City Capitalism Sees Widening Circle Of Prosperity; But VW Profits Flee Region

Friday, December 14, 2012

The idea of local economy is important to grasp because it is not about dull economics or dreary corporate news back in Section C of the Chattanooga Times Free Press. The idea is much more exciting than the run of the mill revelations about a quarterly report, the opening of a bistro on East 10th Street or even the 450 new jobs created here by trucking logistics company Access America (see Tuesday’s editions). 

The power of the idea originates in the way God has structured human nature and human society — also known as “the marketplace.” Capitalism is glorious because it reflects God’s grace and brings on the advancement of society. 

How? 

The entrepreneur thinks imaginatively of other people, perceiving their needs and using his talents to improve their lives, reduce their costs, make their businesses more profitable. In so doing, he obtains a reward — his profit. The entrepreneur, in other words, lives out Christ’s example in serving others, putting others first, thinking imaginatively for their benefit.
Despite the political tyranny of our day from “those people” in Washington, the ubiquitous snooping and enforcement, the crippled rule of law and the incoherence of inflationary currency, genuine capitalism is exciting wherever it takes place.

Noogacentric Renaissance Fund keep profits here

An important element of progress is the use of capital to start new businesses, services and helps. The city has at least three groups involved in providing “angel” funds to new companies. One of them, Chattanooga Renaissance Fund, involves six partners and other local investors who pool their resources to help other people start businesses. 

“We are the Chattanooga Renaissance Fund,” says Charlie Brock, a partner in the group, in a phone interview, “so we are all about looking for opportunities primarily in the Chattanooga region, and looking for potential high-growth startups that we can help fund, provide capital to, provide mentorship to, and help them be successful. 

“For us, it’s about revitalizing the entrepreneurial spirit here in Chattanooga  and helping companies here generate jobs and generate wealth that then flows back into our communities — into philanthropies and that sort of thing. So it’s a virtuous circle that we are trying to ignite a match under”  

He says consider the foundations and charities in the city that “came about through wealth that was created from entrepreneurs building businesses. We need more of those success stories so that we can create more wealth to create more foundations that feed our philanthropy that give us the kind of community we want to live in.” 

Trickle-over effects 

Thinking of my Occupy Chattanooga friends, I ask him if he defends the idea that profit for a few is good for the many. 

“Absolutely!” Startups hire local people, he explains. That’s beneficial to the people in the city.

“Even if they end up selling the business over time, and even if the business does not stay in Chattanooga, there’s still wealth that is generated that goes to the investors and goes to the employees of the company. They then go out and do other things. They invest in their own philanthropies and that type of thing. So, absolutely, it’s a revitalization of the strong entrepreneurial heritage in Chattanooga that has fed a lot of our foundations.” 

Make no mistake, the after-effects of local investments may be charitable, but what controls is the prospect of profit. Renaissance is not a charity, he says. It can’t afford to run losses. It must select the brightest and best companies to benefit its operators and customers, and turn a profit for Renaissance local private investors who bear the terrible risk of losing every penny if a startup goes belly up. 

“As Chattanooga continues to build a reputation as a center of major economic activity in the South,” he told Chattanoogan.com, “it's important that there is a place locally for early stage entrepreneurs to access capital and have the ability to interface with experienced business mentors." With great risk comes greater potential profit. The group does not invest in existing companies, but will invest further amounts in companies it has helped launch. 

Sluice gate or spray? VW profits shatter across map 

Now contrast Mr. Brock’s capitalism with that of Volkswagen, and see with me a little more of the glory in the idea of local economy. And remember that, in the long term, ideas matter more than just today’s numbers. 

Volkswagen is a global auto company with a factory in the Scenic City. Its construction created jobs until it was complete. Numerous suppliers followed VW to the city. In July, Chattanooga Seating Systems, a joint venture by Hollingsworth Logistics of Dearborn, Mich., and Magna Seating of Ontario, announced it is hiring 100 people. All told, about 5,000 local jobs have been created by VW’s arrival. 

But the profit of the behemoth does not stay in Chattanooga. It is dispersed worldwide. Shares are owned by mutual funds, teacher retirement systems, union pension plans, the family down the street and elderly couples who have downsized into condos. Clumps of shares are held by people in Seattle, Bangkok and Brussels. All told, Volkswagen has issued 295.1 million regular shares and 170.1 preferred shares, or about 465 million altogether to people just like you and to mutual funds like those peddled by the personnel director at your office. 

The riches of the VW enterprise are breath taking. Volkswagen paid 1.4 billion euros in dividends in 2011. A single VW share earned 33.10 euros. In gross amounts, Based on the dividend proposal for the reporting period, the dividend yield on Volkswagen’s ordinary shares is 2.9 percent. VW’s operating profit was 11.3 billion euros. Today it takes $1.31 to buy one euro. 

In considering such exciting sums from the German company, Chattanooga Renaissance Fund looks pitiful. It is investing $3 million in local and regional startups. Yes, its operators may reap a return of 800 percent or 1,000 percent on capital invested, whereas a VW shareholder’s profit is in single digits. 

The Chattanooga Renaissance Fund operates on the principle of lococentrism. It operates on an ideal, if you will. Mr. Brock says he is delighted Volkswagen came to Chattanooga and that it has brought charitable, generous people to town and has "boosted our community morale." But the $3 million Renaissance Fund is more important to the future of Chattanooga than Volkswagen because its profits, as Mr. Brock says, do not dilate out across across the globe like so much spray, but gather as through a sluice gate to men living, spending and reinvesting in Chattanooga, in local economy. 

— David Tulis writes for Nooganomics.com, which covers local economy and free markets in Chattanooga and beyond.

Sources: Volkswagenag.com 2011 annual report
Mike Pare “Volkswagen suppliers plan to hire 100 full-time workers in Chattanooga area,” Chattanooga Times Free Press website, July 13, 3012
“Local Business Leaders Launch Chattanooga Renaissance Fund," The Chattanoogan, March 15, 2011


Ideas For CARTA

RE: CARTA Ridership Down I have a couple of ideas that came after reading the above mentioned article.  First, if ridership is down that dramatically, perhaps we should begin to phase out the least-used routes.  These must be the most heavily subsidized routes, obviously because no revenue is being generated. Revenue seems to be important to CARTA, considering that ... (click for more)

District 1 Is Getting The Short End Of A Very Long Stick

These discretionary funds are just not proportional per district because each district has their own set of challenges. Each district has their own needs and no two districts are the same. Questions arose as to why we don't use discretionary funds in District 1 on all of the needs in the school for its schools.  Here is why that is a challenge for Commissioner Fairbanks. ... (click for more)

Severe Storms Rake Chattanooga Area; Flash Flooding Possible

Severe storms raked through the Chattanooga area on Saturday. Sale Creek was one of the hardest hit areas. Storm damage on Cooper Road included two crushed cars. Trees were on homes and railroad tracks that are the main line between Chattanooga and Cincinnati. Cooper Road is near Lake Chickamauga. There was also damage along Providence Road at Sale Creek. ... (click for more)

Body Believed To Be A Woman Is Found On Lookout Mountain

Hunters found a decomposed human body on Saturday afternoon in a remote area off High Road, Cloudland, Walker County. Law enforcement believes the unidentified remains to be a female. It appears the body may have been at the location for four weeks. On March 19, a vehicle was found abandoned on private property in close proximity to where the body was located ... (click for more)

Trojans Beat Eagles 4-3 On Couch's Walk-Off Single In Seventh

Signal Mountain rolled into Saturday afternoon’s high school baseball game against Soddy-Daisy riding a nine-game winning streak. The Eagles outscored the last six opponents in the streak by a combined 87-15, including a 26-2 rout of Red Bank just prior to taking on the Trojans. Soddy-Daisy used five pitchers to contain the Eagles, overcame a solid start by Signal Mountain ... (click for more)

Thompson Romps To Win In Chickamauga Chase

Nobody would have blamed Christian Thompson if he had decided to take it easy Saturday morning and simply enjoy running the 49 th annual Chickamauga Chase. After all, the 28-year-old Fleet Feet sales associate averaged 5:29 per mile in finishing 29 th overall in the Boston Marathon just five days ago with a world-classed time of 2:23:51. Admitting that his legs were just ... (click for more)