Responding to Critics of Local First

August 02, 2006

By Michael H. Shuman

Michael H. Shuman

How does Andrew Cassel, business writer for the Philadelphia Inquirer, report on the Buy Local Philly campaign spearheaded by the city's Sustainable Business Network (SBN)? "I'm troubled by the idea of singling out certain firms for promotion based on who their owners are," he says. "What makes SBN's campaign so different from one urging people to patronize businesses owned by Christians, or heterosexuals, or white people?"

Welcome to the world of "objective" economists, economic developers, and business leaders who believe that the future of their community depends on Wal-Mart and Borders. Despite the nearly one hundred "Local First" campaigns around the country, fervent opposition is also growing. So, to prepare you and thousands of other independent businesses for the battles ahead, let me share a half dozen of the most common arguments circulating and how best to respond to them.

(1) Ownership Doesn't Matter

"To economists," argues Cassel, "favoring a city's 'local' firms over others is no different than a nation discriminating against foreign imports through tariffs or other trade barriers. Both tend to reduce competition, which inevitably leads to higher prices or lower-quality products for consumers."

Nonsense. A number of studies in recent years have suggested that every dollar spent at a local business has a much higher "multiplier" impact than a dollar spent at a non-local business. In the summer of 2003, for example, a group of economists at Civic Economics studied the impact of a proposed Borders bookstore in Austin, Texas, compared with two local bookstores. They found that $100 spent at the Borders would circulate $13 in the Austin economy, while the same $100 spent at the two local bookstores would circulate $45 -- roughly three times the economic impact on jobs, incomes, and tax proceeds. Nearly a dozen other studies in the U.S. and abroad also have found that local businesses yield two to four times more multiplier benefits than comparable non-local businesses.

(2) But Those Studies Are Flawed

Hart Hodges, an assistant professor of economics at Western Washington College and director of its Business Development Program, dismisses these studies. The data sets are incomplete, he argues, the authors are biased, and the results haven't been peer reviewed. But these kinds of problems beset virtually all economic studies, including those that economists like Hodges cite.

Hodges, for example, gleefully quotes a study last year from Global Insight, an independent economic analysis firm, which asserted that Wal-Mart saved working families over $2,300 per household last year. Even taking the Global Insight study at face value, the net savings per household -- after accounting for Wal-Mart's wage reductions in a community -- is $1,046, less than half the number Wal-Mart cites. But the deception turns out to be greater, because Global Insight is making claims for the average household in the U.S. However, Stacy Mitchell, [senior researcher for the Institute for Local Self-Reliance] points out, median household consumption -- that is, the level below which half of all households are at -- is about $44,000. For the lower half of all U.S. households, the "working" families who are the main customers at Wal-Mart, the average savings are under $630 per year. The $2,300 number thus overstates the case four-fold.

Whether the Global Insight study is credible is another question. Its economic model is proprietary and its assumptions cannot be reviewed (peer or otherwise). And it was funded -- surprise! -- by Wal-Mart. Global Insight also never grapples with the direct costs of displaced small retailers, nor the lost community multiplier benefits when these high-multiplier retailers are replaced by low-multiplier Wal-Marts.

By comparison, Civic Economics and other local-friendly economists are much more open about their assumptions and findings. Moreover, what the multiplier studies are revealing is pretty obvious: Local businesses spend more money locally. In the Austin analysis, local bookstores, unlike Borders, have local management, use more local business services, advertise locally, and enjoy profits locally. These four items alone can easily constitute a quarter or more of a business's total expenditures. When any business spends more of a given purchasing dollar locally, it almost always has a higher multiplier impact.

(3) Local First Penalizes Consumers

"If you save $1 buying at Home Depot rather than your corner hardware store," argues Cassel, "that's $1 you can use to help the local economy in other ways." This overlooks, of course, that the goal of Local First isn't for people to buy local at all costs but to buy, well, local first. Local First simply encourages consumers to ask hard questions before making a purchase. How much time and gas does it take to travel to the Home Depot? Is the quality what you expect and need? Is the product really cheaper than what you could have gotten from a local merchant?

If, after reflecting on all these questions, you decide that a Home Depot offers the best deal, then by all means don't buy local. But experience suggests that once consumers are fully informed about all the behaviors of chain stores -- the loss leaders, the systematic overcharges, the low-quality knockoffs -- and all the alternative local goods and services available, they tend to buy local more often. Economists presume that consumers have perfect information, while Local First endeavors to achieve it.

(4) Local Goods Cost More

A related premise of most anti-Local First'ers is that local goods and services are simply uncompetitive. Hodges damns a local clothing store in Bellingham with faint praise when he writes, "I'm willing to pay a price premium to shop at Kid's Northwest.... However ... I worry about people who cannot afford to pay a price premium."

The argument is preposterous. No generalization can be made either way about myriad purchasing options consumers face. For every "price premium" for local goods, you can find one for non-local goods. In Maine, for example, annual surveys of pharmaceuticals have revealed that the cheapest prescriptions are at local pharmacies, not Wal-Mart.

What we can say generally is this: Competitive place-based businesses -- local small businesses, nonprofits, and government institutions -- constitute 58 percent of the U.S. economy. Only a minority of competitive goods and services come from global business.

Some local businesses have lost ground in recent years, and local booksellers are among them. But is this because they cannot compete? Or because misguided public policy is giving chain stores unbelievable incentive packages, tax advantages, and antitrust waivers? Federal, state, and local authorities, for example, are now giving big business more than $113 billion in subsidies each year -- and almost nothing to small businesses.

The good news is that many small businesses -- booksellers among them -- are learning how to be more competitive by leveraging intriguing niches, joining producer cooperatives, and setting up direct delivery networks. And don't forget about surprising global trends that are helping small business. As oil prices rise, for example, local production and sales will become increasingly competitive against overseas production and global distribution.

(5) You'll Hurt the Environment

Some economists argue that big, global businesses have the capital to invest in greener technology and methods, and they, therefore, contribute more to environmental protection than small business. While not every local business is a model environmental citizen -- one can certainly point to small-scale manufacturers and local dry cleaners that release toxins -- an economy made up largely of local businesses is far more likely to be sustainable.

Local ownership provides an important form of ecological accountability since the owner must breathe the same air and drink the same water, and his or her family must ultimately live side by side with the rest of the community. Moreover, a community with primarily locally owned businesses -- businesses with little interest in moving to Mexico or China -- can raise environmental standards with greater confidence that these firms will adapt to new regulations rather than flee.

A community dependent on non-local businesses is more likely to suffer several kinds of environmental hazards. Box stores, for example, are characterized by gigantic parking lots, covering vast tracts of land, that often drain off oil, gasoline, and other toxins into the water table, sometimes in torrents that can lead to flooding. When national chains move on, these huge spaces are neglected, become eyesores, and lower property values. Nationwide Wal-Mart has 300 vacant stores, and most are less than a mile away from the Supercenter that Wal-Mart built to replace it.

(6) You'll Hurt Labor

"There are many cases," writes Hodges, "where national employers offer better pay and benefits than do small, local companies." There's some truth here. For more than a generation, researchers have found that businesses with more than 500 employees pay slightly more on average than businesses with fewer than 500 employees.

But one recent statistical analysis of the relevant academic literature found that between 1988 and 2003 these differences, in both wages and benefits, shrank by about a third. If this trend continues -- especially as many of the once high-paying larger firms continue to move factories overseas and as low-wage retailers like Wal-Mart continue to displace existing small business -- these differences could disappear altogether.

The debate over Local First is just getting going. Because the underlying assumptions of much of economic development are being challenged, expect the counterattacks to become nastier and louder as Local First spreads. But it's a debate well worth having, because once the public hears both sides, they almost always embrace our position.

Local booksellers can and should play a central role in this debate. My advice is to transform your bookstore into the Grand Central for Local First organizers in your community -- perhaps even set up a special shelf for books that educate the public on the importance of buying local. Your survival, as well as your community's, depends on our side winning.

Independent booksellers of the world unite -- you have nothing to lose but your chains!

Michael Shuman is the author of The Small-Mart Revolution: How Local Businesses Are Beating the Global Competition (Berrett-Koehler, July 2006) and vice president of Enterprise Development for the Training & Development Corporation. He can be reached by e-mail at shuman@igc.org.

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