- by David Clark
Not all “shop local” is equal. We have seen the signs in store windows targeting residents, and as promotional branding in tourism and visitor literature, in just about every town in Ontario. And, likely, we immediately think: “This is a good idea, who wouldn’t want to support our friends and neighbours?” It should be good for local economic development because it keeps more money in the community, which, in theory, means more money will be spent in the community – this is the “multiplier effect”. There is an irony, though, in businesses putting up signs stating “shop local”. Tourists and visitors in general, if they take the message to heart, should, being the rational beings described by economists, spend only in their home communities. And, business owners would not shop out-of-town.
Much of the research literature that looks at the concept of local is food-related, often with a focus on rural development. The concept of local food is typically based on “food miles”, such as the 100-mile diet.Local can be defined by politically-fixed boundaries (municipal, provincial, even federal) or more “fuzzy” ones such as regional. Local, then, is a relative concept, unless confined by geo-spatial criteria (distance or political). At the personal level “my local” might look very different than “your local”.
Using the “100-mile diet” criteria, from my perspective in Owen Sound, local includes Huron, Perth, Waterloo, Halton, Peel, York, Simcoe, and if measured “as the crow flies”, Muskoka, Parry Sound, and part of Maniloulin Island. Move the point 40 kilometres south to the town of Durham it now additionally encompasses Toronto, Durham Region, London, Oxford, Brant, and Hamilton.
And, the definition of local depends on who is defining it: consumer or producer. A consumer is likely to define local from the perspective of their home community, a business based on where the money is spent, and government might define it as the specific municipality, province, or country.
So, why do people buy locally? Research shows that people buy locally for reasons such as community pride, community spirit-building, reduced travel costs, reduced carbon footprint, and reciprocity and mutually beneficial cooperation: I buy from you and you buy from me. Taken to an extreme, shopping local can have macro-level impacts similar to protectionist trade tariffs; no one would spend outside of their own “local” community, however defined.
To understand a “continuum of localness”, the effect of an economic multiplier (EM) is informative. In its basic form, the ME states that for every dollar spent, some of it stays locally and some is leakage to outside of the area. For the dollars that are retained locally (however local is defined), with each iteration of spending within the community, there is more leakage to the outside area. (There is no one-size-fits-all multiplier; a multiplier must be calculated for each sector for each community.)
Here is an example. One dollar is spent in a store. That dollar is then apportioned to rent/mortgage, wages, inventory, taxes (income, GST, property, business), utilities, maintenance, profits, and such. Some of that dollar will immediately leak outside of the local area: 1) wages for non-local staff; 2) income and GST taxes, and possibly 3) utilities and maintenance, for example. Next, each resident and business spends its portion of the original dollar for similar goods and services, with more leakage out of the area. The process repeats, with leakage.
So, what is a continuum of localness? I suggest that some businesses have more “localness” than others. What defines localness is both the retention of dollars spent locally and leakage. The more dollars that are retained locally, the more localness the business has.
Here are some examples to illustrate. A big box store (and many franchises and corporate stores) gets most of its inventory from out of the area. A resident’s dollar spent leaks for rent, inventory, profits, national advertising, utilities (unless locally supplied), non-local charitable causes, wages for non-local employees, various taxes, and similar costs. The part of the dollar that stays includes local wages, maintenance, local advertising, local charitable causes, property and business taxes, and similar expenses. On a localness scale of 10 for “very local” to 1 for “not at all local”, the box store is approximately 1-2.
A locally-owned informational website is approximately 8-9, depending on a number of characteristics. Leakage is likely limited to website and domain hosting, purchase of software, internet service, and similar costs. There may be minor expenses related to office space, utilities, various taxes, and similar costs.
So, what might be mid-field? Something rated 4-6 might be a non-franchise business, which imports most inventory. The building ownership is local (rent stays in the area). Owner and employees are local. Utilities likely supplied by non-local companies but which might employ local contractors. This example can move to 7-8, possibly 9, in the case of a locally owned cooperative of arts and crafts or food.
In both examples, only the first iteration of spending is accounted for. Once wages are paid, leakage may occur if the residents choose non-local spending. Further leakage will occur for the purchase of goods and services by various non-local contractors servicing local businesses.
An interesting –and ironic- “buy local” anecdote relates to an editorial in a locally distributed newspaper. The newspaper is owned by a national conglomerate. Well more than one-half of content is imported from various wire services and the corporate office. The editorial was written by the publisher of a sister paper in another province. The editorial expounded on the benefits of buying local with the headline “This newspaper wouldn’t exist without support of local businesses”. The author was not local, the “local” paper is not owned locally, and the originating article was not written for the local newspaper. The locally distributed paper certainly does contribute to the community many ways, though, including employment and various sponsorships. (Originally published in the Winnipeg Free Press, March 18, 2019.)
Buying local certainly has local benefits. As argued, though, not all local is equal, in the sense of economic benefit. If what you truly want is to “shop local”, then dig a little deeper; support businesses that fall on the “continuum of localness” at your comfort level. And, self-define your local boundaries.
David Clark is an independent researcher and data analyst in Owen Sound
