Open, capital markets are a powerful tool to raise funds for local development projects. While international equities and bonds benefit from open capital markets, projects at the local level are often funded by individuals or small project teams.

At the local level, investment is not determined by the project’s opportunity, but by the availability of local capital or willing developers. Developershave a closed, informal process to evaluate investment opportunities.

Development at the local level is dependent on individuals with enough liquidity to shoulder the full cost of development projects, minus debt financing their collateral can afford.

At the local level, there is not an intermediary that connects investors to opportunity. The intermediary plays an important role in identifying investmentopportunities and conducting due diligence on their viability.

Individuals looking for investment at the local level cannot invest in a building or small business. The only place for them to invest their money is in international markets.  

Primary Markets and Secondary Markets

International markets benefit from primary and secondary markets. Primary markets are exemplified by the “IPO Roadshow.” The Roadshow occurs  when an investment banker finds institutional investorsto invest in the initial public offering of their client firm.  

Secondary markets are what we think of as the “stock market.” On secondary markets, equities of a firm are traded to determine the firm’s price and volume of available shares.

Local projects fall outside of the scope capital markets.

Secondary markets provide an important, and often overlooked, mechanism for investors. Secondary markets offer a forum for firms and investors to offer price signals. Price signals distil the firm’s value to a metric that can be compared to other firms. Analysts can evaluate opportunities and conduct due diligence on the firm’s value.

Secondary trading also provides increased transparency as firms report on their performance.

Geographic Investment Inequality

In the 21st century, local economies don’t have local capital markets. Think about how much investment flow out of small to medium sized cities to the major metros. While the infrastructure of America’s small to mid-size cities decay, capital flows to international corporates and bond markets in the form of 401Ks, pension funds, mutual funds, and the day trading of the hobbyist investor.

American needs primary and secondary markets for the local economy.

Will Scholz is the Founder and CEO of Nodes.World. His book Open Capital Markets for Local Economies is now available in electronic format.

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