I just finished Woody Tasch’s book Slow Money. While I was muddling through it, I kept thinking that I am not getting his main idea. What was he trying to say? Tasch’s style is to quote his favorite authors at length. Add to this his preference for poetic metaphors and analogies and I found myself getting lost. Was he trying to say that we should just agree to make a little less money (or ‘return’ from an investor’s perspective)?
Having just finished my MBA, I imagined myself trying to explain the book to my more traditional business classmates who see the world through the lens of economic incentives. They might say back to me, ‘Well, Miguel, that’s a nice idea, but why would anyone do it? Where’s the return?’ I actually tried this line of reasoning on a friend and classmate from my program and his response was as expected. So what was I missing or was Tasch just calling for charity in another form?
Tasch builds his movement on the rather successful social movement known as Slow Food. The Slow Food community may be about finding ways to enjoy good food, but on a deeper level, it’s more about community—coming together to enjoy a meal. Tasch feels that that’s where the connection can be made to alternative finance. Slow Money is also about community. It is about choosing to switch some of your money from a far away fund to a closer-to-home friend or friend of friend with a food business. Tasch roots his ideas in sustainable food and farming, which is another connection between the slow food and slow money movements.
Central to the idea of modern investing is the idea that you should be compensated for a risky investment with a higher rate of return. Similarly, lower risk investments offer lower rates. Think bonds versus stocks. So, perhaps the investments we make in community-based, sustainable food enterprises are not as risky as bankers and investors believe they are. If this is the case, these lower rates of return might be a better deal then they appear. But how could bankers and investors have so systemically overestimated the risk for this class of businesses? Isn’t that their job? To assess and properly price risk?
I struggled with that one for a while. I did not have an answer, just a hunch. Not a lot to go on, but the idea that a banker might miss something important is not unheard of in the wake of the financial crisis. Putting my observer hat on, I would guess that there is a relationship to the social-psychological factors that help underpin the success of the microfinance movement. Making loans within a geographically-bounded social network to startups whose business models are based on something we all understand—food—might actually lower risk. The network takes care of itself. Neighbors help neighbors in a system of mutual aid. Also, in these communities, I would argue that trust and credibility are established the hard way—through time—instead of through looking solely at financial statements and recovery rates.
Borrowing from one of the lessons from Freakonomics, incentives are everywhere and have many different forms. In other words, financial incentives are just one of several types. Another powerful set of incentives are social incentives. Peer pressure and social norms. I wondered whether this was the idea that Woody Tasch was trying to get across. Slow food is not just a good idea to preserve what little topsoil we have left, but also because it represents a fair return on a lower risk investment with great collateral benefits like beauty, community and resiliency.
Here’s a video from the folks at Slow Money Alliance.
