One Transaction To Change Everything?
If we don’t lose our small business mentality, we’ll remain as small businesses, indefinitely. The person with the small business mentality treats the local economy like it was a world economy. They don’t care about expanding because their business is ‘ticking over’ and there’s bread on the table. And while that’s alight for the short term, it’s not sustainable. Here’s why.
“You buy my product and I’ll buy yours”.
It work’s a bit like that, and it will be our downfall. Net-on-net, it’s a no-win situation for the business (or the consumer) in an economy that chooses to trade in such a manner. Businesses that are continuously performing that kind of reciprocal-centric activity are on a slippery slope. And we’re all guilty of it. Unknown to ourselves, we’re all on a proverbial ‘road to nowhere’ if we don’t change our business strategy. And fast.
To illustrate this, I’ll simplify… consider the following.
Let’s say that our local area has a finite amount of cash resources. Let’s say that there is a total of $1M spent in our region annually. There are 1,000 local businesses and 999,000 customers. Everybody’s got a dollar each. Now here’s the thing: not even the most innovative and hard-working business will ever be able to expand or grow when if that $1M circulates in a closed-loop. I’ll elaborate.
Given the nature of the small business owner who sells his product/service locally, it could be perceived that a sale worth $1,000 in a week, is a good result. However, it means that somebody else (a consumer or a competing business) is down by $1,000. A business (or consumer) is worse off than they were before any commerce took place. That can’t be right.
But you might say that the business which made the $1,000 now has more than they had prior to the transaction. Well, they do. That is until they go to buy something. So the business owner takes the $1,000 and then puts it back into the money-pool. And round and round it goes. Everybody is working (hard), everybody getting paid a (fair?) wage and everybody is spending. No problems there, right? Let’s just keep our heads down and grind it out year-on-year. We won’t ask too many questions about the broader scheme of things and we won’t fix what isn’t broken.
We’ve said already that on the surface, this scenario isn’t really such a problem. But if you are to look at the pieces that are keeping this micro-economy afloat, you’ll see that the pool of $1M is decreasing every day, by just a few dollars. It’s almost imperceptible, but it’s decreasing all the same.
You see, to keep this local economic wheel in motion, we need somewhere to put our money while it’s moving from one person to the next. Typically we use banks for this. I don’t believe that it’s too much of a stretch to suggest that most people have a bank account?
So the local bank is charging a few cents here and there on all of our transactions. But, the bank isn’t putting those cents back into our local economy. This means that the balance is offset by a few bucks each year. We’ll the banks are not really playing by the rules then. No, they’ve got a different business model. It’s a good one. They take a little bit here and a little bit there, but never put any of it back into the pot.
Instead, they take that money and move it elsewhere so that they can invest it, and turn that money into more money. It’s worth noting that some of the money they take from us in bank charges, is sold back to us for more than it’s worth. That’s the product they sell, that’s a bank loan right there. Ingenious. So they’re the only ones who are ultimately increasing their net wealth, consistently.
Unfortunately, it’s not practical to not use banks (or any of the many other institutions that are realising net-on-net profit from our trading). So what can we do that’s practical, but can make things better all round for us regular Joe’s and Jane’s.
Next week, ensure that your business makes one transaction that is outside of your local micro-economy. Just one transaction. (And don’t use a bank, use cash!). That’s all it takes. It’s a baby step, but it’s a baby-step in the right direction.
If we all do this once a week, while our net-profits won’t see a direct increase, the quantity of money in our closed-loop local micro-economy will begin to grow. The $1M that we started with in Year 1 might be $1.2M in Year 2. And so on, and on, and on. That means we have $200K more that we started out with at year end. That’s an improvement no matter what way you look at it.
We just need to ensure that we keep making those external transactions and keep the resulting wealth in our hands, as opposed to letting somebody else have it.
As I said, I know that I’ve over simplified– but this is just for illustration purposes. The concept remains sound, I believe.
We need to be smarter about where we get our business revenue. If we don’t, we’re stealing from the poor to give to the rich.
If there’s a better way, just make a suggestion in the comments below. We can change things. We should change things.