How Buying Local Boosts the Economy

The call to support local businesses is a way to promote local communities. However, buying local may be actually more than feeling good and recognising that it is worth paying more for local. Organisations and researchers have taken a closer look at the flow of money and what they have discovered reveals the deep economic impact the keeping money in town has as well as how the fate of numerous communities around the country and the world at large increasingly rely on it.

Local purchases means more money  within the community

At a very basic level, local purchases mean that more money remains within the community. A London-based independent economic think tank, the New Economics Foundation compared what happens once people buy produce at a supermarket to when they buy produce at a community supported agriculture (CSA) programme or a local farmer’s market and discovered that when people bought locally, twice the money stayed in the community. David Boyle, an author and NEF researcher says that it means that such purchases have twice the efficiency when it comes to keeping the local economy alive.

Boyle also says that local economies are struggling and not because the money that comes in is too little, but because of what happens to it. He states that for the economy to keep going, money has to keep moving around. Boyle notes that if people spend money elsewhere, such as non-locally owned utilities, large supermarkets, and other services like online retailers, it tends to flow out like a bleeding wound. If consumers shop at the corner store instead of the big box, they are keeping their communities from turning into literal “ghost towns”.

The point is not for the communities to start seeking self-sufficiency in all ways, but rather to tile the scales. Are you able to produce more locally? Yes, you can if raw materials are available and human beings are often the raw materials.

What about the higher costs associated with buying local?

After all the big-box stores became so big due to their low prices. Susan Witt says that the difference disappears after you consider the growth in local employment and the growth in relationships once people start buying from those they know.

Susan also says that there is the issue of regional/local resilience. She states that while now the nation is primarily focused on providing services from big I.T services to small local self storage services, it is only a matter of time before it becomes primarily focused on production. The question is which economic framework can help reclaim that potential and those skills.

For instance, assume that the exchange rates change resulting in a rise in the price of oil so that foreign-made goods become expensive to import. The nation would find itself stuck since the domestic manufacturing is not designed to make those products. While no community can function in isolation, supporting local trade can help recreate the diversity of flexible small businesses capable of adjusting to changing market conditions and needs.

Buying Local Increases the Velocity

Buying local also has the benefit of enhancing the “velocity” of money, or its speed of circulation in that area. The idea here is that if the rate of circulation of money is high, it will pass through more hands and a higher number of people will have benefited from it and what it has bought for them.

The velocity of money is considered a constant as an economic principle. Gelleri states that the velocity was stable in the 1950’s, the ‘60s, and even the ‘70s, but starting the ‘80s, it has reduced as money is increasingly diverted to the financial sector. While this scenario benefits financial centres, money does tend to drain away from other places.

The nation is limping through the recession and many cities and towns are hurting. The calls to buy local can help communities withstand the economic downturn. According to Boyle, this is a hopeful message for communities in a recession since it is not about the amount of money you have, but the amount you are able to keep circulating without allowing it to leak out.