Ethics of Supporting Your Local Economy
Hard economic times bring about a desperate search for solutions, both local and global. Some of the ideas that arise are good; others aren’t. Here’s a story about one such supposed solution, namely the idea of supporting local business.
From the WSJ’s Independent Street blog: How the Locals are Trying to Save Small Businesses
Fed up with seeing local small businesses being ravaged by the economic downturn, some people are taking matters into their own hands. They’re trying to reverse the fortunes of mom-and-pop stores by becoming more organized in “buying local.”
– In Fort Myers, Fla., people driving by Clancey’s Restaurant saw this huge sign outside: “Support the local economy. Patronize locally owned businesses.” Local businesses there say that for every $100 spent at a chain or national business, only $14 stays in town, but when spent at locally owned businesses, the amount triples to $45.
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In Chicago, two entrepreneurs established a Web site this month, SupportREconomy.com, to sell $2 green “R Local Stimulus” wristbands to benefit designated 10 small businesses and charities in the area. The grassroots effort aims to donate 20% of the profits to local pharmacies and grocery stores. Since the launch in mid-March, 250 wristbands have been sold, said Joana Fischer, the co-founder.
What the blog doesn’t explore is whether this is a good thing. Some will take that as obvious. But I don’t think it is.
First, such efforts seem to be rooted in the notion that economic benefit to own community are more important than economic benefit to other people’s communities. Now, stores and factories and jobs in your own community might well be more important to you than stores and factories and jobs in other people’s communities. That might make it individually prudent for you to support local business, but that doesn’t (by itself) make it ethical. Ethically, the jobs (for example) of employees of a factory in a neigbouring community are just as important as the jobs of employees of a factory in your home town. If you buy local, you’re helping someone locally, but you’re hurting someone, somewhere, too. That doesn’t make buying local bad — you’ve gotta spend your dollars somewhere, and can’t spend them everywhere. But you shouldn’t think buying local is automatically great.
Second, think about such efforts from a big-picture point of view. Picture not just your community coming together to buy local, but every community doing so. The result would be very little change in net purchasing, but there could be serious reductions in efficiency and hence a net decrease in total utility (i.e., in total wealth or total happiness). Example: People in Town A are good at making shirts, but bad at making pants. People in Town B are good at making pants, but bad at making shirts. Trade between the two towns allows everyone to get higher-quality goods, at lower prices. Buying locally means people in Town A get good shirts and lousy pants, and people in Town B get good pants and lousy shirts. In effect, efforts to promote buying locally raise barriers to trade, and barriers to trade usually hurt all concerned. And when you’ve got behaviour that is individually rational but collectively damaging, you’ve got the makings of a classic social dilemma.
(Note that the notion of supporting local business overlaps only incompletely with the recently-popular idea of eating locally. Eating locally can be — but isn’t always — a way to reduce carbon footprint. From an ethical point of view, the effect on efficiency of production needs to be considered, too. But that’s a blog entry for another day.)
The Business Ethics Blog 
I’ve often wondered this same thing about the push to buy goods ‘made in America’. Although that feels right on a certain level, there is the nagging reality that somebody somewhere in the world loses a job in the process. And although I get your main point, to some extent the buy local movement is an attempt to preserve some diversity in the market. And Lord knows that’s a good thing. It may be more of a push back against the chain restaurants and big box retailers that make life so bland. Yes, they are efficient. But are they really a good thing when completely dominating the market and a community? I say no.And one other thing along those lines…yes, we may get low prices from the chains, but that only drives consumption which hurts the environment. So again, efficient in what way?
Kathleen:You’re right…diversity is a countervailing value that can legitimately be factored in. My point is just that “local” isn’t automatically good.Chris.
In a episode of West Wing, some one asked the president why the life of an American soldier was worth more than the life of a soldier of the fictional country used in the story. By the end of the episode, the president responded “Their not” While true it misses the point, he was not elected president of the fictional country, he was elected president of the United States. His job was to protect his citizens, not the citizens of the fictional country.I can’t fix the whole world’s economy, but I can help my neighbor, since I’m going to hire someone to do the work. One problem with the US economy is that the US law makers have forgotten their responsibility to support an protect their citizens and that there are times when that parochial view (at the expense of globalization) is their proper job.
Voice:Keep in mind the President’s *job* is to help a certain group of people — Americans. That’s arguably what he was elected to do. That argument doesn’t generalize very well to other people.But see also my 2nd point: protectionism tends to make us all worse off. If that’s worth it (or if there’s some countervailing value in a particular case), then go for it.Chris.
The local argument is more complex than you’re portraying it. I get your point, based on the underlying principle of absolute advantage—if we create values which undermine absolute advantage we do nothing but impoverish everyone. In theory.In practice, the dislocations produced by the global economy are so profound that one can argue that voluntarily injecting money into the local economy might be worth a shot.In 1984, Orwell portrays a world in which unending war is the mechanism by which excess value is destroyed in order to prevent industrial cultures from generating sufficient wealth to allow their downtrodden populations the breathing room needed to overthrow their oppressive governments. The idea here is that increasing productivity and access to resources has an effect on the political system—a good effect.China in the modern era has discovered that controlling it’s economy and buying US T-bills works as well as unending war did for Orwells dictatorships. It’s people remain hardworking and impoverished, the government grows in power and influence, and people in the US get a flood of virtually free if often shoddy and unsafe goods. This is a profoundly weird situation. I’m not sure that buying local can really impact it, but it’s an example of the kind of thing that powers the local argument. Buying local I see as a largely inefficient communitarian impulse; the desire to help one’s neighbor isn’t bad or wrong. the problem is that effort would probably be better spent pushing and pulling at the levers of local and federal government than small scale tinkering with the economy. Buying a packet of screws at the local hardware store instead of wallmart, eating at a mom and pop greasy spoon rather than eating at a huge fast food joint isn’t going to do much. It’s a freemarket placebo designed to create an illusion of control; it probably in he end just reinforces a status quo where local businesses are essentially powerless to reverse the gigantic scale articialities which are driving them slowly out of business.
Chris –I think there are several different variations of the “buy local” movement that overlap and have different analyses.One is the “eat local” that you mention at the end that focuses on the larger social, economic and environment impacts of food production. Michael Pollack has written some great stuff on that. Enough to influence the White House to plant their own garden. Another is “buy locally-produced goods.” You hit upon this in your second point. I have the most trouble with this one (as it seems you do as well.) I agree that “buy local” in this context ends up being harmful. You want people around the world buying your locally-produced goods. That is additive to your local economy. Adding a protectionist tilt to the argument, you end up with people buying most inferior goods and stifling trade.I think you missed another type which is “shop local.” I think there is benefit to the local economy on this. For example, do I go into my locally-owned coffee store or the Starbucks next door. If the prices are comparable, the service is comparable, and the selection is comparable, then I go in the local coffee shop. The local shop will rarely be able to beat the price of the national chain. At best they make it a non-issue by matching prices or at least coming close. They need to compete on service and selection. The “shop local” is very different than “buy locally-produced goods” argument that you discuss. In shop local, the retail profit is going to the local owner rather than the dispersed shareholders of a national chain. I think that is a good thing. There is also the benefit of commercial diversity for a community. Many have written about the Wal*Mart-ization of the world. It is hard to pin a value on your community having a unique identity of commerce compared to the strip mall and bib-box retailers that are coming to dominate the economy.The ethical question is the price. Assuming the “shop local” business can compete (or exceed) on service and selection, how much more should we be willing to pay in price differential?
Nice post, Chris. There was a good discussion of this issue on the excellent EconTalk podcast a year or so back: http://www.econtalk.org/archives/2007/04/boudreaux_on_th.htmlAnd, as is often the case, it’s worth reading Bastiat (http://www.econlib.org/library/Enc/bios/Bastiat.html) on this point.
Your post brought about sound arguments against encouraging the public to support local small businesses instead of contributing to national corporations’ economic activities, with response to an article in the Wall Street Journal: How the Locals are Trying to Save Small Businesses. However, I am hesitant to concur in your reasoning. First, you assumed the idea of supporting local businesses to be people’s notion that “economic benefit to own community is more important than economic benefit to other people’s communities,” and that “stores and factories and jobs in your own community might well be more important to you than stores and factories and jobs in other people’s communities.” It seemed unfair to presume that was the attitude behind the public’s campaign of “buying local”. Helping local small businesses contributes to the national budget just as it would if the money goes to national corporations. In addition, I believe the campaign could even boost national spending in the sense that it arouses the public’s emotional connection with its own community, hence more willing to spend in support of local businesses.Second, you suggested if every community engages in “buying local”, there will be “little change in net purchasing, but there could be serious reductions in efficiency and hence net decrease in total utility.” Yet in fact, I would say the campaign serves as a means to encourage and promote purchasing from local merchants, not by any means forcing people to do so. Using the example in your post, yes, the campaign suggested people in Town A gets good shirts and lousy pants, while people in Town B gets good pants and lousy shirts. However, it did not impose a rule saying people in Town A cannot buy pants from Town B and vice versa. If there is a need, people are free to spend their money however they desire. I believe the campaign acts as a medium to draw people’s awareness to locally produced products and encourages merchants to learn from each other to increase their products’ competitiveness in the market. For the sake of illustration, going along with your example, the campaign allows people in Town A to recognize the existence of businesses that produce pants locally as well as gave an opportunity for those merchants to learn from Town B’s quality pants production. All in all, I definitely understand your concerns, however, I do see a lot of positives that come along with “buying local”.
Victoria:Fair enough.All I’m trying to point out is that there’s nothing <>obviously<> virtuous about buying local, and there may be arguments against it. My sense is that most people take it as obvious that “buying local” is the ethical thing to do. I’m pointing out that that’s not at all obvious.Chris.
What I find interesting is that this is addressed as an ethics question at all. The way I look at it, if I enjoy having a corner hardware store (and I do), then I have an obligation to buy from them. If I don’t care at all about having a local _____ (fill in the blank), then I shop around for the best deal.What is strange to me is when someone finds it sad that the local whatchamacallit store closes down, but then when you question that person, they did all their own shopping at WalMart. If you want locally owned businesses to survive, then patronize them. End of story.
Elise:Thanks for your comment.Any time your choices affect someone else’s welfare, it’s an ethical issue.Note also that this is false: “if I enjoy having a corner hardware store (and I do), then I have an obligation to buy from them.” Enjoying something doesn’t make it obligatory. It just makes it enjoyable. Perhaps that’s all you meant.I’ve got nothing against people promoting things they like. My point is that some people seem to think it’s ethically <>better<> to support local businesses, and that’s not always true.Chris.
The more I read the other comments the more I think this an academic, rather than a practical point. There is an implication that higher profit equals greater happiness, and this is dangerous thinking.
Local businesses contribute to the local tax base, and hence support local quality of life issues beyond access to goods and services.
There is also the immensely important piece that tight feedback loops represent. People in town B might decide that dumping toxins in the river is okay because it gives them a competitive edge cost-wise. Town A might think it’s perfectly cool to buy from B since cost is basically all you are considering here. Whomever is downriver will have a different opinion. But in toto, one cannot assume that the privileges we give to those who produce will result in adequate safeguards and information from which to make intelligent choices. This is the primary failing of the marketplace as we know it.
Local economies are immensely better for multiple reasons, most of which your article skirts or ignores entirely.
Tony:
Thanks for your comment, but I never said anything about profit.
I’m talking about wealth. Wealth matters, or else we wouldn’t all be so upset about about the current economic downturn.
Your point about tax base is an interesting one, and I suspect more complicated than is immediately apparent. But I suspect the key is that all communities need businesses, which is different from saying that all communities need to buy stuff from businesses close to home. (Does anyone think that it’s important for people in Flynt, Michigan, to buy lots of cars? Presumably not.)
Chris.
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