Is ‘buy local’ past its use by date?

Most small and medium sized towns run ‘buy local’ or ‘shop local’ campaigns from time to time. These are based on the feeling that money spent locally circulates around the community and brings a bigger flow-on benefit to the local economy than money spent outside. Incidentally, we see the same arguments at the national scale too, when Gerry Harvey complains that international internet shopping is reducing his profitability. I often get asked what the ongoing value of a dollar spent locally might be, and this post explores that question.

The ‘shop local’ rationale is better developed in the US than in Australia, and on my bookshelf is a well-thumbed copy of a book called “Going Local” by Michael Shuman – which doesn’t have a magic multiplier number but does have a wealth of good ideas on what works. Another great source of ideas and easily implementable actions is http://www.growinglocaleconomies.com, with a good set of resources on local economic development and entrepreneurship.

The best thing about the US work is that it recognises the link between the feel-good aspects of buy local, and the need for top-flight entrepreneurial capabilities as well. Some years ago the underlying principles of many economic development practitioners in the US shifted from ‘help for the business’ to ‘help for the business owner’, the entrepreneur. There are many discussions about the differences between owners and entrepreneurs and that is a great topic for another blog post in future!

The entrepreneurship resources available from the US are fantastic, with four of my favourites being
http://www.kauffman.org – business and community entrepreneurship
Economic Gardening – including good updates on the growinglocaleconomies site
Centre for Rural Entrepreneurship – good resources and a good monthly newsletter too
http://www.NxLevel.org – training programs for entrepreneurs

The Kauffman Foundation Energizing Entrepreneurs program has been leading this work on small town entrepreneurship for many years. Their package even has a presentation template to help win over Councillors reluctant to embrace the need to stimulate entrepreneurship – with the package then going on to provide lots of templates to actually engage business owners and foster entrepreneurship.

What’s the connection with ‘buy local’? Essentially, fostering entrepreneurship at the same time addresses head on the main gripes about shopping local: range of goods/services weaker than outside of town; prices generally higher than out of town; service too often falling short of expectations.

Without addressing these very real gripes, a shop local campaign is just window dressing. If local business owners are not up to the mark in terms of really understanding the needs of their customer base, then no amount of feel good campaigning is going to get the locals back in their doors.

What’s it worth to a local economy? It would be great to have a headline statement along the lines of ‘every $100 spent locally yields a net gain of $xxx across the local economy’ but no one in Australia has really been game to stand up and quantify it yet. There’s good article in Time magazine here which quotes from a UK New Economics Foundation study that asserts that 1 pound spent by a council with a local supplier (note that it is a service supplier not just a retailer of something imported into the town) is worth 1.76 pounds to the local economy, but only 36 pence if the 1 pound is spent out of area. These are bold claims, but they do have a sound methodology! I heard of one town where businesses included a coloured token with each transaction over $10, and starting with 500 tokens distributed across local businesses proceeded to watch and track where the tokens ended up to get their own measure of how local spending circulated.

The key thing in the UK study for me is the distinction between buying a product locally and buying a service. It seems that the service supplier (selling skills and the application of those skills) is more tightly integrated into the local economy than the wholesaler or retailer who buys in their products, markets and sells them, and employs people in the process. The net value to the local economy here is really in the wages paid to local staff – the rest of the business turnover covers the cost of goods coming in and going out again. This why neoclassical economists tend to lump shop local in with tariffs and other protectionist measures which, theoretically at least, can lead to lost efficiencies in the local economy if buyers end up paying ’too much’ for stuff they could have got elsewhere.

While trade in products like this is a consideration, the real prize in the US campaigns is shopping locally for products grown or made locally. The ‘value added’ in production of these does accrue in the community. Young Shire in NSW is doing very well with this at the moment, turning its Hilltops local food and wine brand into a catalyst for Town Hall dining and entertaining extravaganzas showcasing the best that the region produces. There’s a link to their newsletter at the bottom of this article.

But beware the local cultural cringe – the flip side of pride in local business capabilities. I’ve seen many highly skilled people operating in small towns whose clients all lie well outside the region. One was a global IT player in Dungog in the lower Hunter Valley, who was excluded from any tenders sought by the local council on the basis that he ‘couldn’t really be as good as he says or why else would he be based in Dungog’? A great example of the small town cultural cringe that some leading regional small businesses still find themselves up against!

In the US there’s also a strong undercurrent of shopping locally at local owned and independent businesses – again on the expectation that these businesses are better at circulating the money. The American Independent Business Alliance is very keen on buying local (www.amiba.net). There’s even research to back it. The Louisville Independent Business Alliance (LIBA) found that $55 of every $100 spent at a local merchant will be reinvested back into the community, as opposed to only $14 of every $100 for national chain businesses. I think that’s a big call as even the local outlet of a national chain business pays local staff and probably some local business service providers.

But Louisville still has an eye on reality in its shop local campaigns:
“I understand the feeling out there that ‘only rich people can afford to buy local’” says LIBA Director Jennifer Rubenstein. “No one I know of (not even our staunchest board members) buys local all the time, every time. Hence the slogan of Buy Local First instead of Buy Local Always.”

So is ‘buy local’ still relevant, or is it past its use by date?

In my view the concept is definitely worthwhile: local dollars are valuable and collectively do make a difference. And promoting local capabilities can help minimise the ‘local cultural cringe’! But I think the old style feel-good shop window campaign is not what’s needed, and is well past its use by date. In running a shop local campaign, communities should ensure that there’s a strong component of business engagement and learning, so that what’s on offer really does meet or exceed local customers’ expectations. See if the campaign can be used to also bolster improvements in customer awareness and customer service amongst local businesses. The worst outcome of all is where a well-intentioned campaign ends up over-promising to local customers and then under-delivering!

What have your experiences been?

hilltops newsletter no 01

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s