000 square feet; others have chosen lower thresholds, like 20,000 square feet, for example, which is smaller than a Borders Bookstore. These communities are nurturing local enterprise by insisting on human scale.
Another policy that many communities are adopting is to require that community and economic impact studies be done for any proposed retail development of a significant scale. These reviews look at all sorts of factors, from the impact that a development might have on the environment in terms of things like storm water runoff and wetlands, to the impact that it will have on the local economy, the vitality of the downtown and the character of the community. It's a way of getting all the facts on the table before you make a decision. If the community finds that the proposal doesn't meet its requirements, then these laws give it the authority to say, "no."
Probably the most far-reaching policies are formula business bans, which about half a dozen towns around the country have adopted. These prohibit formula restaurant and retail chains from locating in a community. They don't say that Starbucks can't come in, but they do say that, if Starbucks wants to build, it has to look and operate, both internally and externally, completely differently from any other Starbucks in the country. This sets up a pretty significant hurdle that most major retail corporations are not willing to comply with. Coronado and Arcata, California are examples of cities that have recently adopted these policies.
We've also seen groups of neighboring towns coming together to establish regional policies on retail development. They are looking at the impact of chain store expansion on the whole region before granting approval, and also at how to craft long-term economic development strategies and other tools to support locally owned businesses and new entrepreneurs.
MM: To what extent are these kinds of tools -- the physical size
caps, the formula bans or others -- being adopted by significantly sized
cities; or are they really just a tool that is being used by a handful
of small towns?
We're seeing this sort of grassroots activism in all kinds of places -- in cities and small towns, in working class communities as well as middle class communities, in rural areas and big cities, and in all different regions of the country.
MM: How do you respond to the argument that people can choose
to go or not go to Wal-Mart and similar stores, and the fact that they
choose to go there must mean that they like them, that they do good things
The trends are staggering. Barnes & Noble and Borders have about half of all bookstore sales nationwide. Eleven thousand independent pharmacies have closed since 1990. Home Depot and Lowes have about 40 percent of all building and hardware supply sales. Five firms control 42 percent of all grocery sales, up from 19 percent just six years ago. Three companies -- Office Max, Office Depot and Staples -- control 75 percent of office product sales nationwide. Blockbuster Video rents 1 out of every 3 videos nationwide. And Wal-Mart now controls 7 percent of all retail spending. That includes everything we buy -- from books to clothing to groceries to computers. About $1.50 out of every $20 spent goes to a single company. That is dramatically more concentration then there was even 15 years ago.
The idea that people should vote with their dollars misses the underlying reality about how this process works. A company like Blockbuster Video will come into a community and will often locate near a very successful independent video store. They tend to offer very low prices at first. All they really have to do is draw off just enough business to put the local store in the red; they don't even have to be the most popular of the two businesses. Blockbuster and the other big retail chains have the financial resources to operate new stores at a loss for many months after they open; a local business can't do that. So even if it's the most popular and efficient and best run of the two choices, it can't necessarily survive against that kind of predatory tactic.
It is also important to realize that economic consolidation is not simply the result of market forces. It is a trend that has been driven in no small part by public policy. At the local level, land use and transportation policy often encourage and underwrite chain store development on the outskirts of town while undermining downtowns and local businesses. Cities and states routinely provide multi-million dollar tax breaks and subsidies for corporate chains. You can always read in the papers about cities that are giving millions to get a Wal-Mart or underwrite a Home Depot or bring in a Borders Books store. Rarely are those kinds of public funds made available to locally owned businesses. Instead, they get to see their tax dollars used to subsidize their biggest competitors.
At the federal level, there are examples like our current sales tax policy, which exempts Internet retailers like Amazon.com from paying state and local sales taxes. This essentially gives distant companies a 5 to 8 percent price advantage over local stores. Taxpayers have also funded a range of infrastructure -- highways, publicly managed shipping ports, satellite systems built by NASA, laser scanning technology developed by the military -- that local businesses have relatively little use for, but that far-flung global empires like Wal-Mart could not possibly survive without.
So the future of local business will depend not only on the decisions that we make as consumers, but also on the decisions that we make as citizens. Right now, public policy decisions favor large corporations over local business. The New Rules Project makes the case for precisely the opposite approach: Policies that nurture community-rooted enterprise and limit concentrations of economic power.
MM: Do size caps and similar kinds of regulations run into constitutional
challenges under the Commerce Clause or other provisions?
Even so, developers often use a threat of a lawsuit to push through what they want, especially in small towns with limited budgets to fight in court.
MM: What about the formula store restrictions?
MM: Have the chains argued that these are laws that have the same
effect as banning them and really have that intent as well?
MM: You have been working on bank ATM surcharge bans. Why does
that issue fit into your overall project?
Surcharges are anti-competitive. They enable big banks to use their size and market power to disadvantage small banks and credit unions.
Normally in the free market, companies gain customers by lowering their prices. Surcharges work in exactly the opposite way.
In most areas, two or three banks own almost all of the ATMs. For these dominant banks, imposing surcharges on non-customers can induce them to move their accounts to one of the dominant banks in order to avoid the fees. In fact, the higher the surcharge, the more likely credit union and small bank customers are to move their accounts. It's an inverse form of price competition whereby big banks gain customers not because they have better service or lower fees, but simply because they have market power.
Because of this, we think that ATM surcharges should be banned.
No one is arguing that banks that own ATM machines shouldn't be compensated for providing that service. Banks are already compensated through a fee called an interchange fee. Every time you use an ATM machine, your bank pays the owner of that ATM a fee of about $0.75. That not only covers the actual cost of providing you that service, it provides the bank that owns the ATM a profit. Surcharges are an additional, unnecessary fee.
MM: Are any jurisdictions banning ATM surcharges?
So the effort from activists shifted to the states. Two states had banned surcharges from the beginning: Iowa and Connecticut. There were popular grassroots campaigns and legislative efforts in at least half of the other states to ban surcharges, but they didn't get anywhere. Again, I think the power of the banking industry and campaign contributions really made it an uphill fight.
From there, the focus moved to the cities. The place where it gained the most traction was San Francisco. After failing once again to get elected officials to outlaw surcharges -- in this case the San Francisco Board of Supervisors -- activists placed a referendum to ban surcharges on the ballot in 1999. It won by a 2-to-1 margin.
San Francisco, along with Santa Monica, which also banned surcharges around the same time, were promptly sued by Bank of America and Wells Fargo. The banks alleged that the cities did not have the authority to ban surcharges. Only the federal government, they said, could regulate national banks.
The banks got some very significant help from a federal agency called the Office of the Comptroller of Currency (OCC), which is a division of the Treasury Department charged with regulating national banks. The OCC endorsed this idea that cities and states have no authority over national banks operating within their borders. The district court sided with the banks, the cities appealed and we are now waiting for a ruling from the Ninth Circuit.
In the meantime, the OCC went to court to help big banks dismantle the surcharge bans in Connecticut and Iowa. In fact, over the last decade, the OCC has used its power to overturn dozens of state banking laws designed to protect consumers and maintain fair competition. For the banks, it's a brilliant corporate strategy: If you've got Congress and federal regulators in your pocket, but states and cities continue to exercise their democratic authority, get the federal government to preempt that authority.
MM: To what extent do states maintain market share caps for banks?
MM: Do you think this might be an approach that is worth examining
for other sectors?
This thinking applies to how we police companies as well. In retail, the Robinson-Patman Act was designed to prevent price discrimination and ensure that large retail companies couldn't pressure manufacturers into providing lower prices than those available to small companies buying at similar volumes. Federal regulators no longer prosecute Robinson-Patman violations. The idea is, if big retailers can pressure manufacturers for lower prices, then don't consumers get lower prices? Well, sure they do in the short term, but what happens when the chains no longer have any competitors in those sectors? We've lost touch with the big picture.
MM: To what extent are the chains or the big banks expanding internationally
and to what extent are the kinds of issues that you're raising relevant
outside of the United States?
It's an issue that is popping up everywhere, and we're seeing that same grassroots activism that is happening in the United States taking place all around the world as people try to figure out how to prevent their local economies from being taken over by these absentee-owned global companies. In Cuernavaca, Mexico, citizens are currently organizing to block a giant Costco store. In New Zealand, communities are fighting their own version of Wal-Mart, a chain called the Warehouse.
One difference is that, while development here is entirely a state and local issue, other countries have national planning policies. So new policies about corporate retail development are being adopted at the national level. Ireland, for example, doesn't allow stores over 32,000 square feet, which is about one-fifth of the size of a typical Wal-Mart store. Norway and Argentina likewise ban big boxes. England has a new policy in place that requires new retail development go into areas in and around the downtown; development is allowed on the outskirts of town only when a legitimate need can be demonstrated.
|Over the past 10 or 15 years, we have seen an unprecedented shift from locally owned retail to absentee-owned retail. Two or three companies now dominate nearly every sector. What we're getting is not more competition, but less.
It is also important to realize that economic consolidation is not simply the result of market forces. It is a trend that has been driven in no small part by public policy.
|All the major retail chains that are operating here are expanding globally. Wal-Mart has hundreds of stores overseas now. Starbucks has thousands of outlets around the world.
|ATM surcharges are anti-competitive. They enable big banks to use their size and market power to disadvantage small banks and credit unions.