Week 8

Financial capital lecture notes

• Financial capital = money

  • money can be used to buy things or to make more money

• BUT it is not only money

• ”resources that are translated into monetary instruments that make them highly liquid — able to be converted into other assets”

  • There is a difference between consumption and investment — buying a car for personal use (consumption) or buying a car for Uber/shuttle service (investment)

• financial capital can be transformed into human and built capital

  • financial capital is the funding used to acquire physical assets, hire labor, and undertake activities that generate income and wealth

• Assets are financial capital and their value can be increased through speculation

  • junior mining companies — speculate on mineral deposits

  • The Bre-X scandal

  • Gold deposits were estimated at 30 million oz (850 metric tons) in 1995; 60 million oz (1700 metric tons) in 1996; and finally 70 million oz (close to 2,000 metric tons), with reports of resource estimates of up to 200 million oz (6200 metric tons)

  • the original on stock (penny) of the company rose to nearly $300 a share in 1997 on TX and NASDAQ

  • large mining company interest caused further drilling that revealed very small deposits

• Our readings distinguish between wealth and income

  • income is earned money during a specific time period

  • wealth is accumulated assets held by a family or individual — land, real estate, etc.

• financial capital can be BOTh public and private

  • private owned by individuals, families, or corporation

  • public owned or invested by community

  • often times linked — University

    • taking your money and public financial capital that is invested 

•  Inequality — is it inevitable

  • global inequality video

    • Richest 1% have so much more than everyone else

    • the planet is worse as a whole than in the US

    • the richest 2% have more wealth than half of the rest of the world

    • richest 300= poorest 3 billion peopl

    • rich countries are about 80x richer than poorer countries

    • wealth gap is growing

  • inequality in canada

    • reality is worse than the imagineed

      • underestimated

    • 70% of wealth belong to the top 20%

    • the bottom 20% have almost nothing

      • bottom 10% have more debt than assets

    • if looking at stocks and bonds the top 10% have more than 60% of wealth

    • Inequality is not inevitable — according to this video

• Mobility

  • financial capital is becoming more mobile

• access

  • the role of financial institutions becomes important for financial capital

  • Many rural/poor/marginalized communities do not have access to financial institutions/capital

• Microfinance

  • small loans, savings, and other financial products to individuals or groups who do not have access to traditional banking services

  • aimed at low-income or poor in developing countries

  • in most cases to help start or expand small businesses, improve their quality of life, and reduce poverty

  • microfinance institutions typically offer to as with low interest rates and flexible repayment terms

• Financial challenges of the poor

  • poor possess the capacity to implement income generating economic activities but are limited by the lack of access and inadequate provision of savings, credit, and insurance facilities

  • Is access to a formal financial system a major obstacle faced by the global poor?

  • some of the challenges

    • secure savings spot is hard to find

    • uncertainty and risk

    • unpredictable/seasonal labour/work/income

    • low wage labour/income (agriculture, manual labour, informal selling, etc.)

    • have very few assets

• Cash flows of the poor

  • spending of the poor based on

    • life-cycle needs

    • emergency needs

    • investment opportunities 

  • the triple whammy of cash flows

    • are irregular or unpredictable/unreliable

    • are low wage

    • existing financial instrument are not well suited/available to address these problems

• Financial strategies of the poor

  • sell assets the hold or expect to hold (harvests)

  • mortgaging or pawning those assets

  • finding a way to turn small savings into large lump sums

  • assessing local moneylenders (informal

  • assessing family/friends

  • assessing formal microfinance/credit

• informality of financial options for the poor

  • many of the poor access informal financial options (loans from family, friends, etc.)

  • these informal options offer the poor

    • convenience

    • less/non bureaucratic

    • contextual/ culturally relevant/ local

    • often interest free

  • They are limited

    • unreliable

    • lack of privacy

    • lack transparency

• How can microfinance better meet the needs of the poor

  • flexibility — in both payment amount and schedule/penalty free grace periods

  • easily accessible

  • reliable

  • open to financing a wide range of needs (not just purchase of assets or business ventures)

• The narrative: microfinance reduce poverty

  • Does microfinance improve financial capital and help to reduce poverty?

    • it can contribute to poverty reduction

    • must be accompanied by other policies and programs

    • if targeted towards micro enterprise, supply/demand “policies” must also be implemented

    • must target the extreme poor

    • micro finance is part of the solution, not THE solution

      • ”Microfinance is not the solution to poverty, but neither is health, education, or economic growth. There is no one single solution to global poverty. The solution must include a broad array of empowering interventions and microfinance, when targeted to the very poor and effectively run, is one powerful tool.”

    • Most poor people do not have the basic education or experience to understand and manage even low-level business activities. They are mostly risk-averse, often fearful of losing whatever little they have, and struggling to survive

  • Poverty reduction and microfinance

    • The case for microfinance as a mechanism for poverty: access to credit can be improved, the poor can finance productive activities that will allow income growth, provided there are no other binding constraints

    • what might be problematic about this understanding of poverty reduction/development

    • ability of microfinance to reduce poverty needs to be better understood

      • selection bias and placement bias cause difficulties In truly assessing effects of MFIs

    • MF is heavily subsidized… is this a cost-efficient/effective way to reduce poverty?

      • not really

    • Who benefits from MF interventions? Are the core poor being reached?

  • “Women are the best poverty fighters”

    • micro loans give women more power within the household and vaporize their domestic work

    • microfinance paces an “economic value” on women’s work

    • this phrase reinforces women duty to perform reproductive and community labour, and while this labour may be good for institutions and development, it is not clear that is good for women

    • Despite the potential for MF to challenges stereotypical ideas about women’s economic roles, as well as valorise reproductive and community labour, the intervention tends to re-create and romanticize the feminine in development, and equate “women” with heterosexual maternity

    • the celebration of, rather than the challenge to, women’s reproductive roles, implicit in the idea that they are the “best poverty fighters” and reflected in the assumption that their social collateral is actually “free”, is case in point

  • ”women are more likely to pay back loans” 

    • loans are borrowed against (excessive) social collateral (group guarantee) and may be repaid because of this high collateral and not hit e good financial behaviour of women (women maintain communal ties)

    • this social capital is seen as a free collateral by MFIs

    • data does not necessarily support that claim

    • may perpetuate stereotype of “irresponsible man” (only spends his money on women and drink)

  • ”microfinance empowers women”

    • what does empowerment mean

      • increased decision making power

      • increased control/participation of/in household finances

      • control over loan

      • community participation

      • increased social capital

      • increased civic/political engagement

    • power and empowerment are much more complex (not just power to do or power over)

    • the assumption that access to microfinance can address women’s exploitation in labour market and home is naive and simplistic (within this assumption is the idea that if left alone the market can solve all our problems)

    • Women’s mobility is not necessarily an indicator of empowerment (governed by social and cultural norms

    • loans can improve woman’s self worth (perceived)

    • women experienced differing impact on decision making power

    • class and race also play a role in the impact of micro loans/credit/finance

    • women share loans with family, which should be seen as beneficial, not as a hinderance to women’s empowerment

    • ”evaluations are ‘attempts to document, assess and weigh up the social and economic significance of changes attributed to a particular intervention. Which particular changes are given significance in an evaluation will depend on the intervention in question but also on whose understanding of reality is given priority” (Kabeer, 134)

    • “I suggest that the main reasons for these conflicting evaluations lie in the questions asked, and the interpretations given to the answers, both of which reflect the underlying model of intra household relationships which underpin these evaluations” (Kabeer, 134)

    • empowerment can be seen as an expansion of the range of potential choices available to women so that actual outcomes reflect the particular set of choices which the women in question value” – Kabeer

    • defining empowerment in this way helps to understand social and cultural differences (women who ascribe to purdah or family honor were some of the most successful entrepreneurs why women would register some of their assets in their husband's name, or why why women withdrew from what can be seen as positive advancements (participation in the markets and other forms of activity) in favour of staying home

• social capital and microfinance

  • joint lending programs based on social capital (joint/ group responsibility in repayment)

  • continual relationships between MFI program officers and borrowers

  • routine or cultural habit of following the MFIs norms and rules becomes ingrained in both borrowers and functionaries — crates a common sense of duty or purpose

• The role of interpersonal and communal ties is a central element in ensuring repayment

• the use of existing social ties improves the access of the poor to credit

• On top of inter-borrower relations other social factors help account for high reparment rates

  • The quality of the relation between the borrowers and the lender organizations staff plays a role that has been underrepresented in the literature (eg. the existence and level of trust between the borrowers and MFI representatives)

• The grameen bank

  • started by Muhammad Yunis in the late 1970s in Bangladesh

  • Experienced growth in the 80s and 90s buoyed by international support and funding

  • AS of 2017, 2600 branches and nearly 9 million borrowers

  • Internationally praised

• The Grameen Meta-narratives

  • Microfinance benefits the poor, specifically women, who are conceptualized as potential entrepreneurs who need small injections of cash to able to sell chickens, eggs, puffed rice, and so on in the rural economy

    • This meta-narrative feeds into our conceptions/stereotypes of the poor: “the poor of this world can overcome their poverty through self-help and sheer hard work; they have the capacity to transform their lives by adopting a disciplined work ethic; and poverty is not based on structural inequalities between the Global North and South or the various structural adjustments programs of the IMF or World Bank or Asian Development Bank that have hurt farmers in developing countries by removing trade barriers and allowing cheaper commodities from the West to flood local markets” (Karim, 207)

  • another narrative — Grameen “presented itself as extending the benefits of capitalism down to the poor whilst, at the same time, being an alternative to orthodox capitalism” (Hume, 166)

• Critiques of microfinance

  • portrays women as “model entrepreneurs”

    • feeds into donor desires to create non western societies that conform to western capitalist norms, as well as local nationalist desires to become equal with the west

  • the suggestion that women/poor are better at paying back loans is only part of the truth

    • “the true significance of Grameen can be found not in banking, but in the interstices of culture, kinship, and social hierarchies” (Karim, 203).

  • MF perpetuates an interdependent relationship between development NGOs and the poor

    • “the poor need capital, and the NGOs need the poor to carry out their development mandates. Through this dependency, NGOs and microfinance loans bring poor people into the ambit of global capital markets” (Karim, 205).

  • MF neoliberal ideology is untrue

    • “anyone can be an entrepreneur, that individuals only need capital to unleash their entrepreneurial urges, and that the market will always absorb these entrepreneurs’ goods and services” 

  • loans are power relationships

    • there is unequal power relationship inherent in loans

  • high interest rate

    • Despite the goal of supporting low-income individuals, some microfinance institutions (MFIs) charge high interest rates. These rates can sometimes be higher than traditional banks, making it difficult for borrowers to repay loans and worsening their financial situation

  • over-indebtedness

    • borrowers who take out multiple loans from different MFIs may struggle to repay them, leading to a cycle of debt

  • limited impact on poverty reduction

    • some studies suggest that microfinance does not have a significant long-term impact on poverty reduction

  • focus on individual rather than structural solutions

    • ­Focuses on individual entrepreneurship, which may overlook the larger structural and systemic issues causing poverty

  • gender bias

    • ­Critics argue that women are often targeted as borrowers because they are seen as more reliable. This can lead to gendered expectations and reinforce traditional gender roles rather than truly empowering women.

  • inadequate financial literacy

    • ­Many microfinance borrowers lack the financial knowledge or skills to effectively manage loans and run a business. Without adequate financial education, some borrowers may misuse loans or struggle to manage their finances.

  • sustainability and profit motivation

    • many microfinance institutions operate as for-profit entities which can lead to predatory lending practices — commitment to social goals versus financial returns

  • limited access to larger markets

    • MF businesses often struggle. To grow due to limited access to larger markets, lack of training, and inadequate resources

Lecture summary

Financial Capital Overview

• Definition: Financial capital refers to money that is available for investment, as well as resources that can be turned into monetary assets or liquidity.

• Investment Options: Financial capital can be invested in various ways to generate more income, such as:

  • Stock Market: Profitable investments with potential returns.

  • Real estate: Purchasing properties to either use or lease.

  • Land: Opportunities for speculation and development.

• Consumption vs. Investment:

  • Investment purchases (e.g., an Uber vehicle) contribute to financial capital, while consumption purchases (e.g., a personal car) do not.

Transformation of Financial Capital

• Human Capital: Financial capital can be used for education, directly impacting personal and professional development.

• Built Capital: Financial resources can be transformed into physical assets, like infrastructure, which then provide ongoing value.

• Income versus Wealth:

  • Income: Money earned over a specific period, often through labor.

  • Wealth: Accumulated assets, such as property and savings.

Speculation and Financial Capital

• Asset Value Increase: Value can increase through speculation.

  • Example: Home values can appreciate based on market conditions and trends.

• Junior Mining Companies:

  • Buy land speculating on mineral deposits.

  • Often sold to larger corporations for extraction.

  • BRE-X Example: A Canadian mining company that exaggerated gold reserves leading to scandal and financial loss for investors.

Global and National Inequality

• Inequality Statistics:

  • Significant wealth concentration globally: 80% of the population holds minimal wealth while the richest 2% owns more than half.

  • Canadian wealth distribution shows stark contrasts with the top 1% holding nearly 20% of total wealth.

• Causes of Inequality:

  • Trade mispricing extracting wealth from poorer countries.

  • Debt service by poor nations for loans, often repaid multiple times.

Challenges of Financial Capital

• Access Issues:

  • Marginalized communities often lack access to financial institutions.

  • Difficulty in securing loans or financial resources hinders entrepreneurship.

• Microfinance Introduction:

  • Provides small loans to underserved communities to start or expand businesses.

  • Aimed at reducing poverty and increasing financial inclusion.

• Microfinance Risks:

  • High interest rates and over-indebtedness among borrowers.

  • Need for additional support systems, such as education and market accessibility.

Microfinance Narratives and Impacts

• Empowerment of Women:

  • Targeted programs aim to empower women economically; however, they risk reinforcing traditional gender roles.

• Poverty Reduction:

  • Microfinance can contribute to poverty alleviation, but effectiveness relies on supportive policies in education and agriculture.

Conclusion

• Complex Relationship: Financial capital's role in development is complex and intertwined with socio-economic factors.

• Need for Broader Solutions: Addressing poverty and inequality requires a multifaceted approach beyond mere access to financial resources.

Bitter Harvest brief summary:

Overview of Migrant Workers in Canada

• The story highlights the experiences and challenges faced by migrant workers who come to Canada to work on farms, particularly in the context of the COVID-19 pandemic.

• Many Canadian vegetables are harvested by migrant laborers, often not recognized by those consuming the produce.

Personal Narratives and Experiences

• Timothy Frederick shares his experience as a migrant worker from Trinidad and Tobago, expressing his fears and concerns about leaving his family behind and traveling during the pandemic.

• Despite fears of COVID-19, many migrant workers feel the financial need to support their families and see the opportunity in Canada as worth the risks.

Arrival in Canada

• Upon arrival, workers face immediate challenges, including mandatory quarantines due to COVID-19 regulations before they can start working on farms.

• Farmers, like Brett Schuyler, reflect on the stress of managing their workforce under these new conditions, including the importance of maintaining health and safety on the farm.

Economic Impact and Community Relations

• The town's economy relies heavily on migrant workers, yet there is noticeable tension in the community towards them during the pandemic.

• Some locals express hostility towards workers, leading to protests advocating for migrant workers' rights and recognition.

Systemic Issues and Activism

• Activists like Leanne Arnall raise awareness about the systemic exploitation faced by migrant workers, advocating for fair treatment and respect.

• Issues of racial profiling and isolation conditions have come to light, pushing for reforms in the agricultural worker programs in Canada.

Seasonal Agricultural Worker Program

• Approximately 50,000 migrant workers, primarily from the Caribbean and Mexico, arrive each season to fill labor shortages on Canadian farms.

• Concerns over their treatment, living conditions, and the precarious nature of their work have been spotlighted due to the pandemic.

  • Many migrant workers live in substandard conditions, often sharing cramped and inadequate housing without proper facilities.

COVID-19 Challenges

• The COVID-19 pandemic has escalated vulnerabilities, with outbreaks linked to farms indicating a severe public health risk.

• Migrant workers have been disproportionately affected, with higher infection rates compared to the general population, leading to fatalities among workers.

• Farmers express their worries about the potential consequences of an outbreak on their operations and the health of their workers.

Living Conditions and Restrictions

• Workers have reported harsh living conditions, such as being housed in garages or converted spaces with limited amenities.

• The program places restrictions on workers' movements, which can lead to feelings of imprisonment and isolation among them.

• Complaints about poor living conditions often result in workers being blackballed from returning to work in subsequent seasons if they speak out.

Economic Pressures on Farmers

• Farmers face significant economic pressures while trying to ensure food supply and manage risks associated with COVID-19.

• The challenge of maintaining a safe workplace amidst rising production demands and public health guidelines is evident.

• Farmers express mixed feelings about the essential nature of their work against a backdrop of increasingly critical scrutiny of labor practices.

Potential Reforms and Future Actions

• There is a call for the Canadian government to reform the Seasonal Agricultural Worker Program to ensure better living conditions and rights for migrants.

• The long-term sustainability of the agricultural sector is tied to the treatment and welfare of its workers, highlighting a need for systemic changes to uphold labor rights.

Conclusion

• The story sheds light on the complexities of the food supply chain in Canada and emphasizes the sacrifices made by migrant workers for the sake of others.

• It invites a re-evaluation of how migrant labor is perceived and the urgency for Canadians to support policies that protect these essential workers.

Bitter Harvest notes:

Introduction to Migrant Workers

• The Canadian food industry relies heavily on migrant workers from countries like Trinidad and Tobago.

• Many staple vegetables and fruits sold in Canada are harvested by migrant labor, often overlooked by the buying public.

• Their essential role in the food supply chain is critical, especially emphasized during the COVID-19 pandemic.

• Despite their contributions, these workers face serious health risks and challenging work conditions.

• Many migrants leave their homes to seek better financial opportunities for their families.

• The lack of acknowledgment of their labor highlights the hidden struggles within agriculture.

• Their work is often characterized by long hours, demanding physical labor, and low wages.

• The industry is marked by systemic inequities and insufficient protections for these essential workers.

• During pandemics, the risk to their health becomes even more acute due to labor conditions and exposure.

• Migrant workers advocate for rights and better treatment but often face resistance.

Spotlight on Timothy Frederick

• Timothy Frederick has participated in seasonal agricultural work in Canada six times.

• He arrives to support his family financially, a crucial commitment for his household.

• His trips often require him to leave his family at early hours, creating emotional strain.

• The pandemic has heightened his concerns for his family's safety back home during his absences.

• Timothy acknowledges the dangers posed by the pandemic but chooses to work for essential financial support.

• His experiences reflect the broader challenges faced by migrant workers in similar circumstances.

• He highlights the paradox of risking health for work while fulfilling essential agricultural roles.

• His journey underlines the complexities of the migrant worker experience in Canada.

• The impact of financial remittances on his family's well-being cannot be understated.

• Despite risks, many like Timothy prioritize economic necessity over personal health concerns.

Arrival in Canada During the Pandemic

• Migrant workers are granted special permissions to enter Canada during border closures.

• Timothy and his crew arrive in Norfolk County, known for its agricultural productivity.

• Upon arrival, they must undergo a mandatory two-week quarantine to mitigate COVID-19 spread.

• Quarantine measures lead to a delayed workforce during peak harvest times, causing operational challenges.

• Farmers face increased expectations to implement strict health protocols and social distancing.

• Health and safety practices are essential to protect the well-being of migrant workers.

• The agriculture sector has to adapt rapidly to meet new health guidelines without compromising yield.

• This situation creates logistical challenges for both workers and farmers.

• Farmers' successful adaptation is critical to ensure crops do not go unharvested.

• The emphasis on worker health reflects a growing recognition of their importance in the economy.

Challenges Facing Farmers and Workers

• Significant labor shortages arise due to pandemic safety measures, affecting crop yields.

• Farmers report feeling immense pressure to meet harvest demands amidst reduced workforce.

• The economic strain affects not just farmers but surrounding communities reliant on migrant labor spending.

• Activists argue that migrant workers are too often exploited in unsafe conditions.

• Instances of neglect regarding migrant rights and conditions have been prevalent during the pandemic.

• Local economies suffer as migrant workers' spending diminishes due to isolation measures.

• Farmers face the dual pressure of maintaining harvest quality while ensuring employee health.

• The exploitation debate highlights systemic failures in labor practices and agricultural policies.

• Advocacy groups are pushing for recognition of the rights and contributions of migrant workers.

• Community outreach has increased to support better conditions and empower migrant voices.

Systemic Issues in Agricultural Labor

• The challenges facing migrant workers have historical complexity, going back to the 1966 arrivals in Canada.

• The pandemic has intensified longstanding issues with treatment and rights of these workers.

• Negative local sentiments can lead to racial profiling and discrimination against migrant populations.

• Activist Leanne Arnall emphasizes the urgent need to address workers’ rights to prevent further exploitation.

• Historical contexts shape current perceptions of migrant labor and the injustices faced.

• Many workers report feeling isolated, increasing mental health struggles during the pandemic.

• The labor system in agriculture exhibits patterns of inequality, deeply rooted in societal structures.

• Activism and advocacy play critical roles in fighting for policy changes and worker equity.

• Recognition of migrant labor's history is essential for improving conditions and protections today.

• Acknowledging these issues contributes to building alliances between advocacy groups and migrant workers.

Health and Safety Concerns

• COVID-19 outbreaks among migrant workers raise significant health concerns across provinces.

• High infection rates among migrant communities highlight systemic health and safety shortcomings.

• Workers report anxiety about contracting the virus while fulfilling essential roles.

• Navigating quarantine protocols becomes complicated due to the pressures of seasonal work.

• Efforts to ensure health measures are followed sometimes conflict with the urgency of harvest demands.

• Workers frequently express fear of repercussions if they voice health and safety concerns.

• Public health policies must consider the unique circumstances experienced by migrant laborers.

• Health safeguarding measures are vital for protecting both individual workers and communities.

• Many migrant workers lack adequate health resources before and during the pandemic.

• Activists demand better health protocols aimed specifically at protecting migrant workers.

Living Conditions of Migrant Workers

• Many migrant workers live in overcrowded housing, leading to heightened vulnerability.

• Poor living conditions include inadequate access to clean water and basic sanitation.

• Emotional and psychological toll stems from isolation and challenging living situations.

• Reports reveal significant dissatisfaction regarding housing arrangements provided by employers.

• The pressure during the harvest season exacerbates the already tough living conditions.

• Workers cite overcrowding and inadequate facilities as principal concerns amid COVID-19.

• Lack of healthcare access severely limits workers’ ability to respond to health issues.

• Activists highlight housing as a fundamental area needing reform for migrant living situations.

• Instances of frustration and helplessness are common among workers facing these conditions.

• Improving living conditions is critical for workforce morale and labor retention.

Employer Responsibilities and Farmer Perspectives

• Farmers feel compelled to balance their economic responsibilities with health regulations.

• The implementation of grocery delivery systems is one way farmers adapt to avoid exposing workers.

• Many producers are under pressure to ensure compliance with provincial health measures.

• Farmers often face criticism for perceived inadequacies in managing worker safety.

• The economic reality compels many to make difficult choices regarding worker health and yield.

• Keeping up with changing health protocols adds stress to already strained farming operations.

• Many farmers express a desire to protect their workers but face systemic limiters.

• The agricultural sector's reliance on migrant labor underscores the need for fair treatment.

• Fostering good relationships with workers can improve productivity and morale.

• A commitment to worker safety can enhance reputation and sustainability in the farming community.

Calls for Change

• Activism within the agricultural sector advocates for a more just framework for migrant workers.

• The seasonal agricultural worker program is criticized for its insufficient protections for laborers.

• Calls for reform are growing louder amidst increasing awareness of workers' plights.

• Some growers are starting to respond to criticisms by changing practices and improving conditions.

• Broad systemic changes are essential to achieve long-lasting solutions for all stakeholders.

• Collectively addressing migrant labor issues requires a collaborative approach among involved parties.

• There is a rising demand for transparency regarding working conditions within agriculture.

• Empowering worker voices is crucial to effect change and enforce rights.

• Policymakers need to engage more actively with communities to understand migrant experiences.

• Education and outreach initiatives can bridge gaps between communities and migrant workers' needs.

The Economic Reality

• The economic pressures on farmers clash with the low wages and poor conditions migrant workers face.

• Migrant work is often rife with job insecurity which complicates workers' resolve to speak up.

• Many workers fear retaliation for speaking against unsafe practices or unfair treatment.

• Insufficient worker protections underscore the urgent need for structural reforms.

• Economic instability in farming is often mirrored in the vulnerabilities experienced by migrants.

• The role of economic dependency complicates workers' agency to demand changes.

• Reform proposals need broad support from agricultural producers, policymakers, and advocates.

• Evaluating agricultural labor policies against the workers’ lived realities is essential.

• A trauma-informed approach to policy-making can support migrant workers’ needs adequately.

• Solutions must prioritize both economic viability for farmers and justice for migrant workers.

• A more equitable system could foster sustainable practices in agriculture that benefit all parties.

Chapter 7 financial capital notes

• Tina Fernandez, daughter of immigrant farm workers in the Rio Grande Valley, wanted to be the first in her family to attend college.

• She started working in the fields at age 6 and had always worked hard.

• Unable to afford college, she gave up her dream and married her high school sweetheart.

• The marriage lasted three years, and Tina was left to raise a son alone.

• They moved back to her parents' home in a small rural community, where her parents helped care for her son.

• The 2001 economic downturn made it hard for Tina to find work, even with a high school diploma.

• She found a part-time job waiting tables at a restaurant in McAllen, an hour's drive away, for less than minimum wage.

• Tina's mother provided childcare, and her father, a mechanic, helped with car repairs.

• Tina's good service and friendly manner led to good tips, and the restaurant owner appreciated her work ethic.

• She was promoted to assistant manager after showing a talent for business and taking on administrative tasks.

• Encouraged by her parents, she took a night bookkeeping course at the local community college, feeling she was finally working towards the degree she had always wanted.

• Tina became the manager of a second restaurant the owner acquired in McAllen, earning good money but wanting to open her own restaurant with healthy, traditional foods from the Mexican countryside.

• She had only $7,000 in start-up capital, despite loans from family.

• Tina sought low-cost resources and turned to a small-business development center for help creating a business plan.

• The center informed her of alternative credit resources, and she found restaurant supply companies offering favorable interest rates and equipment as collateral.

• She joined the Latino chapter of the McAllen chamber of commerce to network with local businesspeople, including investment bankers who advised her on alternative credit options.

• After months of planning, Tina had the social and financial capital to start her business.

• She hired dependable staff, used her mother’s recipes, and sourced seasonal produce to offer affordable, healthy food.

• Her restaurant became popular, leading to the opening of two more restaurants within three years.

• Tina also started a college fund for her son and made improvements to her family home with the help of a local barrio organization.

• Her success was driven by financial and social capital, though rural communities often face a crisis of capital availability.

• Tina became the manager of a second restaurant in McAllen, earning good money but wanting to open her own restaurant with healthy, traditional foods.

• She had only $7,000 in start-up capital, despite family loans.

• Tina turned to a small-business development center for help with a business plan.

• She learned about alternative credit resources and found restaurant supply companies offering favorable interest rates.

• She joined the Latino chamber of commerce in McAllen to network with businesspeople, including investment bankers who offered advice on alternative credit.

• After months of planning, Tina secured the social and financial capital to start her business.

• She hired reliable staff, used her mother’s recipes, and sourced seasonal produce for affordable, healthy food.

• Her restaurant became successful, leading to two more restaurants opening within three years.

• Tina started a college fund for her son and improved her family home with the help of a local barrio organization.

• Her success was fueled by financial and social capital, though rural communities struggle with capital availability.

• Financial capital is becoming more mobile due to laws that facilitate movement between locations, causing rural communities to lose control over it.

• Tina Fernandez had to build social capital outside her colonia to access and invest financial capital.

• Despite the impact of the 2007–2009 Great Recession, unemployment rates in the Rio Grande Valley are lower than in other parts of Texas.

• Tina’s economically priced traditional Mexican meals are considered good value, and sourcing food locally helps save money through less waste.

• By 2015, Tina's restaurant is serving locals and attracting customers from McAllen, providing healthy, affordable food in a culturally safe way.

• This chapter explores financial capital, its different forms, and how rural communities must adapt to new sources of financial capital.

• Financial capital is often seen as money, but it can also be used to generate more money through investment.

• Increasingly, financial capital is invested in financial instruments, such as hedge funds, rather than in creating goods and services, a process known as financialization.

• Financial capital refers to resources that can be easily converted into money, making them highly liquid.

• Distinguishing between consumption and investment is key: a car for personal use is not capital, but a car used for a shuttle service generates income, making it capital.

• Speculation involves relying on an asset’s monetary increase and selling it for profit.

• Income is money earned over a set period, including wages or earnings from financial instruments like stocks, bonds, and rent.

• Wealth is the accumulation of assets, including real estate, money, stocks, and bonds, minus any outstanding debt.

• For many, a home is their primary financial asset.

• The American ethos encourages real property ownership, with certain tax benefits for first-time homebuyers.

• The IRS had special provisions for new homebuyers during and after the Great Recession.

• Special tax provisions reward homebuyers, including those borrowing for a second home, but these benefits mainly favor urban counties.

• Despite incentives for homeownership, foreclosures and declining median incomes, particularly for young people, have led to a decline in homeownership rates in the U.S.

• Rural homeownership continues to decline but remains higher than urban homeownership, though slightly lower than suburban and exurban rates.

• Rural homeowners are more likely to have mortgage-free homes compared to suburban or urban homeowners.

• This is partly due to rural Americans being older on average and having purchased homes during the more stable economic times of the 1960s and early 1970s.

• Older rural residents are more likely to own their homes without a mortgage, while younger rural homeowners often have low incomes and may still owe on their homes.

• Wealth is held as capital assets like bank accounts, stocks, bonds, and real estate, which can produce income through rent or profits.

• A capital gain occurs when the sale price of a financial asset exceeds its purchase price, while a capital loss occurs when the sale price is less than the purchase price for tax purposes.

• During the housing bubble, people bought homes and quickly resold them for profit, but those who bought before prices dropped often lost their investment and could not repay their mortgage.

• Sociologists have studied the link between social and economic organization, noting that the shift from cash accounting to asset-based accounting played a role in the rise of capitalism.

• Accounting practices evolved to track assets, such as investments in new plants or inventories, rather than just cash flow.

• The financial disruptions of the early 21st century were partly due to unclear accounting practices, particularly in hedge funds and the secondary mortgage market.

• The failure to track what was being bought and sold, especially in high-risk investments, highlighted the need for clear rules and transparent financial reporting.

• Subprime loans, which were made to keep money flowing into new financial instruments, were risky and often led to defaults. These loans benefited the initial lenders and those bundling them but contributed to financial instability.

• Pressure to meet aggressive loan volume goals led to loans being made to borrowers with minimal or no ability to repay.

• Mortgage originators and bank investment managers received fees and bonuses based on loan volume, not loan performance over time.

• The ultimate buyers of these loans, often unaware of the risks, lost money, including pension funds investing retirement dollars.

• Homeowners with affordable loans before 2000 were encouraged to take out home equity loans against increasing home values, even during the Great Recession.

• As more loans went unpaid, the housing bubble burst, causing home prices to fall and foreclosures to rise.

• While people lost their homes and wealth, large banks that made risky loans did not fail and were bailed out by taxpayers.

• The bailout allowed larger financial institutions to purchase or close smaller community banks, particularly in rural areas.

• The number of commercial banks in the U.S. decreased from 7,175 in 2008 to 5,636 in 2014, with rural banks operating under new rules.

• Community banks no longer make character loans, which had supported local businesses in the past.

• CEOs of publicly traded companies are evaluated based on net worth and quarterly earnings, often leading to job cuts to increase profits.

• Many tasks are now contracted out instead of performed in-house, with no benefits and pay per task.

• Lax accounting and deregulation allowed executives to inflate earnings and net worth, leading to significant losses for stockholders.

• The U.S. government lost significant money due to tax avoidance by companies and CEOs.

• By 2015, most firms had a surplus of cash.

• In response to the financial crisis, central banks, including the U.S., purchased securities to lower interest rates and increase the money supply.

• These efforts flooded financial institutions with capital, but instead of increasing productive capacity, the funds were used for mergers and acquisitions.

• Mergers and acquisitions reduced productive capacity, cut jobs, and increased profits.

• After-tax income is increasingly invested in speculative investments like stocks and real estate, rather than in creating jobs through production.

• Mergers and acquisitions are focused on stabilizing customer bases and cutting costs, primarily by laying off workers, which often boosts share prices.

• Increased executive salaries are linked to short-term earnings boosts, which harm long-term company health and society.

• CEOs rewarded based on total shareholder returns prioritize short-term profits, neglecting long-term investments.

• Stock options for top management often lead to neglect of long-term growth in favor of short-term shareholder returns.

• Scholars challenge the idea that GDP growth equates to prosperity, proposing the Genuine Progress Indicator (GPI).

• GPI considers the costs of negative economic impacts, such as crime and environmental damage, alongside economic growth.

• Ecological economists argue that growth can have both costs and benefits, sometimes harming people's health, culture, and welfare.

• GPI incorporates sustainability by evaluating if economic activity leaves a country with a better or worse future.

• Built capital, or capital goods, is a tangible form of financial capital invested in physical assets like machinery and buildings.

• Example: A sawmill in Oakridge, Oregon, invests in equipment to generate new resources.

• Built capital includes physical assets like machinery, buildings, and transportation equipment needed for operations, such as timber cutting or meatpacking.

• Built capital is distinct from financial capital because it is less convertible and typically involves technology.

• Land can be an investment due to its resources or development potential, such as timber or real estate.

• When land is viewed purely as financial capital, its natural qualities are disregarded, making it primarily considered natural capital.

• Financial capital encompasses financial instruments like stocks, bonds, derivatives, and money.

• Private capital refers to investments made by individuals or groups, such as business equipment, land, and education.

• Public capital is invested by the community, with tax dollars funding infrastructure, parks, schools, and other public goods.

• Public capital is owned by the government and serves the general welfare, while private capital is owned by individuals or businesses.

• Public and private capital often collaborate, such as in partnerships where private companies use public land in exchange for fees.

• Postsecondary education involves both public and private capital, with individuals contributing through tuition fees.

• Tuition covers only a fraction of the cost of public colleges, with declining state support shifting more costs to students.

• State and local taxes fund public institutions, but as taxes decline, so does support for public resources.

• Different forms of capital vary in mobility; land and built capital (like buildings and roads) are immobile, requiring communities to make them productive.

• Financial and human capital are highly mobile, moving to areas where they can earn the highest return or wages.

• The mobility of capital can create problems for rural communities as financial capital can easily move to urban centers or global markets.

• Example: A farmer's savings from selling hogs may be invested in a mutual fund, which then invests globally, like in a garment factory in Bangladesh.

• Rural communities have historically relied on financial capital for homes, businesses, and essential community services like roads, schools, and sewers.

• The federal government encouraged settlement by making land available, which led to privatization of land and development of private capital.

• Public financial capital has been key for community growth, with the government using land grants (like in the Northwest Ordinance of 1787) to support public goods such as schools and roads.

• Local governments in the US and Canada can raise public capital through taxes, a unique ability compared to other countries where central governments control financing for local services.

• Rural communities now rely more on state and federal funding due to decreasing populations and tax bases, reducing local control over capital investments.

• Federal funding often comes with conditions, influencing local decisions (e.g., prioritizing federally funded programs like gifted education over locally needed services like Spanish-language instruction).

• Rural communities need private capital beyond land for development, often relying on agriculture or other industries to link with external financial capital.

• Agricultural production is consecutive, with long intervals between major activities, leading to erratic income flows in farming communities.

• Income spikes when harvests are sold but are low at other times, exacerbated by speculative capital and new financial instruments in commodity exchanges.

• These fluctuations increase financial uncertainty in agricultural communities and agriculture-dependent states.

• Historically, women sold eggs and cream year-round to smooth income flows, and communities created financial institutions for credit when crops failed or buyers were scarce.

• Local banks or cooperatives were often formed to provide consumption and production loans in communities reliant on agriculture, timber, and mining.

• Rural banks were typically privately or cooperatively held, reflecting local needs for credit and financial capital.

• Bank names often reveal their community’s history, and banks were incorporated to limit personal liability.

• Banks were chartered either by state or federal government, with terms "state," "national," or "federal" indicating their chartering body.

• Community banks assess loan risk based on net worth, cash flow, and personal knowledge of the borrower.

• As banks consolidate, personal knowledge is replaced by credit ratings from central databases.

• Rural residents often have wealth in land but it’s illiquid and hard to convert to cash.

• Land, livestock, or machinery are used as collateral for loans in rural areas.

• Deposits are liabilities for banks, while loans are assets that are owed to the bank.

• Loans based on net worth are safe but favor wealthier individuals with more assets, reinforcing inequality in access to capital.

• Loans based on a borrower’s ability to repay focus on cash flow rather than net worth, requiring more data about the business operation.

• These loans are less biased and more accessible to individuals with fewer assets, but they favor those who maintain good financial records and business management.

• Loans based on cash-flow projections favor educated individuals with good financial management.

• Rural community bankers traditionally used personal knowledge of borrowers' character to assess loans.

• This personal method helped those with little property, especially small business owners, but was biased against women and minorities.

• As rural banks are controlled by metropolitan areas, personal knowledge is losing value, and lending practices are changing.

• National banks, relieved of regulations, made high-risk real estate loans to unqualified borrowers, leading to NINJNA loans (no income, no jobs, no assets).

• In rural areas, predatory lenders pushed homeowners into second mortgages based on inflated property values, often targeting those with poor credit from divorce or medical emergencies.

• Predatory lending increases financial vulnerability in rural communities by offering high-interest loans.

• Capital is needed for productive capacity; individuals and businesses can obtain capital by selling assets or seeking other financial resources.

• People, businesses, and communities often need large capital amounts to buy assets like farms, businesses, or machinery, but may not have enough savings or assets to sell.

• They must then borrow money from banks, which provide various loan options.

• Savings represent a major source of capital, whether voluntary (like personal savings) or involuntary (like Social Security contributions).

• Rural financial institutions often offer lower interest rates, but people still prefer them due to their lower risk investments.

• When lending, banks secure loans with collateral from purchased capital goods or business assets.

• Borrowers pay interest on loans, which is partly distributed to savers and partly retained by the bank.

• This system encourages saving and investment in banks rather than consumer spending or hiding money.

• Credit unions, savings, and loans use interest payments to cover loan management costs and generate profit for banks.

• Nominal interest rates are influenced by broader monetary and fiscal policies, not local supply and demand, limiting local institutions' ability to reinvest in the community.

• The Great Recession led to lower interest rates, driving financial capital into commodities (like gold, soybeans, farmland) for higher profits.

• Global financial markets demand high returns with low risk, pushing capital away from rural areas in search of better returns, a phenomenon known as capital flight.

• Interest rates reflect the cost of capital; high rates discourage borrowing, while low rates encourage it, but the real interest rate (nominal rate minus inflation) is the true cost.

• High inflation can favor debtors (who repay loans with cheaper dollars), but savers lose value on traditional investments like bank deposits and bonds.

• In times of high inflation, commodities or real estate become attractive investments, though this can lead to overpriced assets, as seen with farmland and real estate in the 1970s.

• Attempts to control inflation, like purchasing dollars, can trigger a recession, making it harder for farmers to repay overpriced land loans.

• Many agricultural banks and government lenders faced bankruptcy after the farm crisis of the 1980s, holding land that could only be sold at deflated prices.

• The farm crisis lasted until the mid-1980s, with farmland prices gradually increasing during the 1990s.

• Agricultural real estate prices surged again in 2004, surpassing the previous highs of 1980, though there was a slight dip during the Great Recession.

• From mid-2010 to mid-2014, land prices increased by 37%, with Iowa seeing a decline of nearly 9% from July 2013 to November 2014.

• Commodity prices dropped in 2013 due to expected global overproduction, though high-quality land for grains began to see a price decline while other lands maintained value.

• The strong agricultural economy post-Great Recession was driven by the continued growth of developing countries, especially BRIC nations, which helped sustain demand for US agricultural products.

• Global warming-induced droughts and competition for nonfood uses of crops also kept demand for grains high.

• Agriculturally dependent areas were less impacted by the subprime mortgage crisis and foreclosures, as their housing markets were already depressed.

• Subprime lenders lacked incentive to reach rural areas, even if the infrastructure existed, due to the conservative nature of community banks in agricultural regions.

• Rural banks could not provide capital for larger or riskier investments like subprime mortgages but their cautious approach helped protect rural communities before the Great Recession.

• The limited capitalization and expertise of rural banks made them unable to support larger, innovative projects or assess risks in industries outside agriculture.

• Other sources of private financial capital, such as bonds and equity capital, were available for larger investments.

• Bonds, used for long-term capital investments, pay interest and promise repayment over 20-30 years. Businesses can pledge future income or securities for repayment.

• The 1980s deregulation allowed the marketing of junk bonds, high-risk, high-interest securities, drawing capital away from rural areas and into urban ventures, many of which failed.

• When urban businesses failed, savings and loan institutions also went under, and rural taxpayers contributed to the bailout of urban banks.

• Governments, including rural towns, can issue municipal bonds to raise capital for structural improvements, though they cannot use bonds for operational expenses like running schools or hospitals.

• Municipal bonds are backed by the taxing power and good faith of the issuing government.

• The US government encourages local financing mechanisms by offering tax-free interest on personal and corporate investments in bonds, making it more attractive to invest in local communities.

• Bonds are an important tool for rural communities to raise financial capital while maintaining local control.

• Industrial revenue bonds can provide investment for local businesses but are often used to attract businesses from other areas, which may eventually relocate despite local incentives.

• Privately issued, publicly regulated bonds can also offer seed capital for new businesses or investment for expanding local firms.

• When a business lacks sufficient collateral or steady income, equity financing is another option, such as selling shares through the stock market.

• Investors in the company receive dividends and can profit by selling shares, but the business no longer solely belongs to the original owner.

• Selling stock increases a company's assets, with new stockholders sharing in company management decisions.

• Employees can also become owners through stock options or stock earned as bonuses, helping to raise capital and attract skilled labor.

• Partial ownership can be an incentive to attract reliable workers in areas with a limited labor pool.

• Jose Hernandez, a migrant worker at McKay Nursery, has accumulated over $80,000 and works seasonally, earning $20,000 per year.

• McKay Nursery offers workers employee stock ownership plans (ESOPs) as part of its generous benefits.

• Migrant workers can participate in the ESOP after working 1,000 hours in a season (April-November).

• The company sets aside at least 10% of the workers' gross wages for retirement, typically 20-25%, which can be invested in mutual funds.

• Workers cannot withdraw the retirement funds until after five years, at which point they can use the money for education or home purchases.

• Workers who leave after five years can take the cash and sell their shares back to the company.

• The plan has led to a 90% return rate of migrant workers, as it incentivized them to return each year.

• The nursery’s president, Griff Mason, found the ESOP helped attract dependable workers and boosted the company’s success.

• Building human and social capital through the ESOP program has improved both workers' financial capital and the business’s operations.

• Stock prices are influenced by the company's earnings.

• Two types of stock: non-voting preferred stock (guaranteed dividend and asset portion in liquidation) and common stock (fluctuating return, voting rights on management).

• Common stockholders vote on the board of directors and CEO, with votes weighted by stock ownership.

• Selling equity means business owners give up some control over management.

• Businesses need significant initial capital investment for technology upgrades and market development, often obtained through venture capital.

• A shortage of venture capital is said to hinder entrepreneurship and economic growth.

• Venture capital boomed in the 1990s, peaked in 2000 at $27.2 billion, and fell to $3.8 billion during the 2009 recession, recovering to $13.5 billion in 2014.

• Venture capital investors often influence company management, providing both financial and social capital.

• By 2014, most venture capital was directed toward the software industry, which is less common in rural areas.

• Despite available capital, venture capital investment in rural areas remains limited due to high costs of financial disclosure for small businesses.

• Corporate profits resumed growing before the Great Recession ended, but they are now primarily used for mergers and acquisitions, leading to job losses.

• From the end of WWII to the 1970s, there was significant economic growth and shared prosperity in rural areas of the U.S.

• Workers in industries like mining and timber were unionized, and agricultural input firms and cooperatives maintained a local presence.

• Incomes grew rapidly and similarly across income levels, doubling in inflation-adjusted terms from the late 1940s to early 1970s.

• The income gap between the wealthy and the middle/lower classes remained relatively stable during this period.

• After 1970, the wage and salary share of personal income began to decline, dropping from over 51%.

• From 1970 to 2012, the wage and salary share of personal income declined from over 51% to below 42%.

• The share of income going to investors and proprietors increased.

• Despite slower economic growth in the 1970s and 1980s, labor productivity continued to rise, while the wage gap between productivity and income grew.

• Income growth for middle and lower-income households slowed sharply after 1973, while incomes at the top continued to rise.

• Corporate profits surged after the 2001 recession, falling sharply during the Great Recession but resuming a steep upward trend since.

• The concentration of income at the top has risen to levels last seen during the “Roaring Twenties.”

• Similar trends of rising income inequality were observed in Europe, as demonstrated by Thomas Piketty.

• Wealth, which is the value of property and financial assets minus debts, is more concentrated than income.

• The top 3% of households hold over half of all wealth, with an even smaller percentage holding the majority.

• The concentration of wealth has been rising since 1980, partly due to increases in the amount that can be inherited without being taxed.

• Corporations, major stockholders, and CEOs are doing well, but inequality in the U.S. has increased significantly compared to other developed countries.

• In 1980, the U.S. was relatively unequal, but by 2008–2012, it was far more unequal than countries like Singapore.

• Wealth reported to tax entities likely underestimates the share of wealth held by the richest 1% due to their tendency to move assets to low-tax countries and place corporate headquarters in tax havens.

• The Great Depression of 1929–1933 led to the failure of over 10,000 banks, many in rural communities.

• The Banking Act of 1933 established stricter bank charter criteria and management standards.

• The Glass-Steagall Act imposed lending limits, restricted bank investments, and created the FDIC to supervise national and state banks.

• FDIC offers deposit insurance up to $250,000 for banks under its supervision.

• Regulation Q, part of the Glass-Steagall Act, restricted interest rates on demand deposits and loans.

• The 3-6-3 rule limited savings account interest to 3%, loan interest to 6%, and allowed bankers to finish work by 3 p.m.

• Few rural banks were established after these regulations, but few failed, except during the 1980s farm crisis.

• Government regulations helped reduce financial risk by specifying the roles of different financial institutions.

• Banks could not engage in real estate brokerage, and thrift institutions could not offer demand-deposit accounts.

• These regulations aimed to promote social goals like homeownership.

• Regulations aimed to prevent conflicts of interest and ensure the prudent handling of financial assets.

• Congress believed average patrons shouldn't need expertise to judge the quality of financial institutions.

• Federal regulatory agencies were established to supervise financial institutions and maintain public trust.

• Bank regulation was crucial in maintaining confidence in institutions linking financial capital to consumers and producers.

• During the Great Recession, the division among regulators and institutions’ ability to choose their regulator contributed to bank failures.

• Deregulation began after the 1971 devaluation of the dollar and the 1973 oil price rise, leading to inflation and decreased money cost.

• Savers sought higher returns from unregulated financial instruments like money market funds, which were not restricted by banking regulations.

• In the 1970s, rural areas saw financial capital flowing out as non-financial institutions (e.g., Sears, John Deere, Merrill Lynch) offered competitive investment options.

• Traditional rural banks lost financial capital to these multinational institutions offering better interest rates.

• Savings and loan institutions, which traditionally offered long-term real estate loans, struggled with high short-term interest rates.

• In the 1980s, savings and loans were allowed to engage in activities previously restricted to other institutions to improve profitability.

• Banking deregulation reduced government oversight on credit costs, financial institution locations, and the variety of services offered.

• Deregulation aimed to increase efficiency by allowing funds to flow to where they offer the highest return based on risk.

• With deregulation, financial capital easily moves to national and international markets, making it harder for rural areas to retain local investments.

• Rural communities face higher credit costs, lower availability of credit, and fewer financial services, especially for the rural poor.

• The balance between public trust, regulation, and deposit insurance has shifted, contributing to a decline in rural financial services.

• Between 2008-2011, 339 banks failed, and in 2014, 185 banks closed, many of which were community banks in rural areas.

• Financial capital has become even less available in rural areas due to changes in the US financial market and deregulation.

• Banks and lending institutions in rural areas need investment capital to get started, not just savings.

• Starting or acquiring a bank often requires more capital than can be obtained through traditional loans, leading to reliance on equity capital from stockholders.

• Increasingly, stockholders in rural banks come from outside the community, which raises concerns about the community's interests being overlooked.

• Local owners were previously more likely to prioritize community benefits, but outside stockholders tend to focus on short-term financial gains.

• There is a conflict between the short-term interests of stockholders and the long-term needs of the community, which requires “patient” capital.

• Patient capital focuses on long-term gain and the multiplier effect, where money recirculates within the local economy.

• Declining loan-to-deposit ratios show less money deposited by locals is being reinvested in the community; instead, funds exit to larger financial markets.

• The Community Reinvestment Act of 1977 encouraged banks to invest locally, although it primarily focused on poor urban areas, and few rural banks were affected.

• The Community Reinvestment Act (CRA) originally didn't require rural banks to reinvest locally until the 1980s farm crisis.

• Before the crisis, rural banks were able and eager to make agricultural and energy-related loans locally.

• The CRA was revised in 1995 to ease paperwork and incorporated the Brownfields Act, partnering with the EPA to restore industrial sites in low-to-moderate income communities.

• Rural banks hold more government securities than urban banks, financing federal debt.

• Traditional methods of generating financial capital for rural areas are now inadequate, with capital outflow surpassing rural population loss.

• Community foundations are emerging to capture wealth transfers between generations, providing investment capital for public and private ventures.

• The Montana Community Foundation, supported by political capital for state tax deductions, has helped build these funds.

• Rural-based venture capital funds, like Northeast Ventures in Minnesota, have been developed to help diversify economies and reduce dependence on single industries.

• Northeast Ventures also provides loans and guidance through the Northeast Entrepreneur Fund and invests in local companies via the Northeast Ventures Corporation.

• The Community Development Financial Institution (CDFI) Fund was created in 1994 to expand credit and investment capital availability in rural communities.

• The CDFI Fund promotes financial services and capital in distressed urban and rural communities by stimulating locally based CDFIs and offering incentives to traditional banks.

• CDFIs fill market niches underserved by traditional financial institutions, offering a variety of products like mortgage financing, small business loans, community facility financing, and services for low-income households.

• The Lakota Fund, established in 1986 on the Pine Ridge Reservation, helps tribal entrepreneurs and businesses, and became a certified CDFI in 1999, gaining access to more financial resources.

• Nontraditional lenders like the Lakota Fund provide more than financial capital—they help build human and social capital for entrepreneurs.

• The Northeast Entrepreneur Fund helped Michelle Sweedman, a child-care provider, by offering business planning, financial management advice, and a loan to expand her business.

• Risk in rural business loans can be reduced through secondary markets, allowing rural banks to bundle loans and transfer risk to investors, similar to how home mortgages work.

• Farm loan risk-sharing began in 1989 to help rural banks recirculate local financial capital within communities.

• Providing technical assistance in areas like marketing, accounting, and management reduces loan risk and is supported by the Small Business Administration and Cooperative Extension Service.

• Microfinance organizations succeed by offering both loans and human/social capital.

• State and federal loan guarantees spread the risk of financial capital between the public and private sectors, encouraging investment in rural areas.

• Commodity payments, crop insurance, and income guarantees are significant federal funds for rural areas, but they disproportionately benefit large farm operations.

• Tax concessions like abatements and home mortgage deductions are used to attract financial capital, but may not increase overall capital investment in rural areas.

• Tax breaks for new businesses can reduce the tax base needed for public investments like schools, roads, and utilities.

• Communities aim to retain financial capital locally by forming cooperatives and local corporations to invest within the area.

• Local enterprises build on community strengths and focus on long-term goals, unlike external firms focused on short-term gains.

• Outsider firms can create low-wage jobs or require high public investment per job, with few local purchases and higher risk of closure.

• Example: Iowa's recruitment of an Egyptian-owned fertilizer plant involved high investment per job, whereas a local program for training low-income workers showed better job retention at lower cost.

• Studies highlight the weakness of short-term “smokestack chasing” approaches for community development.

• Rural communities are working to create alternative investment models to strengthen their economic base.

• The Earned Income Tax Credit (EITC) is a federal tax benefit for low- and moderate-income workers, primarily in retail, health care, accommodation, food services, manufacturing, and construction.

• EITC reduces the payroll and income taxes for low-wage workers and may provide an IRS refund.

• Families eligible for EITC may also qualify for the Child Tax Credit (CTC), which reduces federal income tax liability or provides refunds to low-income families.

• Rural low-income workers often struggle more to file the necessary paperwork for EITC due to lack of support networks.

• A 2014 study showed EITC provided benefits related to work, income, education, and health to its recipients.

• Rural residents eligible for EITC are less likely to take advantage of the credit than their urban counterparts.

• EITC payments are higher in rural areas due to lower incomes, but many rural residents are unaware of eligibility or fail to file tax returns.

• Federal programs like USDA/Rural Development provide low-interest loans, grants, and technical assistance to support rural communities.

• Banks increasingly charge higher fees, making it more expensive to maintain an account, disadvantaging poor people who need basic financial services.

• Check-cashing stores and payday lenders, often found in poor neighborhoods, charge high fees and offer loans with annual rates of 300-400%.

• Payday loans involve a borrower paying a fee (usually $15-$30) on top of the loan, and if not repaid on time, the loan can be extended, creating a cycle of debt.

• These financial transactions do not help borrowers build credit or savings.

• Borrowers can end up paying 450-650% in fees and interest charges due to lack of regulation in many states, although social justice organizations are pushing for limits on payday lenders.

• Capital is any resource that can produce other resources, and financial capital is a highly liquid form of capital compared to others.

• Private capital refers to resources invested by individuals or groups, while public capital is invested by the community.

• Different forms of capital vary in mobility: natural, social, and some built capitals are relatively immobile, while financial capital is highly mobile.

• Human capital is somewhat mobile, and political and cultural capital varies, being more immobile for excluded communities.

• Communities often rely on financial capital from federal and state governments for local improvements and local banks for business loans.

• Rural banks traditionally based loans on personal relationships or knowledge of individuals, but as control shifted to metropolitan areas, this criterion became less important.

• During the housing boom, rural banks, like urban banks, made loans without properly vetting borrowers, leading to mortgage foreclosures and bank failures.

• Financial capital is obtained through loans, stock sales, or municipal bonds used by communities for large capital improvements.

• Deregulation of banking in the 1980s changed the rural banking landscape by removing limits on interest rates, creating a more competitive environment for rural banks.

• When banking regulations were dropped, financial capital began moving to areas with higher short-term returns.

• As a result, financial capital started flowing out of rural areas.

• Rural communities are focused on retaining local financial capital.

• They aim to reduce the risk associated with local investments.

• Efforts are underway to identify new sources of venture capital.

• Rural communities are seeking government assistance to make financial capital available to local businesses

KEY TERMS:

A financial asset is money or property used to meet liabilities (debts owed).

Assets minus liabilities equals net worth.

Capital refers to resources capable of producing other resources.

Capital flight occurs when funds originally invested or generated in a particular area are moved to take advantage of higher earnings elsewhere.

Capital goods are objects used to produce other goods or resources.

Collateral is an asset of a borrower that can be sold for cash and is often required by lenders to secure a loan. If the borrower fails to repay, the lender takes possession of the asset and sells it to repay the loan.

Consumption refers to the use of goods and services for personal enjoyment, which removes them from the available stock of goods and services.

Core deposits are acquired in a bank's natural market area and are considered a stable source of funds for lending. These deposits have a predictable cost, imply customer loyalty, and are less sensitive to interest rates than short-term certificates of deposit and money market deposit accounts. Core deposits include small-denomination time deposits and checking accounts.

Demand deposits are deposits in commercial banks and savings institutions that may be withdrawn by the depositor upon request.

Discount refers to the sale of a security at a price lower than its face value or to a loan where the lender withholds interest from the principal, lending only the net amount (a "discounted" loan).

Efficiency refers to the goal of allocating capital in ways that maximize investment returns while managing risk.

Equity is the net worth of a firm or corporation (total assets minus total liabilities) belonging to the partners or stockholders.

Federal deposit insurance is a federal program that insures each deposit account up to $250,000 and ensures depositors in failed banks or thrift institutions, as insured by the FDIC, the FSLIC, or other federally sponsored insurance agencies.

The Federal Deposit Insurance Corporation (FDIC) was established in 1933 to provide insurance for bank depositors and supervise insured banks.

The Federal Reserve Act of 1913 is the legislation that created the Federal Reserve system to stop recurring money panics through pooling and lending bank reserves.

Financial capital includes stocks, bonds, market futures, and letters of credit as well as money.

Financialization is when financial markets dominate over the traditional industrial and agricultural economies.

Government securities are either short-term or long-term promises to pay, sold by the federal government, such as US savings bonds.

Interest is the charge made for borrowed money, usually expressed as an annual percentage of the principal.

Junk bonds are high-interest, high-risk securities often sold at a deep discount— that is, at an amount well below their face value.

Land is a form of natural capital when it is used to produce other resources.

Liability is the claims of creditors.

Liquidity is the ease of converting assets into money. The greater the degree of liquidity, the faster and cheaper the conversion process.

Minority ownership is the status of an investor who owns less than 50 percent of a business. Minority ownership entitles an investor to a voice and part of the profits but not control of the business.

Money market funds are a type of mutual fund that invests in short-term (less than a year) debt securities of US government agencies, banks, and corporations, and US treasury bills.

A multiplier is the degree to which change in aggregate demand causes a further change in aggregate economic output.

Municipal bonds are debt obligations of a state, locality, or municipal corporation. Interest on these bonds is exempt from US income taxes.

The National Banking Act of 1863 was the first legislative step in the United States toward establishing a stable and uniform currency. It required that all nationally chartered banks meet uniform regulations, back their note issues with government bonds, limit the amount issued to their paid-in capital, and maintain a fund of lawful money in the US Treasury for bond redemption.

Nominal interest rate is the stated or published percentage cost or return on capital, not corrected for inflation.

Private capital is capital owned and controlled by individuals or groups of individuals, including private corporations.

Public capital is capital owned and controlled by governments or communities, such as public schools or bridges.

Real interest rate is the nominal interest rate minus the rate of inflation.

Investors speculate when they invest in an asset in the hope that it will greatly increase in value. The profit (or loss) is made from the difference between the buying price and the selling price, not from what the asset produces.

Stock options are opportunities given to employees to buy stock in the company that employs them at predetermined prices.

Start-up companies that cannot pay competitive salaries often use stock options to attract highly skilled workers and executives.

Venture capital is the capital provided by investors willing to take a higher-than-average risk for an anticipated higher-than-average profit in an expanding but capital-short enterprise.

Chapter 7 summary: 

• Tina Fernandez's Background

  • First in her family to aim for college.

  • Daughter of immigrant farm workers in the impoverished Rio Grande Valley, Texas.

  • Started working in fields at age 6; accustomed to hard work.

• Life Changes

  • Marrying high school sweetheart as a way to pursue support for college.

  • Marriage lasted only three years, leaving her a single mother.

  • Returned to live with parents for help with parenting and financial support.

• Economic Challenges

  • Economic downturn in 2001 made job search difficult, even with a diploma.

  • Found a part-time job waiting tables, earning less than minimum wage.

  • Relied on parents for childcare and support; father aided with car maintenance.

• Career Progression

  • Good work ethic led to promotions; became assistant manager, then manager of a restaurant.

  • Adjusted to management; developed a vision for a restaurant offering traditional, healthy foods.

• Financial Limitations

  • Initial $7,000 for business start-up was insufficient.

  • Explored community resources for starting her restaurant.

• Networking and Support

  • Joined a small-business development center for women to get business advice.

  • Attended chamber of commerce meetings to connect with local businesspeople.

  • Utilized advice from investment bankers on alternative credit sources.

• Growth and Success

  • Opened multiple restaurants, focusing on affordable, healthy food, helping the local economy.

  • Contributed to son's college fund and improved living conditions for her family.

• Definition

  • Financial capital refers to money and other monetary instruments necessary for starting and maintaining businesses.

• Key Characteristics

  • Money can be used for consumption or investment purposes.

  • Investment in financial instruments increasingly dominates over investments in goods and services.

  • Shift towards financialization as trends span beyond traditional economic activities, focusing on profits derived from investments.

• Forms of Financial Capital

  • Capital vs. Consumption: Resources can generate other resources; e.g., a car can be a capital asset if used for business.

  • Wealth vs. Income: Wealth represents accumulated assets, while income indicates money flow within defined periods.

• Housing Context

  • Homeownership is critical, with tax structures in place to encourage it, but trends indicate rising foreclosures affecting these rates.

• Rural vs. Urban Rates

  • Homeownership rates higher in rural areas compared to urban but declining overall.

  • Older residents in rural areas more likely to own homes outright, contributing to trends in wealth accumulation through property.

• Economic Trends

  • Declining income levels for younger populations leading to higher rates of mortgage-free homes among older individuals.

  • Comparison of mortgage arrangements and implications of foreclosures.

• Investments and Returns

  • Sale of financial assets, like houses, reflecting capital gains or losses based on market value fluctuations and associated taxation.

  • The risks present in speculative investment practices observed during housing market changes.

• The Role of Accounting

  • Emergence of capitalistic practices linked to tracking financial exchanges accurately; beyond cash-only practices.

• Risks in Financial Markets

  • Acknowledgment of the role of financial regulations to enhance community stability and prevent irresponsible lending practices that lead to widespread financial failures.

• Profit Dynamics

  • CEO compensation often linked to company performance metrics, incentivizing job cuts to maximize profits.

• Job Market Shifts

  • Changes in labor practices lead to more contract work with fewer benefits, impacting traditional employment landscapes.

• Challenging the GDP Perspective

  • Critics argue that GDP growth doesn't equate to social well-being; positive economic digits can mask underlying social issues, such as wealth inequality.

• The Genuine Progress Indicator (GPI)

  • Measurement of economic size adjusted for costs of negative social impacts; measures sustainability.

• Built Capital

  • Defined as tangible assets like machinery and buildings; highlighted separately from financial capital due to their role in providing resources but lower liquidity.

• Public vs. Private Capital

  • Distinction between capital from individual investments (private) and capital raised for public infrastructure projects (public) important for community function.

• Historical Context

  • U.S. government supported land privatization for community growth, providing a foundation for entities to form private capital investments.

• Changes in Community Financing

  • Rural community reliance shifted towards greater dependence on federal funding sources due to declining populations.

• Public Challenges

  • Legislative implications shaping the availability of financing for public goods; lack of nuanced financing for localized needs leads to compromised community interests.

• Community Financial Institutions

• Historically oriented to agriculture and based on local lending practices that catered to specific community needs.

• Community Names Reflecting Financial Needs

  • Insights into rural banking history signaled challenges faced by loan structures encouraging localized investment.

• Loan Assessments

  • Based on net worth and local knowledge; however, current trend favors credit ratings over personal relationships within banking.

• Equity Accumulation

  • Discusses mechanisms in which wealthy individuals typically hold advantages in securing additional capital.

• Indicators in Granting Loans

  • Focus on income and debt influences loan acquisition; those demonstrating capacity and financial management are at a clear advantage.

• Capital Generation Necessities

  • Provisions for capital utilization and generation must adapt culture reflecting agriculture-based income flows in rural communities.

• Banking Shifts Toward Service Models

  • Exploration of diversified finance beyond traditional roles adopted by banks.

• Looking Beyond Traditional Financing

  • Encourages understanding of bonds and their roles in raising investments at community levels.

• Capital Necessity for New Ventures

  • The dynamic of equity capital shows challenges for businesses lacking collateral for traditional loans, pushing the need for additional avenues.

• Understanding Bonds

  • Mechanism for long-term financing through structured agreements catered for community-based businesses.

• Community Engagement

  • The finance growth dynamics shifted extensively towards accommodating new market participants.

• Evolving Regulations

  • Overview of the externally influenced financial environment affecting rural access to capital.

• Declining Community Institutions

  • Summarizes the effect of decreased regulations on lending practices, the consequent expansion of capital mobility, and challenges for rural areas.

• Examples of Community Initiatives

  • Highlighting community-led ventures and creative financing structures that have emerged as responses to the economic landscape.

• Mobile Capital Dynamics

  • Assessment of how mobile financial resources impact rural capital retention efforts and hinder local community development initiatives.

• Governor’s Role

  • Overview of community bonds being important in encouraging local business by retaining ownership and benefits within the locality.

• Public-Private Collaborations

  • Discusses instances of collaboration leading to increased investments within local municipalities on specified ventures.

• Long-term Focus on Financial Investments

  • The need for training within communities to ensure understanding of local financial management and investments.

• Micro-Lending Innovations

  • Instances where investment models linking social strategies can benefit rural economies.

• Future of Financial Capital in Rural Areas

  • Reflects on the innovative partnerships needed to keep financial resources within rural communities.

• Recommendations for Sustainable Practices

  • Encourages designing models that account for evolving economic landscapes in delivery of business support.

• Key Concepts of Financial Capital

  • Recapitulating the necessity of diverse sources of capital for community and business viability.

• Understanding the Changing Landscape of Financial Capital

• Outlining essentials in the evolving dynamics of capital financing, particularly in rural areas.

Key Terms

• Financial Asset: Money/assets available to meet liabilities.

• Capital: Resource that produces other resources.

• Capital Flight: Movement of funds to maximize earnings elsewhere.

• Capital Goods: Goods utilized for producing others.

• Liquidity: Ease of converting assets into cash.

• Private vs Public Capital: Individual investment vs government/community-funded resources.

Selection bias arises where there are key differences between borrowers and non-borrowers that cannot be observed, measured and allowed for. Self-selection bias (where those with particular characteristics choose to participate in a programme) a key problem. Whilst differences in education, age or gender can be controlled for statistically, there can also be differences in attitude to risk or "entrepreneurship", which will he basically unobservable. A bias will arise if there is an association between a decision to take a micro loan and these unobserved characteristics. If the more entrepreneurial individuals are those who take out loans, growth in their income relative to income of those who have not taken out a loan may be due in part to the effect of the loan itself, but in part also to their entrepreneurial ability.  

Placement bias arises where loans go to locations or activities that are in some way favoured, such as villages with better infrastructure or sectors with strong demand growth. Comparing income change tor households in a superior location (or sector) who have a loan, with income change for similar households in another location (or sector) who have not taken out a loan, and attributing all of this to the loan will create an upward bias