Buying Local Boosts and Sustains Local Economy - Essay Example

Full Full & Submitted Buying Local Boosts and Sustains Local Economy Globalization is aggressively lifting national barriers, allowing multi-national retailers to bombard national markets with cheaper products mostly produced from developing countries where cheap and docile labor is a prevalent practice. The influx of cheaper imported products at first sight looks advantageous to consumers as it offers them wide array of cheaper products to choose from, hence dramatically changing consumers’ buying local attitude and behavior into buying import. However, studies reveal that buying import is actually hurting local economy, ultimately weakening consumer’s purchasing power resulting from job losses. Even the world’s biggest national economy and globalization leader, the United States of America has not been spared from this negative phenomenon. The Economic Policy Institute reveals that between 2001 and 2006, Wal-Mart’s trade with China alone had caused the US manufacturing sector to eliminate 133,000 jobs, accounting for 11.2% of total job loss in the country due to trade (Scott, qtd. in Dēmos 1). On the contrary, five-year studies of the Civic Economics on the comparative economic impact of local firms and their chain competitors have consistently confirmed the enhanced economic impact of local firms in terms of labor costs, profits, local trading, and charitable giving (2). It is therefore argued that buying local is more than a patriotic act; it is in fact a much wiser economic policy path because it is in buying local that the economy is best boosted and sustained, and it is also in buying local that consumer’s interest is best assured. Defining ‘Local’ and ‘Buying Local’ To better understand the impact of buying local on local economies, defining the term ‘local’ is fundamental. The term ‘local’ appears simple yet it is defined differently from industry to industry. Literally however, ‘local’ denotes a specific place of origin. (Irshad 5) Hence, to determine whether or not a product is local is to determine where it is produced. Thus, consumers usually look for the indicator that says ‘made in’, ‘grown in’, or ‘produced in’. In agriculture, ‘local’ is defined by geographical origin. The US Farm Act 2008 designated a less than 400-mile distance from its origin or within the State in which the product is grown or produced to consider food products local. (Irshad 5) In retail, ‘local’ is defined by geographical operation and ownership. A local retailer is locally owned and operated; the products it sells are locally produced; and its workers and employees are local residents (Economic Development and Innovation Accelerator [EDIA] 4). The Wist Office Products, the largest independently owned office supply company in the southwest, best exemplifies the authentic local supplier. All its operations – warehouse, distribution, and administration included are maintained in Arizona; all its employees, properties, are owners reside in the region; and all its charitable donations are spent in the region. (Civic Economics 10) As such, buying local is buying homegrown and locally manufactured products from local retailers. Simple economics states: “The ultimate case of going local is when economic activity begins and ends within a defined, ‘local’ area” (EDIA 5). This fact alone confirms the widespread belief that buying local is more beneficial to local economy than buying non-local. Analyzing the Economic Impact of Buying Local Buying local than buying non-local is more beneficial to local economy in two ways. Primarily, it recirculates the money locally, hence minimizes economic leakages at different levels of the supply chain. Secondarily, buying local creates economic multiplier effects that further benefit the local community and even neighboring communities. For the first point, how does buying local recirculate money locally? Unlike multi-national businesses and national businesses, local businesses do not have corporate headquarters outside the locality to which they have to remit earnings. Instead, these remain local. Furthermore, owners, employees, and workers of local businesses are most likely local residents buying local, in effect recirculating the money. (Patel1) The Civic Economics compared the economic impact of a local retailer (Wist Office Products) and a national retailer with the greatest local presence (Office Max Contract) on the economy of the state of Arizona, taking into account four factors – labor, profit, procurement, and charity. Findings of the study reveal that the Wist Office Products (WOP) – a local retailer smaller than Office Max Contract (OMC) –actually recirculates more of its revenue (18.96%) in the local economy than OMC (11.56%). Compared with OMC, WOP has strikingly created greater economic impact on Arizona at 64% per dollar of income. Furthermore, with their extended economic effects included, the study reveals that part of WOP’s total revenue remaining in Arizona’s economy (33.4%) is actually 21.8% greater than that of OMC’s (11.6%). (6-8) This supports the view that “The more a retailer buys local goods to sell, the more the local economy retains the economic value of its production, as revenue is made at every stage of the value chain” (EDIA 8). For the second point, how does buying local multiply its economic effects? Buying local create three economic multiplier effects categorized as direct effects, indirect effects, and induced effects (EDIA 10; Martinez et al. 44). Direct effects refer to the value created by “new production, processing, and retail output, and the additional jobs and labor income generated” (Martinez et al. 44). Following the law of supply and demand, it is clear that in buying local products, the demand for local production increases, which in turn increases the demand for more labor force (Patel 10). Findings of EDIA’s study on the economic impact of Oliver’s Market on Sonoma County show that the local grocer’s hiring of new workers directly benefits the local economy in terms of local employment, income tax, and business profit. More or less 17 jobs are created in Sonoma County for every 10 grocery workers Oliver’s Market hired. Moreover if all effects were kept local, it is estimated that for every $100 buying local at Oliver’s Market an additional $20.8 new tax revenue will benefit the treasury of California, Sonoma County and city governments. (EDIA 9, 13-14) On the other hand, indirect effects, Martinez and colleagues explain, pertain to the total value created in supplying local inputs and services by businesses that provide the operational needs of local producers and manufacturers and the needed support structure of the processing and retailing activities. For example, local home growers of agricultural products need machinery, feed, seed, fertilizer, and capital in order to provide the needed supply by local retailers. As buying local increases the demand for local supply, consequently the demand of local farmers for capital and farm in-puts also increases. Hence, banks, transportation and telecommunication services, and manufacturers of farm in-puts are indirectly benefited. Lastly, the induced effects accumulate when workers’ earnings in both direct and supply sector are spent locally. (44) Studies (Otto and Varner; Henneberry et al.) have found farmers’ markets to benefitting local economies. Particularly in Iowa, Otto and Varner found that an estimated .58 cents indirect and induced sales are generated for every dollar spent at farmers’ markets; an additional .47 cents in indirect income (the multiplier effect was1.58) and induced income (the multiplier effect was 1.47) are generated for every dollar of personal income earned at farmers’ markets; and almost 50% of full-time equivalent job in other sectors of Iowa’s local economy are supported for every full-time equivalent jobs that farmers’ markets create (the multiplier effect was 1.45). In a similar study in Oklahoma, Henneberry and colleagues found a multiplier effect of farmers’ markets between 1.41 and 1.78. (qtd. in Martinez et al. 43) Buying Local: Price, Quality, and Availability If buying local advocates cite leakage as the main reason for their position; those on the other side of the fence cite quality, price, and availability as main reasons for their contrary position. Hence, it is believed that imported products are of better quality because they undergo stiff quality control before entering foreign markets. Since they are mass produced, they are sold widely at lower prices. Taking all these into account, it appears that it is in buying non-local that consumers’ satisfaction can be achieved and that buying local is more a patriotic act and a sacrifice on the part of consumers to help improve local economy. With cheap quality products flooding national markets, this observation looks correct. However, deeper analysis says otherwise. A good case in point is the Wal-Mart – America’s biggest company, biggest retailer, and largest employer (Dēmos 1) – How it has wielded its tremendous market power at the expense of labor that ultimately is hurting the economy and putting at risk consumers’ satisfaction. Wal-Mart succeeded over its competitors by over reducing prices while expanding its operations. To be able to always retail at the lowest possible price, Wal-Mart always buys the cheapest goods usually available in low-wage manufacturers abroad. Hence, it imports primarily from China, and also from other poor countries like Bangladesh, Honduras, Cambodia, and more countries, making it the leading buying non-local. (Dēmos 1) For now, Wal-Mart strategy looks advantageous to customers but in the long run it will ultimately be harmful because Wal-Mart’s strategy is not sustainable. Wal-Mart’s scale strategy based on cost reduction has caused local manufacturers to either shut down or transfer operation abroad to enable them compete with Wal-Mart’s demand for lower and lower prices. Resultantly, this has caused the loss of manufacturing jobs. In fact it is for this reason that Kraft Foods did plan to close its 39 factories and lay-off its 13,500 workers. Other than that, Wal-Mart’s relentless demand for much lower prices pushes local manufacturers to squeeze labor and renders them incapable of innovation. Basker’s study reveals that upon entry, Wal-Mart creates more or less 100 jobs which after five years are reduced to 50% job loss due to closed shops. Similarly, Neumark et al.’s study reveals that Wal-Mart’s entry causes 150 jobs losses and a 1.5% reduction in retail earning of the country. (qtd. Patel 3) The net effect is essentially the reduction of consumers’ purchasing power, the limiting of innovation and even compromising quality, and the limited supply of important domestic products. If in retail and manufacturing, buying local is not immediately seen to provide consumer satisfaction in terms of quality, price, and availability, in agriculture this is not so. Studies (Irshad 6-11; Martinez 43-47) reveal many consumer benefits of buying local food, ranging from economic, social, environmental, and health. Local food production is a potent force to promote rural development. Local food supply can be cheaper because of direct selling. Hence the leakage of income to middlemen and the removal of other unnecessary services (i.e., decreased packaging, lesser food miles) no longer add up to product cost. Thus local food supply can be potentially cheaper. Local agricultural products are fresher because they can reach the market quicker. Hence, the “local food system may increase the availability of healthy food items in a community and encourage customers to make healthier food choices” (Martinez et al. 46). Most importantly it improves food security, hence it sustains food supply. Therefore, buying local food feeds the development of local food system which in turn provides fresh, healthy, affordable, and sufficient food supply. Conclusion Evidently, buying local is beneficial to local economy. It boosts and sustains local economy basically in two ways. First, it facilitates the recirculation of money within the community, keeping local business strong in the following ways – by creating new jobs, thereby strengthening purchasing power; by creating new infrastructures and new support services within the area, thereby creating another set of new jobs; by giving charity to local communities thereby benefitting local consumers. Second, it multiplies its effect directly, indirectly, and in induced manner. In short, the economic path that buying local drives is sustainable economic development. Hence, without a strong domestic market, local economy becomes vulnerable, because reliance on imported products will not only kill domestic business and agriculture but more seriously, it cannot ensure economic stability. As such, buying local ultimately becomes more beneficial to consumers because it drives sustainable economic development which in turn ensures sufficient supply of quality local products at reasonable price. Works Cited Civic Economics. “Procurement Matters: The Economic Impact of Local Suppliers.” Civic Economics. November 2007. 8 April 2014 Read More