When most people think about their financial future, they imagine a familiar landscape: 401(k) plans invested in mutual funds, IRAs holding shares of distant corporations, retirement portfolios diversified across global markets they’ll never see or understand. This investment paradigm, so normalized it seems almost natural, is actually a relatively recent historical development. For Michael H. Shuman, economist, attorney, and author of five books on local economies, this concentration of community wealth in distant financial centers represents both a massive market failure and an extraordinary opportunity.
Shuman’s critique of conventional investing begins with a simple observation: people put 99% of their capital into corporations and investment vehicles least likely to benefit their communities. Even investors who seek out “socially responsible” funds often discover that these vehicles employ such loose criteria that they provide little more than greenwashed versions of conventional portfolios. Meanwhile, the businesses, farms, and projects in investors’ own communities that genuinely reflect their values and could benefit from capital often struggle to access funding because securities regulations make local investment legally complex and expensive.
This disconnect between where people live and where their money works creates a double extraction from communities. First, savings flow out to Wall Street and other financial centers, depriving local businesses of capital. Second, the returns on those investments disproportionately benefit wealthy investors and financial intermediaries rather than the communities that generated the original savings. Shuman argues that the best way for an American community to increase its economic activity is by replacing imports with local production and keeping investment capital circulating locally rather than sending it away. He calculates that the “local multiplier effect” for locally owned businesses is between two-to-four times the size of that of a chain or absentee-owned business.
The regulatory barriers to local investment are formidable but not insurmountable. Securities laws, largely designed in response to the fraud and speculation that contributed to the Great Depression, require that companies selling securities either register them with the Securities and Exchange Commission, a process so expensive it’s only viable for large corporations, or qualify for specific exemptions. For decades, these exemptions were so limited that local investment remained the province of wealthy “accredited investors” who met income or net worth thresholds. Ordinary residents who wanted to invest in their neighbor’s restaurant, the local farm expanding its operations, or a community solar project faced legal obstacles that effectively prohibited their participation.
Shuman played a significant role in changing this landscape. His advocacy and policy work contributed to the framework for the 2012 JOBS Act, which legalized investment crowdfunding and created new exemptions allowing companies to raise modest amounts of capital from community members without prohibitive regulatory costs. This legislative achievement opened new pathways for local investment, though challenges remain. Many financial advisors, trained in Modern Portfolio Theory and committed to the diversification gospel, actively discourage clients from local investment. Banks and credit unions, despite their community roots, often send deposits to distant markets rather than focusing on local lending. And the infrastructure for discovering, vetting, and executing local investment opportunities remains underdeveloped compared to the sophisticated platforms available for trading global securities.
From Theory to Practice: Tools for Local Investors
Shuman’s contribution to the local investment movement extends far beyond policy advocacy. His books, particularly “Local Dollars, Local Sense” published in 2012 and “Put Your Money Where Your Life Is” in 2020, provide detailed practical guidance for individuals seeking to redirect their capital toward local enterprises. These works reveal Shuman’s dual expertise as both economist and attorney, addressing not just the economic case for local investment but also the specific legal and technical mechanisms that make it possible.
One of Shuman’s key insights is that local investment doesn’t require people to abandon tax-advantaged retirement accounts. His 2020 book focuses specifically on self-directed IRAs and Solo 401(k)s, vehicles that allow account holders to invest in a much wider range of assets than conventional retirement plans. While most IRA holders are limited to the mutual funds and stocks offered by their plan provider, self-directed IRA holders can invest in local businesses, real estate projects, community loan funds, and other alternatives. The rules are complex and the prohibited transaction regulations require careful navigation, but the opportunities are substantial. A resident could use retirement savings to provide a loan to a local business, invest in a community solar installation, or purchase shares in a regional food hub, all while maintaining the tax advantages of retirement accounts.
Shuman categorizes local investment opportunities along a spectrum from lower-risk, lower-return options to higher-risk, higher-return possibilities. At the conservative end, community loan funds and credit unions keep capital local while providing FDIC insurance and modest returns. Local bonds issued by municipalities or institutions offer slightly higher returns with relatively low risk. Direct loans to established local businesses occupy a middle ground, offering negotiated interest rates and repayment terms but requiring due diligence and acceptance of default risk. Equity investments in local startups or expanding businesses offer the highest potential returns but also the greatest risk of loss.
This spectrum allows investors to construct genuinely diversified portfolios without abandoning local investment. Rather than diversifying across distant sectors and geographies, local investors can diversify across asset classes and risk levels within their own communities and regions. A balanced local portfolio might include deposits in a community development credit union, bonds from a local hospital or university, a loan to an established local manufacturer seeking to expand, and equity stakes in several promising local startups. Such a portfolio keeps capital circulating locally while managing risk through diversification across different types of investments and different stages of business development.
The due diligence required for local investment differs significantly from the research involved in selecting mutual funds or stocks. Rather than analyzing financial statements and market trends for distant companies in industries one doesn’t understand, local investors can visit the businesses they’re considering, meet the owners, examine the operations firsthand, and assess market demand based on direct community knowledge. This informational advantage, what economists call “local knowledge,” often outweighs the supposed benefits of investing in larger, more established distant companies. The local investor knows whether the community needs another restaurant, whether the proposed location has good visibility and traffic, and whether the owner has a reputation for integrity and competence. This knowledge is often more valuable than the reams of financial data available about publicly traded companies.
Building the Infrastructure for Community Capital
Beyond educating individual investors, Shuman has worked to build the institutional infrastructure necessary for a functioning local investment ecosystem. His consulting work with local governments, nonprofit organizations, and business coalitions addresses the supply side of community capital, helping create investable opportunities and viable business models. His concept of “pollinator enterprises,” developed in his 2015 book “The Local Economy Solution,” has been particularly influential in this regard.
Pollinator enterprises are cash-flowing businesses or nonprofits with a mission of strengthening the entire entrepreneurial ecosystem. A local business incubator that provides shared commercial kitchen space, cold storage, and distribution support to food entrepreneurs is a pollinator enterprise. It doesn’t just succeed as an individual business, it enables dozens of other businesses to launch and thrive. A tool library that allows community members to borrow expensive equipment they might use only occasionally is a pollinator enterprise, reducing the capital requirements for home-based businesses and DIY projects. A local investment fund that aggregates capital from community members and deploys it to local businesses is a pollinator enterprise, solving the coordination problem that prevents most individual local investment.
Shuman argues that communities should prioritize pollinator enterprises in their economic development strategies because they cost little or nothing and have a profound impact on the local economy. Rather than recruiting a large employer that might leave when a better subsidy appears elsewhere, communities can cultivate networks of mutually supporting local businesses that create resilience through interdependence. Rather than hoping that individual entrepreneurs will spontaneously create a thriving local economy, communities can build the infrastructure that dramatically increases entrepreneurial success rates.
This infrastructure building extends to the financial sector itself. Shuman has been involved in developing community investment funds, local stock exchanges, and other institutions that reduce transaction costs and increase access to local investment opportunities. The Main Street Journal, which he founded in 2021 and now publishes weekly to 8,000 subscribers, serves as information infrastructure for this emerging sector. By curating articles, events, podcasts, and research related to local investing and community capital, the Journal addresses the discovery problem that has long plagued local investment. Investors don’t know what opportunities exist, and businesses seeking capital don’t know how to reach potential investors. The Journal and similar initiatives create the connective tissue necessary for markets to function.
Shuman’s academic work reinforces these practical initiatives. Since 2016, he has taught courses in economics, ESG standards, public policy, and community investment at Bard College’s MBA in Sustainability program. His students, typically mid-career professionals seeking to align their work with their values, leave with practical tools and frameworks for building regenerative and inclusive economies. Many become practitioners who establish community investment funds, launch pollinator enterprises, or advise local governments on economic development strategies that prioritize local ownership and resilience.
The teaching role also allows Shuman to refine and test his ideas. Academic environments encourage systematic thinking and evidence-based analysis, pushing beyond anecdote to identify patterns and principles. Shuman’s integration of practical tools and policy frameworks in his teaching reflects his conviction that effective economic transformation requires both grassroots action and supportive policy environments. Individual investors redirecting their portfolios create demand for local investment opportunities, but policy changes are necessary to reduce regulatory barriers and level the playing field between local and Wall Street investment options.
The challenges facing the local investment movement remain substantial. Cultural inertia and conventional financial wisdom create resistance to alternative approaches. The absence of secondary markets for local securities means investments are often illiquid, requiring longer time horizons than many investors prefer. The transaction costs for local investment, while decreasing, still exceed those for purchasing mutual fund shares or ETFs. And the lack of standardization across local investment opportunities makes comparison and evaluation more difficult than choosing among similar conventional products.
Yet Shuman remains optimistic about the movement’s trajectory. The same technologies that enabled Wall Street to disintermediate traditional financial institutions are now available to local investment platforms. Crowdfunding portals, online community investment funds, and digital tools for due diligence and investor relations are lowering barriers and improving accessibility. Growing awareness of ESG factors and impact investing creates cultural permission for investment approaches that consider more than just financial returns. And the visible failures of conventional economic development strategies, from deteriorating downtowns to widening inequality, are making communities more receptive to alternatives.
Looking forward, Shuman envisions a financial landscape where local investment is normal rather than exceptional, where retirement savers automatically consider local opportunities alongside or instead of distant markets, and where communities have robust institutions for circulating capital internally before sending it away. This vision doesn’t require the complete abandonment of global investment or the end of publicly traded securities. Rather, it imagines a rebalancing where local investment plays a much larger role in household portfolios and community economic strategies. If even a fraction of the trillions of dollars currently invested in distant markets were redirected to local enterprises, the economic transformation of communities across America would be profound. Through his writing, teaching, consulting, and institution building, Michael Shuman is working to make that transformation possible, one investment, one community, and one converted skeptic at a time.