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Funding the future: innovation in community resourcing

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Looking after our local areas is often left to others - those elected or employed to make things work in the background of our busy lives. But new possibilities have emerged in recent years for citizens to make local projects happen themselves and have greater influence over their own backyards. One of these is ‘civic crowdfunding’, which has attracted increased attention and resources over the past decade. An OECD paper describes these types of citizen-led endeavours as ‘local public goods’, examples of which include a 400-metre-long pedestrian bridge in Rotterdam, and many projects involving urban renewal, cultural events, and regenerated public spaces. The benefits of such efforts ‘go far beyond just the projects themselves’1 by generating greater community engagement, improving the skills of participants, and providing a greater sense of belonging for residents. Crowdfunding is, however, as much a metaphor as a method of collective funding, with a range of new and established options available for civic-minded locals.


The timing of these new possibilities is fortunate, because they appear at a time which is in some ways unfortunate. Rising costs of living, lack of housing affordability, and a diminished sense of community have created ideal conditions for developing new approaches to living together, which also include the ‘sharing economy’, based on collaboration between decentralised users facilitated by technology2, and localised economies. ‘Outsourcing’ undesirable functions may now be common in business, but it is perhaps time for citizens to reclaim responsibility for creating the world, or at least a small part of it, that they wish to live in. Such collective efforts of course come with questions and complications, some of which we will attempt to address in this article.


What is crowdfunding?

Crowdfunding is a way of attracting small contributions from a large range of participants in ‘campaigns’ that often fund creative projects or social causes. Well-known platforms include Kickstarter, GoFundMe, and Indiegogo.


Recent regulatory changes in Australia have also made it easier for small businesses like Gold Coast-based Black Hops Brewery to explore crowdfunding options. ‘Crowd-sourced Funding’, as it is known in the 2017 amendment to the Corporations Act, allows private businesses to raise funds from the public through certain online platforms, such as Birchal, OnMarket, and VentureCrowd.


There are four crowdfunding models: donation, reward, equity, and debt. The donation and reward-based models are most common for small-scale projects, though some businesses like Brewdog, based in Scotland, have sourced capital from supporters who receive shares in their company. Each model carries its own risks and benefits for both contributor and campaigner, and should be compared to more established methods when undertaking larger projects, such as issuing shares through a public or private company (though the number of shareholders for a private company in Australia is limited to fifty).


Defining community: public vs. private goods

A pre-requisite for any successful civic project, or creation of a public good, is understanding who, or what a community is and how it will benefit from the project’s outcomes. Is a community a group of people who share public goods, such as infrastructure, though do not know each other and will never meet? If a community grows beyond a certain size, can its members really be said to share common aims and preferences, or desire to use public goods in common? At what point does resource sharing become resource competition? Companies in the ‘sharing economy’ such as Uber, identify those with whom we will share and their reputation, based on user reviews; who we share with is important.


The default, and perhaps easier, answer is to embrace the economic concept of a positive externality, where indirect benefits beyond the original scope, or intention, of actions and behaviour can be enjoyed by third parties. For example, a company creates a new product that improves the lives of people as well as its profits (perhaps by improving a city’s air quality with cleaner or more efficient energy production), or even residents who, by keeping their yards tidy, increase an area’s liveability along with the selling price of its homes. Good things can produce more good things. In some cases, however, the benefits of public goods are somewhat vague and presumed, as is the case for many government capital works. Conversely, negative externalities might include health problems resulting from air pollution created by a manufacturing business, or a foreign company outsourcing local labour to benefit from lower wages; a sort of geo-arbitrage that leaves less money in the local economy, and more in the hands of foreign shareholders.


Externalities are studied by economists, and negative externalities like pollution might be addressed by government policy such as taxes. Though, given the problems faced by many today - the price of housing for example - some government policy itself might be perceived as a negative externality by citizens who have little control over its formulation, though are negatively affected by its implementation. Accepting the idea of positive externalities as an answer to the original question implies that community is a geographical location, or a place where citizens pay rates to a local authority; the community are rate-payers in an electorate, and benefit in ways anticipated by their representatives. In some cases, this will be a sufficient answer: in relation to the building of necessary infrastructure, for example. Though, how people benefit from many civic projects, whether it is a community centre, playground equipment, or social housing is largely subjective and presumed: build it and they will come (and probably enjoy it). If the answer to the question is not sufficient, alternative ways of approaching local community initiatives may be required.


Two well-known and related problems of unrestricted public goods must also be considered: the economic freeloader and the ‘tragedy of the commons’. The first recognises that people can share in public goods without contributing economically to their creation or maintenance. The second observes that goods in common are more likely to be neglected, overused, depleted, or result in resource competition and conflict between self-interested individuals. While there is certainly no rule of nature that prevents the peaceful and productive use of common goods, goods provided to, and for, an undefined, and unlimited number of people seem to suffer from intractable problems inherent to the human experience. One solution is government intervention; another might be private civic goods, which need not be the contradiction in terms it at first appears to be.


Defined communities and private civic goods

Without revisiting fundamental questions in economic theory (such as those relating to private property), a pragmatic and practical approach to creating localised mechanisms for community funding might involve two key concepts: defined communities and private civic (or community) goods (PCGs).


Defined communities are deliberate, voluntary, and limited. Defined communities at a local level are necessary for the effective creation of private civic goods. Defined communities have long-term, sustainable aims which are not purely economic.


Local PCGs might include a range of goods held privately in common that are used to address community needs. PCGs are a way to invest in local communities and directly participate in shaping them. Examples might include community gardens, small farms, housing, vehicles, low or zero-interest loans, community buildings, or small businesses. Crowdfunding these types of assets is, in a way, simply a numbers game and a matter of scale: 1,000 community members who contribute $5,000 each have raised $5,000,000, for example. Things can add up quickly. Such arrangements are a step beyond practices involved in a ‘sharing economy’, that simply facilitate commercial transactions, and would require relationships based on trust, shared values, and common purpose in addition to (or possibly in place of) economic benefit. Though they could, and likely would, be structured in a way to provide a return on investment through dividends or trust distributions while achieving a greater goal.


Creating these types of goods does not require crowdfunding, however, and a range of similar legal options are available. These include formation of a private company (which can issue shares and therefore part ownership to a limited number of investors), an unlisted public company limited by shares, and a unit trust (a trust is a legal relationship whereby a ‘trustee’ acts on behalf of one or more beneficiaries in relation to assets divided into ‘units’). Crowd-sourced funding legislation in Australia is unique in allowing private companies to raise funds from the public (under certain conditions), and is an exciting development for those seeking to fund private community goods, but is only one among several common and established options.


At an economic system level, the combination of undefined communities who share in unlimited public goods requires limiting the autonomy and freedom of the individual. Unlimited needs and wants create unlimited work; unlimited work without a defined purpose or goal creates waste, inefficiency, and unhappiness for participants. Work not performed to meet the needs or wants of defined communities is work done to meet the needs or wants of other people, directly or indirectly – this is likely both acceptable, and even desirable, for most people, provided it is voluntary and limited; work which is neither goes by another name. The success of civic crowdfunding projects shows that communities can now address their own needs and wants upon their own initiative.


Conclusion

A local community is a living entity and the sum of its parts. Those parts are its people; people who leave their mark by helping to create a better world, and who benefit from a greater sense of community and belonging in return; ‘men who plant trees whose shade they know they shall never sit in’. A community is necessarily defined (deliberate, voluntary, and limited).


Traditional approaches to understanding public goods often rely on the concept of a positive externality, and the benefits of projects are sometimes subjective or assumed, partly because the definition of community used can be arbitrary.


Recent innovations in technology and legislation provide local citizens the opportunity to have greater, and more direct, say in creating projects that meet their needs and wants. Crowdfunding is one of these, but just one of a range of common and established options. The ability to fund the future of local communities is, now more than ever, in the hands of their residents.



Sources


London City Hall. Civic Crowdfunding Stories.



Australian Government. Business. Crowdfunding. https://business.gov.au/finance/funding/crowdfunding


Norris, Dan. Brewery Finance – How we are going about raising money to build Black Hops. https://blackhops.com.au/brewery-finance/


Norris, Dan. Pozible campaign. https://www.pozible.com/project/203153





 

[2] Examples of businesses that work in the sharing economy include Airbnb, Uber, and GoGet.

 
 
 

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