How 'Shop Local' works so well

We recycle our paper, our cans, and our bottles; why not recycle (and control) our incomes?    Tricia Truit, Earth and Sky Collective

                Shop Local is a concept that money that is spent in an area, over and over again, creates a high local multiplier effect.  For example, $1,000 is spent in a town.  The business that receives the money spent it on wages, local accountant, local goods to stock the store; so the money is spent a second time in the area.  Those people who receive in the money turn around and also spend their money on goods and services locally.  That’s three times the money is circulated in town. So that one thousand dollars has, in effect, turned into $3,000 in the local economy. 

That’s the “Local Multiplier Effect,” a phrase coined by economist John Maynard Keynes in his 1936 book “The General Theory of Employment, Interest and Money.”  And the more times each dollar is circulated in an area, the higher the LME and the stronger the local economy.

HISTORY AND IMPACT

Over the past 50 years, the expansion of national businesses into local domestic markets has diverted this vital monetary stream and redirected it to centralized corporate coffers. There it is spent on large capital expenditures, overseas goods and all too frequently inflated executive salaries. This interception of funds has depleted local towns and cities across our nation of an important source of funds: recirculated income.

It has been estimated that about a century ago, thriving industrial communities had a LME in the high 20s or low 30s. Today it’s estimated to be in the single digits. This reduction in the number of rounds that monies make has had an extremely negative effect on our local economies. All areas of community life are affected by this deficit.²

PRESENT DAY

                Knowing this, why don’t people shop local more often?  Why do people send their money outside of their area via national chain stores, import companies and businesses which do not invest in the local economy by returning the dollars to the local market?   Here are a few reasons.

1.       Cost – Customers want a lower cost and national stores, including those internet stores, can sometimes provide a lower cost for the same product.  Even if the national stores cannot provide the lower price, if a buyer “thinks” they can, that’s enough for the buyer to shop national rather than local.

2.       Service – Customers “feel” that the services they want are not provided locally; either not provided at all, not provided at the standard they prefer; or the services cost too much.

3.       Product – Is the product available locally?  Sometimes, national stores have more variety for a buyer and sometimes a buyer doesn’t bother to search locally because they “believe” the national stores have what they want. Sometimes, the buyer only wants something that is not created locally, but is created out of the area.

All of these reasons are about perception, not about the reality of what is available locally.   The more that people believe in their local market, the more they will shop locally.   That’s where marketing and promotion comes in.  Marketing matters even in a concept on how to live healthier, more economical, greener.  Shop Local is the same sort of concept.  How do I change a perception to create a better solution for a healthier local economy and better lives.

This can be done and should be done in a several ways: verbal and written promotion, advertising, and setting a good example.

The first are probably self explanatory.  Create a campaign and get it out in the public’s eye.

The good example is much harder and more elusive, but it is effective is showing others that it can be done.  That’s where living examples, people who spend their money locally, are a huge impact on other people who view them. 

I do my best to Shop Local first.  If I cannot find what I am looking for in my hometown, either in products or services, then and only then, do I look elsewhere and I don’t look very far.  Second, I look to the products and services created and provided in my county; if I can’t keep my money home, then at least I can add to our county recirculated income. Third, I look for products and services created in my state. 

Note that the term “created  locally” means that I am not spending money on items bought nationally or imported.  By buying local products, I am also encouraging a stronger LME.

All of these “local” territories are important for a variety of reasons, including services provided by governments at city, county and state levels. I keep money in my “territory” to help create a higher LME and stronger economy.  Shop Local works if we all work it.

Parts of this article are taken from “Why the ‘Local Multiplier Effect’ Always Counts” by Tricia Truit, Earth and Sky Collective, ©2004 GEO, P O Box 115, Riverdale MD 20738, http://www.geo.coop ^1,2