Buying Local: How It Boosts the Economy

Buying Local: How It Boosts the Economy

“Buy Local”—you see the decal in the store window, the sign at the
farmer’s market, the bright, cheerful logos for Local First Arizona, Think
Boise First, Our Milwaukee, and homegrown versions across the states. The
apparent message is “let’s-support-local-business”, a kind of community
boosterism. But buying close to home may be more than a feel-good,
it’s-worth-paying-more-for-local matter. A number of researchers and
organizations are taking a closer look at how money flows, and what they’re
finding shows the profound economic impact of keeping money in town—and how
the fate of many communities around the nation and the world increasingly
depend on it.

At the most basic level, when you buy local more money stays in the
community. The New Economics Foundation, an independent economic think tank
based in London, compared what happens when people buy produce at a
supermarket vs. a local farmer’s market or community supported agriculture
program and found that twice the money stayed in the community when
folks bought locally. “That means those purchases are twice as efficient in
terms of keeping the local economy alive,” says author and NEF researcher
David Boyle.

Indeed, says Boyle, many local economies are languishing not because too
little cash comes in, but as a result of what happens to that money. “Money
is like blood. It needs to keep moving around to keep the economy going,” he
says, noting that when money is spent elsewhere—at big supermarkets,
non-locally owned utilities and other services such as on-line retailers—”it
flows out, like a wound.” By shopping at the corner store instead of the big
box, consumers keep their communities from becoming what the NEF calls
“ghost towns” or “clone
towns”, where Main Street now looks like every other Main Street with the
same fast-food and retail chains.

According to Susan Witt, Executive Director of the E.F. Schumacher Society,
“buy local” campaigns serve another function: alerting a community about
gaps in the local market. For instance, if consumers keep turning to on-line
or big-box stores for a particular product—say, socks—this signals an
opportunity for someone local to make and sell socks. This is the way
product innovations get made, says Witt. “The local producer adds creative
elements that make either the product or materials used more appropriate to
the place.” For example, an area where sheep are raised might make lambs
wool socks and other goods.

The point is not that communities should suddenly seek to be
self-sufficient in all ways, but rather, says Boyle, “to shift the
balance. Can you produce more locally Of course you can if the raw
materials are there, and the raw materials are often human beings.”

And what about that higher cost of local goods After all, big-box
stores got to be big because their prices are low. Susan Witt says that the
difference falls away once you consider the increase in local employment as
well as the relationships that grow when people buy from people they know.

There’s also the matter of local/regional resilience. Says Witt: “While now
we’re largely a service-providing nation, we’re still just a generation away
from being a nation of producers. The question is: what economic framework
will help us reclaim those skills and that potential.” Say, for example, the
exchange rates change or the price of oil rises so that foreign-made goods are no longer
cheap to import. We could find ourselves doubly stuck because domestic
manufacturing is no longer set up to make all these products. While no
community functions in isolation, supporting local trade helps “recreate the
diversity of small businesses that are flexible and can adjust” to changing
needs and market conditions, says Witt.

Another argument for buying local is that it enhances the “velocity” of
money, or circulation speed, in the area. The idea is that if currency
circulates more quickly, the money passes through more hands—and more people
have had the benefit of the money and what it has purchased for them. “If
you’re buying local and not at a chain or branch store, chances are that
store is not making a huge profit,” says David Morris, Vice President of the
Institute for Local Self-Reliance, a nonprofit economic research and
development organization based in Minneapolis and Washington, D.C. “That
means more goes into input costs—supplies and upkeep, printing, advertising,
paying employees—which puts that money right back in the community.”

One way to really make sure money stays in the community is through
creating a local currency. Christian Gelleri, a former Waldorf high school
teacher in the Lake Chiem area in Germany, has launched a regional currency,
the Chiemgauer, equivalent in value to the Euro. According to Gelleri, the
Chiemgauer, accepted at more than 600 businesses in the region and with
about $3,000,000 Euros worth in circulation, has three times the velocity of
the Euro, circling through the economy an average of 18 times a year as
opposed to 6. One reason for the fast turnaround is that the Chiemgauer is
designed to encourage spending: there is a 2% demurrage fee for
holding onto the bills beyond three months.

As an economic principle, velocity has been considered a constant. According
to Gelleri, it was stable in the 1950s, ’60s, and ’70s but starting in the ’80s
velocity has decreased as more money has been diverted to the financial
sector. This scenario may benefit financial centers, but money tends to
drain away from other places. Gelleri says that both the Euro and the U.S.
dollar have slowed way down. “In the last several months velocity has
declined sharply because there’s less GDP and more money,” he says. “The
money doesn’t flow. More money is being printed, but it’s not going into

As the nation limps through the recession, many towns and cities
are hurting. “Buy-local” campaigns can help local economies withstand the
downturn. Says Boyle: “For communities, this is a hopeful message in a
recession because it’s not about how much money you’ve got, but how much you
can keep circulating without letting it leak out.”

See which businesses are bucking the recession.
Watch TIME’s video of Peter Schiff trash-talking the markets.