What Does “Buy Local” Really Mean?

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I’ve seen this picture passed around a few times on social media; especially around November and December with people doing Christmas and other holiday shopping. The message is riddled with as many good intentions as it is with fallacies. On the surface, it proposes a common sense plan to revitalize the economy and help the citizens prosper. However, it is steeped in protectionism and misleading concepts. It can best be broken up into 3 areas: 

“If each of us spent $100 a year… it would put an extra $3 million year into our economy”

Obviously, due to space constraints on a chalkboard sign, no sources are cited for the dollar amounts, where they came from, or why they were chosen. So right off the bat, it is important to regard the sign as more of a good idea than a golden truth. However, we can do some simple math to get a starting point:

$3,000,000 invested / $100 per person = 30,000 persons to achieve this goal.

30,000 people works out to a small town, and “our economy” (more than likely) specifically refers to the town’s economy. Is this what defines “local” when describing a local business? The township or village? What about the county? Some major cities sit on multiple counties – i.e. New York City occupies five different counties. Is that still local? Here in the Bluegrass, we have a Kentucky For Kentucky campaign that helps promote businesses and attractions in the state. Is that still local? What about Toby Keith insisting his purchases say “Made In America”?

The word “local” has a different connotation depending on who you ask. Most importantly, though, where the border of “local” lies will greatly affect how that $3 million is spread out. A handful of businesses on Main Street in Small Town, USA? That would be a nice boom to the locals. The same amount comes out to pennies for Kentucky’s 4.4 million residents though. So without defined metrics, the statement is empty.

“…on local businesses instead of chain stores…”

This can be boiled down to 2 of the 5 W’s: Why should I buy local? And I want more than “because your neighbor. ” Specifically, what is the difference maker between small/local business and a chain, and why should that be important to the consumer? The beauty of this question is that there is no objectively, measurably true answer. It all depends on the subjective value on the customer; what they want for their dollar. Personally, I prefer small, “hole in the wall” restaurants over chain restaurants. That’s not to say that I hate chain restaurants. I just prefer one over the other. Sure, I can get a Big Mac for less than $5. But I would prefer a Big Tolly with pepper jack, bacon, jalapenos, and salsa with a side of cheese fries and an Ale-8-One to drink for a few dollars more. For the person on a budget, though, the Big Mac is probably the better option. The most important part is that’s not up for me to decide. It is solely for the consumer.

To expand on the first point made earlier in regards to “local” and borders, what makes a chain store inferior to a local business? Do the Wal-Mart and McDonald’s employees not live in the same town as those from Jim’s Soda Shop? From the cashiers, to sales associates, to shift managers, and even the store manager. Sure, the dollars keep flowing upward to the corporate office, but the aforementioned people still earn a paycheck just like everyone else. And in turn, they spend their dollars in town and also contribute to helping their neighbors. Much like the Wal-Mart corporate office, small business owners re-invest their profits back into their stores. They add more variety of products; hire another worker or raises current worker’s wages; they save up and open another location across town. All of this on top of what they take home, pay-wise, and how that money is invested: paying off the mortgage; contributing to their kid’s college fund; building a deck on the back of the house… things that contribute to their happiness and well being. It doesn’t matter who does the hiring – local employees means local dollars.

If local is defined as a small business with no corporate office and whose owners live in the community, then some products absolutely, positively cannot be bought from a local business. Bananas are grown in Southeast Asia, Africa, and parts of Central America. You won’t find them at a famer’s market in Montana. Ford’s heavy duty trucks and Toyota’s Camry and Avalon are made in Kentucky. If you live in one of the other 49 states and drive one of these vehicles, you didn’t support a local business. How many parts of your computer or smartphone were made in Silicon Valley? The argument boils down as such: for what consumer products is it ok to purchase locally, and what products is it ok to purchase from outside the region?

“…it would create thousands more jobs every year.”

I wish I could say “citation needed” and leave it that. And my fellow Austrian readers are probably nodding their heads in approval. Yes, as mentioned in part 2, business owners reinvest in their stores. This means expansions and hiring. I’m not disputing that. Refer back to part 1 though: without defined metrics, we have an empty statement. Obviously, $3 million reinvested in New York City or across the state of Kentucky won’t do squat. It’s a drop in the bucket. But even if the $3 million was concentrated on Main Street, it is a stretch to say that thousands of jobs would be created. Depending on the business, capital investment may be the best move; more efficient machines for more efficient service. Perhaps a service oriented business, like a barber shop, would do well with a labor investment. Whatever the business owner chooses, know that it is for the best interest of the customer.

Final Thoughts

Despite popular opinion, there isn’t some kind of wall between chain stores and local stores. Wal-Mart has recently started teaming up with local manufacturers (relative to store location). On the flip side, small business owners may use Office Depot for supplies or a large bank for their business loan. The best thing for the customer is for them to pursue what they view as the superior product or service for the best price. Through price signaling and demand, the businesses that please the largest portions of the public will remain open. Those concerned about small businesses should look at regulations, wage laws, price floors and ceilings, and other arbitrary demands coming out of the local, state, and federal levels. Large corporations who have amassed the money necessary for certifications, and who are politically connected, will find it easier to meet Uncle Sam’s demands. The small business owner is lucky to stay afloat.

Further Reading:

Subjective Value

Eugen von Böhm-Bawerk on Subjective Value
Robert Murphy on Subjective Value

Regulations

Strive To Help Entrepreneurs Thrive
How Excessive Regulations Stifle Small Businesses
John Stossel: “I tried to open a lemonade stand.”  (Don’t let the Fox News tag discourage you; Stossel is very libertarian.)

#Regulation @ Reason Magazine
#Regulation @ The Mises Institute

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