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Michael Shuman and Stephanie Geller: How to help Baltimore thrive – for free

shuman-michael-col-sigLike other cities emerging from the long shadow of COVID-19, Baltimore must restart its economy with dwindling tax dollars. If the city is smart about it, it can unleash literally billions of dollars in economic development at almost zero cost. How? Encourage residents to invest in their favorite local businesses.

Local businesses are the lifeblood of our communities. Depending on how you define “local,” they are responsible for 60% to 80% of the economy’s jobs and output. Historically they have been as profitable and competitive as Fortune 500 companies.

geller-stephanie-col-sigThey also are our social anchors. There’s compelling evidence that communities with thriving local businesses have lower rates of crime and poverty, and higher rates of giving, volunteering, and voting.

The effects of COVID-19 on Baltimore businesses has already been tragic. Over the past few weeks alone, announced closures have included treasured favorites like Maisey’s, City Café, and Ma Petite Shoe. And with a COVID-19 vaccine still months away, many more businesses are on the verge of disappearing.

Most calls to action have focused on residents’ power as consumers. Carryout from your favorite restaurant! Buy a gift card from your local hardware store!

While these actions are valuable, there is another, more powerful way that Baltimoreans can help ensure local businesses thrive:  Invest in them.

In a healthy capital market, 60-80% of our long-term savings would support 60-80% of our businesses —especially those businesses so closely tied to our community’s well-being. In fact, almost none of our savings touch these businesses.

U.S. households now hold $56 trillion in long-term investments in stocks, bonds, mutual funds, pension funds, and insurance funds. If we fixed our investment system, if we moved just 60% of $56 trillion from Wall Street to Main Street, every community would enjoy about $100,000 of additional capital per resident.  Metro Baltimore, with 2.3 million residents, would have $23 billion to invest in its small business sector.

But who needs perfection? Even the shift of 10%, 5%, or just 1% of our retirement savings would generate an unprecedented boost in our economy.

Thanks to recent changes in securities laws, small businesses can now raise money easily and affordably from grassroots investors. Investment crowdfunding enables businesses to get the capital they need directly from their customers or fans. That was not true during the last economic turndown in 2008.

Starting in 2016, approximately 432,000 investors — the vast majority neither “accredited” nor wealthy —  have put $340 million into 2,200 companies. The most successful entrepreneurs have been female and nonwhite, precisely those businesspeople most overlooked by existing markets.

Baltimore’s advantage

What’s especially promising for Baltimoreans is that our city is home to the only locally focused grassroots crowdfunding platform in the nation, the Maryland Neighborhood Exchange. This nonprofit effort has been working over the past year to educate local businesses and community residents about the virtues of crowdfunding, introduce them to federally-licensed online “portals” where investment transactions are allowed, and ensure businesses with crowdfunding campaigns develop the strategies they need to reach their campaign goals.

Baltimore businesses not only can access the capital they need, but by converting their customers into investors, they can create armies of supporters with a powerful incentive to use and promote their businesses as much as possible.

These businesses, in turn, will help their neighborhoods thrive.  They also will be paying returns to resident investors rather than to an outside corporate bank, thus enabling Baltimoreans to build wealth and benefit from local business growth.

Businesses can crowdfund traditional loans, offer equity, or even offer residents a small percentage of their profits overtime, a model that could be desirable during this pandemic since businesses won’t re-pay until they are again making money.

Given this model’s potential, we are eager to raise awareness about it citywide. But we can’t do this alone — this needs to become a municipal priority.  We urge the city and its philanthropic community to:

  • Support a citywide Invest Local Campaign similar to the robust Buy Local campaigns catalyzed years ago.
  • Provide modest grants to neighborhood associations to facilitate the formation of local investment clubs for residents and crowdfunding workshops for businesses.
  • Seed a fund that would match community investments into local businesses. This would enable more businesses to access the capital they need and incentivize local investments.

All these actions would cost something, but we challenge anyone in the city to show another strategy that would be such a win for residents and businesses, and generate billions of dollars off economic growth, at such a low cost. Skeptics should heed the immortal words of Sir Francis Bacon: “It would be an unsound fancy and self-contradictory to expect that things which have never yet been done can be done except by means which have never yet been tried.”

Michael Shuman and Stephanie Geller are co-founders of the Maryland Neighborhood Exchange. Shuman also is the author of “Put Your Money Where Your Life Is:  How to Invest Locally Using Self-Directed IRAs and Solo 401ks,” and Stephanie spearheads the local nonprofit initiative, Community Wealth Builders.

 

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