|But What About...|
Frequently Asked Questions About Local First Campaigns
by Michael Shuman, board member of BALLE and author of “Going Local” and “The Small-Mart Revolution”
1. Aren't local goods and services more expensive?
2. Isn't Local First protectionist?
3. Does Local First seek to subsidize inefficient local business?
4. How sound is the methodology for the studies that show a better local multiplier for locally owned businesses?
5. Aren't local businesses less regulated and therefore worse for the environment?
6. Don't local businesses pay worse wages?
7. Shouldn't we leave the market alone?
8. Are Local First campaigns legal?
9. Won't Local First hurt the poor in the Third World from whom we import?
10. Is Local First a front for a radical agenda?
(1) Aren't local goods and services more expensive?
Sometimes yes, sometimes no. The truth is we actually do not know. Careful studies of the comparative prices between local and non-local retailers are rare. But here are some intriguing data points.
A recent survey of pharmacies in Maine, for example, found that chain drugstores there sold prescriptions at an average price 15 percent greater than local stores.
According to Stacy Mitchell of the Institute for Local Self-Reliance, of the few studies available, a Consumer Reports study of bookstores found that Barnes & Noble and Borders prices are 4-8 percent lower than those at independent bookstores. Yet many of the best independent bookstores in the country now offer "frequent buyer programs" that completely erase these price differences for regular customers.
Mitchell also notes that discount prices from chain stores are often temporary: An interesting aspect of the Maine survey was there were some dozen or so different Wal-Mart stores around the state included and prices for the list of drugs surveyed varied by 15 percent from the lowest-priced Wal-Mart pharmacy to the highest priced Wal-Mart. What was apparent was that Wal-Mart's prices are lowest in areas where it is fairly new on the scene, and highest in towns where it has largely eliminated the competition. What happens long-term to consumer prices as the number of competitors in the retail industry dwindles? Already two to three firms control a dominant share of every retail sector. Wal-Mart has 10 percent of all retail spending, more than 1/3 of the market nationally for numerous basic-needs products, and has a monopoly for some types of goods in many smaller communities. There's plenty of documentation that Wal-Mart routinely sells entire lines of goods below cost in order to squeeze the competition and gain market share. Then prices go up. It has done this in pharmacy goods, toys, gasoline, and now groceries.
A critical mission of Local First is to make sure consumers, businesses, and government purchasing agents ask the right question before spending dollars in a way that will hurt the economy: Is there a reasonably priced local alternative available?
(2) Isn't Local First protectionist?
Not at all. Local First is entirely about the free choices of consumers, businesses, and government purchasing agents. No one is being forced to buy local, and no tariffs or other burdens are being placed on non-local goods.
Some economists believe—incorrectly—that Local First must mean putting up trade barriers or inducing consumers to buy more expensive goods and services, which, as noted above, it doesn't. They also forget that economic models assume all consumers have perfect information. One way of looking at Local First campaigns is that they aim to give consumers better information—about the availability of attractive local goods and services, and about the significant benefits of buying local.
Paradoxically, Local First turns out to be the best way to develop prosperous links to the global economy. Export-led development usually means supporting a small number of globally competitive niches within a global economy. If one of these industries collapses—like automobiles in Detroit or steel in Youngstown—the entire local economy collapses as well, especially its export sectors. The work of Jane Jacobs and others has shown that import-replacing development, which underlies buy-local initiatives, tends to nurture hundreds of existing locally owned businesses, some of which will then become strong exporters. Development led by import replacement rather than export promotion diversifies, stabilizes, and strengthens the local economy.
(3) Does Local First seek to subsidize inefficient local business?
No. Free-market economists forget that the United States is a crazy quilt of thousands of market imperfections—subsidies, regulations, insurance liability limits, tax wrinkles - nearly all of which favor non-local business. Buy local campaigns are very modest efforts to adjust this tilt in the playing field. The tilt is so extreme—probably 99 percent of subsidies go to non-local firms—that we would have a very long way to go before it was undone.
(4) How sound is the methodology for the studies that show a better local multiplier for locally owned businesses?
Some critics have attempted to downplay the studies that have been done in Austin, Maine, and other places because of their small size and because they don't have complete data from the chain stores. To be sure, the methodology of these studies could always be improved, but the results are driven by a simple fact: Local businesses spend more locally—on local management, on local advertising, on local services, and on local profits. Because most economic multipliers are in the range of two to four times the initial expenditure, these differences in local business spending will always result in substantially greater benefits to the local economy.
(5) Aren't local businesses less regulated and therefore worse for the environment?
It's hard to generalize. Some communities have tougher environmental laws than the nation as a whole; some don't. Some types of pollution control devices work best at a large scale; others don't. There are four reasons, however, to believe that local businesses are generally better for the environment. First, many local businesses are service related, and these usually are labor intensive and have few environmental impacts. Second, a community is more likely to clean up a local polluter spoiling the local quality of life than to clean up a polluter located 10,000 miles away. Third, local business owners certainly have a higher commitment to clean water when their own children must drink it. Fourth, a community with primarily locally owned businesses - businesses that will not consider moving to Mexico or China - can raise environmental standards with greater confidence that these firms will adapt, which tips the political balance in favor of greater environmental responsibility.
(6) Don't local businesses pay worse wages?
Businesses with more than 500 employees pay about a third more on average than businesses with fewer than 500 employees. But these wage differences have been shrinking in recent years, as many high-paying larger firms move factories overseas and as low-wage retailers like Wal-Mart displace existing small businesses. Moreover, studies suggest that over time, as smaller businesses naturally mature and grow, these wage differentials largely disappear.
(7) Shouldn't we leave the market alone?
A healthy market requires, as Local First insists, that consumers fully gather information about available local alternatives before they make purchasing decisions, in full awareness that every dollar spent locally will have two to four times more benefit than a dollar spent non-locally.
(8) Are Local First campaigns legal?
Unquestionably. In a free-market economy, consumers and businesses may make any purchasing decisions they wish. And in a free-speech society, citizens may persuade one another why local purchases are advantageous. The only real legal questions concern government procurement policies that give preference to local bidders. The U.S. Supreme Court generally has held that the Commerce Clause of the Constitution, which normally prevents officials from discriminating against goods on the basis of origin, does not apply when they are acting as market participants, which is the case for procurement officers. The World Trade Organization and other trade agreements, however, may weaken the ability of officials to discriminate against non-U.S. goods and services, though these provisions have yet to be fully defined or tested.
(9) Won't Local First hurt the poor in the Third World from whom we import?
If a large number of U.S. communities successfully move toward self-reliance, then yes, many imports from the global South—whether bananas, aluminum, or oil—would be reduced, to the detriment of the exporting poor countries. But a growing number of development economists are recognizing that the key to improving the plight of these countries is to end their export platform status and to help them become more self-reliant. Communities committed to helping the South might form partnerships like sister cities that facilitate the transfer of state-of-the-art technology and policy. An example is the city-state of Bremen in Germany, which for two decades has been helping its Third World partners become more self-reliant in energy by sharing technology that converts manure, garbage, and sewage into biogas.
(10) Is Local First a front for a radical agenda?
The vision of a world of sustainable communities does differ dramatically from a vision of globalization that tolerates enrichment of a few at the expense of hundreds of millions of workers and families and the destruction of the communities and ecosystems in which they live. But it's hard to imagine more traditional values than those underlying Local First—namely free markets, small business, fair play, and local empowerment.