Buying Local And The Circulating Dollar

By John Amundsen of Portland, Oregon who describes himself as "a native Oregonian who wants to improve it's livability, economy, and communities."

Buy local. We all want to do it, but do we really know why? It's good for our local economy. Well, that's right. If we can buy at a national chain at what we think is a lower price, isn't that better for our personal or our company's economy? Well, that's wrong. What happens to a dollar spent locally versus at a national chain or formula restaurant?

Tim Mitchell in Northwest Earth Institute's Choices for Sustainable Living states, 'A dollar spent at a locally owned store is usually spent 6 to 15 times before it leaves the community. From $1, you create $5 to $14 in value within that community.' That's good news! He also states, 'Spend $1 at a national chain store, and 80% leaves town immediately.' That's bad news. Let's recap. Dollars circulating locally -- good. Dollars leaving community -- bad. Next question.

Is that enough for everyone to start buying local? Apparently not. What about that personal and professional economy being more important than the community? Why does the federal government require that government agencies only buy from the lowest bidder, which is very often outside of the local economy or a national chain? These are good questions.

Let's take that personal economy question first. The purchaser says, 'I save money by purchasing at the lower price!' That's an obvious statement, but is the national chain always cheaper? Sometimes, it is just the opposite. Many times local suppliers and retailers are part of co-op groups and buying groups that collectively have the buying power of the national chains.

GOPD is a market research and technology company specializing in the office products industry. GOPD has been monitoring chain store pricing practices since 1999 and is the un-disputed leader in the field. A study on the national chains of office suppliers and independent office suppliers concluded this:

'Our research has shown, time and time again, that most local independent office supply companies are substantially lower in overall cost to the consumer.'

'The pricing gap between the independent and the chains is so wide, and the consumer perceptions are so engrained that the chains have the lowest prices, that some independents have chosen to match the chain store prices using our services.'

Yes, you read that right. Some independent suppliers raised their prices by matching the national chains. National chains have successfully changed the perception of the consumer that they are the lowest price through advertising and price juggling. Clearly, local is better here.

Let's just say that they are lower priced. How can they do that? Here an excerpt from a Eugene study of 'Big Box Stores' (pdf):

'Big Box stores undermine existing responsible business
According to the public research group Good Jobs First, ' retail stores do little more than take revenues away from existing merchants and may put them out of business and leave their workers unemployed. It's quite possible that a new Wal-Mart store will destroy as many (or more) jobs than it creates, and the Wal-Mart jobs pay less, meaning that they do less to stimulate the local economy.' This from its new report Shopping for Subsidies: How Wal-Mart uses Taxpayer Money to Finance Its Never-Ending Growth, which reveals that Wal-Mart reaps hundreds of millions of dollars in tax subsidies. Imagine the increased ability of Wal-Mart to rake in large profits while keeping salaries low, because of the infrastructure assistance, reduced-price land, enterprise zone, property tax breaks, and other incentives it regularly receives! It's easy to see how subsides like this give Wal-Mart a definitive advantage over existing responsible businesses.'

Let me recap that: How do they offer lower prices?

* They don't pay well
* They are subsidized through our tax dollars

Now, here's another question. Is it really cheaper for the purchaser? Well, maybe. Since our tax dollars are already paying Wal-Mart to exist in any community, we may as well shop there and get some return on our investment that the government invested for us. However, if we are one of the lucky ones to have one of these types of stores in our neighborhoods, we can look forward to responsible businesses that pay a higher wage closing their doors, lower wages within the community, more foreclosures within the community, more low skill people living within the community (maybe even the ones that are not citizens yet), much less money passing hands within the community, more people moving from the community, and eventually, a big empty building where our local gangs can meet. This is what the studies tell us. At least we were able to buy milk for two bucks. This is suicide by inches for a community. It's short-sited to shop at those stores. It's ironic that these stores create their clientele. People shop there to save money (or take advantage of their investment). As time goes on they shop there because they have to. By then, the prices may not be so low.

The next question is why is there a federal law requiring government agencies to buy only from the lowest bidder. This is probably an old law from before these studies were made available. Back then; the powers that be made there best guess on what was most economical. If we have learned anything by watching our government in action, they are not always very forward thinking, and they seldom make necessary changes very fast. Here's another excerpt from a study in Great Britain:

'Giving preference to local suppliers, even if it means spending a little more, can actually benefit a city's finances. Dollars spent locally generate additional economic activity even beyond the value of the initial contract as the local supplier in turn sources goods and services locally. Each additional dollar that circulates locally boosts local economic activity, employment, and ultimately, tax revenue.'

Other cities like Albuquerque, New Mexico, Columbus, Ohio, Ketchikan, Alaska and even states like Alaska, Montana, New Mexico, West Virginia, and Wyoming are bucking that federal law and giving local vendors preference.

Some Oregon lawmakers have said that Oregon would lose if Oregon adapted an Oregon company preference. The import/export balance would be upset because business other states would reciprocate by not buying Oregon. Let's see, Oregon's unemployment was 49th out of 51 states (District of Columbia was included) a few years ago. Oregon Economic Development spent bazillion dollars trying to attract businesses to Oregon. Oregon's unemployment today is 48 out of 51 states. A very modest improvement, but little enough to suspect the government's economic philosophy may be flawed. Maybe if Oregon invests in Oregon business, Oregon business might attract business into Oregon. Studies have proven that, so boys and girls in the government, the word is out. Those changes may be cheaper and more effective in addition to maintaining the character of our cities and towns.

Let's make it simple by concluding with a top 10 list for buying local:

Why Think Local First?

  1. Significantly more money re-circulates in Multnomah, Washington, Clackamas, and Clark Counties when purchases are made at locally owned, rather than nationally owned, businesses: More money is kept in the community because locally owned businesses often purchase from other local businesses, service providers and farms. Purchasing local helps grow other businesses as well as the Multnomah, Washington, Clackamas, Clark County tax base. (See this 10/04 study) showing that locally owned businesses generate a premium in enhanced economic impact).
    Eugene, OR Study:
  2. Non-profits receive greater support: Non-profit organizations receive an average three times greater support from smaller locally owned business owners than they do from large businesses.
  3. Our one-of-a-kind businesses are an integral part of our distinctive character. The unique character of our community is what brought us here and will keep us here. Our tourism businesses also benefit. 'When people go on vacation they generally seek out destinations that offer them the sense of being someplace, not just anyplace.' ~ Richard Moe, President, National Historic Preservation Trust
  4. Reduced environmental impact: Locally owned businesses can make more local purchases requiring less transportation and generally set up shop in town or city centers as opposed to developing on the fringe. This generally means contributing less to sprawl, congestion, habitat loss and pollution.
  5. Most new jobs are provided by local businesses: Small local businesses are the largest employer nationally and in our community, provide the most new jobs to residents.
  6. Customer service is better: Local businesses often hire people with more specific product expertise for better customer service.
  7. Local business owners invest in community: Local businesses are owned by people who live in this community, are less likely to leave, and are more invested in the community's future.
  8. Public benefits far outweigh public costs: Local businesses in town centers require comparatively little infrastructure investment and make more efficient use of public services as compared to nationally owned stores entering the community.
  9. Competition and diversity leads to more choices: A marketplace of tens of thousands of small businesses is the best way to ensure innovation and low prices over the long-term. A multitude of small businesses, each selecting products based not on a national sales plan but on their own interests and the needs of their local customers, guarantees a much broader range of product choices.
  10. Encourages local investment: A growing body of economic research shows that in an increasingly homogenized world, entrepreneurs and skilled workers are more likely to invest and settle in communities that preserve their one-of-a-kind businesses and distinctive character.

Think local first + Buy local when you can = Being a local!

  • Gil Johnson (unverified)

    Buying locally as an individual is always a good thing. Buying locally as a business is even better.

    Back in the early 80s, when Oregon was mired in a terrible recession, a non-profit in Eugene started a program called "Buy Oregon" that linked primarily businesses with local suppliers. It got an initial grant from US Bank for $35,000 and created something like 60 jobs in the first year.

    All they did was approach businesses and asked what they were buying from out of state that conceivable could be produced locally. A TV station was buying a bunch of standardized forms for everything from ads to news stories and a local printer was found that beat the price and gave the station better quality and on demand delivery. Eugene, for some reason, was the headquarters for a company that makes airplane food. They needed chicken parts. Buy Oregon connected the company with a chicken processing plant in Creswell that was installing state-of-the-art equipment for just that need. Again, big savings and a lot more jobs.

    After a few years, the program went statewide, getting lottery money. Then in the 90s, the economy soared the and program was cut from the state budget. It wouldn't take that much to bring it back, nor cost that much money. For the money, no other government program is as efficient in creating jobs.

    I could go on for pages on this topic and I'm glad John brought it to blueoregon. If you want to get into the whole economic rationale for this, you'll have to get off the Internet and go to Powell's and get a book entitled "Cities and the Wealth of Nations." It's by Jane Jacobs, the doyen of urban planning and one of the greatest intellects of the past half-century.

  • Becky (unverified)

    If you really want to change people's buying habits you have to understand them. Consumers' shopping choices are not merely about price; they're also about convenience and familiarity. The big chains are gaining market share because their national advertising, which is coordinated so well witheir storefront presence, makes them very familiar to the average consumer. People know what they're going to get in that store. McDonald's in Portland serves exactly the same food as McDonald's in Boston. But who knows what Joe's Burger Stand serves? If you're new to town or passing through, you're likely to stick with the product you know. When about 18% of Americans relocate every year, and they don't usually have time to research their new community, they are going to shop at a familiar retail outlet - the chain or franchise - rather than the unknown independent store.

    Chain stores are also typically conveniently located. Busy shoppers do not have time to run all over town looking for what they want to buy. If they see a large store that has everything they need under one roof, such as a Wal-Mart store, or if they see a specialty chain that will serve their specific need and it's conveniently located, they will shop there. If on top of convenience and familiarity they also perceive they are going to save money, you simply cannot effectively change their choice to stop there.

    Compounding this problem are restrictive local sign ordinances that do not allow local merchants to effectively communicate their presence to potential consumers. A McDonald's doesn't need any sign at all and you will still know what it is because of its signature building. Even if it's located in a downtown area, it's classic golden arches are one of the most widely recognized brands in the world - they don't have to be very big to be noticed. But Joe's Burger Stand, with little or no advertising budget, needs a bigger sign if it's going to have an effective street presence. Otherwise, it's just not going to attract new customers. Studies have shown that an effective on-premise sign brings in as many customers as word of mouth and advertising combined.

    It's an established fact that the brand that first comes to mind for a particular category of goods will also be the brand that has the greatest market share. If we don't allow our local businesses, who have very little advertising budget, to effectively remind passing motorists of their existence, they will never be able to build memory for their business and they will never be able to capture a significant share of the market. This - more than price - is why national brands with big advertising budgets are able to squeeze out local businesses.

    If we want to save local businesses we have to do a lot more than try to convince consumers to disregard their desire to shop at familiar stores, save money, and save time. We have to give our local businesses a fighting chance to compete.

  • Steve Bucknum (unverified)

    I am totally convinced - I'll buy local!

    So, I'm giving up buying anything in Portland, and will only buy it in Central Oregon. Those folks from Portland don't drop any money here anyhow unless you count the groceries they buy on their way out to go hunting.

    I'll never visit the Lloyd Center or Clackamas Town Center again. I'll never visit the music stores there again. Even though I have family in Portland, I won't spend a night at a motel again, I'll just drive home in the middle of the night. I'll be sure to fill my car with gas in Madras on the way over, and not refill until I'm back in Madras. I won't go to OMSI, I won't go to the Zoo, and I certainly won't go to anything associated with the Rose Festival.

    I'll pack lunches so I don't have to eat in restaurants. I will tread so lightly on Portland when I have to go there, you'll never know I was there --

    Yep, not one dollar to Portland will be my theme from here on out!

    Errr, that is what you meant by buy local - right??

  • Gil Johnson (unverified)

    Jeez, Steve, why go to Portland at all?

  • Gil Johnson (unverified)

    When I go to another part of the country, or even another part of the state, the last place I want to eat is at a chain restaurant. I want to sample food unique to the realm. As a matter of fact, every time I go to rural Oregon (and I used to get over to Fossil and Spray a lot), I look for a good chicken fried steak. Alas, I'm afraid most of the little local joints are serving up a frozen mean manufactured in Steubensville, Ohio and shipped through Sysco.

    In the center of Portland, where I live part-time, it's quite easy to buy locally. I can go to Winks hardware, among others, and there are seemingly hundreds of great local coffee houses to try, rather than Starbucks. There's New Seasons, though, alas, there is no more Kienows. In Yamhill County, where I live the rest of the time, we have local or regional outfits, such as Wilco. I think it's only in the suburbs where chains are so dominant that people have fewer options. Yeah, Fred Meyer is everywhere and I shop there a lot because of the illusion of saving time, though when you wait 20 minutes in the checkout line, which seems to be a Fred Meyer policy, your savings all go for nought.

    I would like to see a tax credit for buying from companies owned in Oregon, or which have significant holdings in Oregon. It might get complex, but you could have a graduated scale, ranging from a purely locally-grown (or manufactured product) sold through a locally-owned store to say a product marketed by a locally-headquarted company, even if if uses outsourced labor. That is, you would get a bigger tax break for buying Nancy's yogurt from New Seasons, less so from Wild Oats and much less so for a pair of Nike shoes bought through a chain outlet.

  • John Amundsen (unverified)

    It's a when you can thing. When you can, buy as locally as you can. If you are in central Oregon. Buy the local stores and shops and restaurants. If you can't, buy from a Portland or Oregon chain, like Elmer's or Aaron's(Vancouver). If you can't do that, think northwest, like Costco. Then west coast, then nationally. Be mindful and make your best judgement. It is said that "All politics are local!" That can be said also of the economy. Power comes from the center of where you are. Forcing our local government to actually represent our best interests forces the broader spectrum government agencies to follow suit. The economy is the same way, as the locally economy strengthens and flourishes, that economy attacts more business to that economy. That is just the way it works.

  • Julian (unverified)

    I think it usually takes a good macroeconomist to parse out what would or wouldn't benefit a local community. It all depends on what social group you want to promote. Not all social groups are geographically contiguous, so simply saying "buy local" has a few shortfalls. Since I'm a progressive and this is a progressive website, I would assert that "buy local" is a great catchphrase for Cascadians who are chagrined by business and social policy practices elsewhere in the country, and who need a basic primer on how to use their dollars to reshape society. Since most large corporations that are a net "bad" to society lie well beyond Oregon, then yes, it makes sense to steer dollars away from non-Northwest-based retail chains. But there are clear exceptions. If you buy blue from Progressive Insurance or Working Assets, your money doesn't stay in your local community, but tends to stay with progressives elsewhere who are championing the same values you are. On the converse, you may pick up tools at the local hardware store and later find out they're redder than Ace Hardware or Home Depot. I think one reason we're so focused on "buy local" here in Portland metro area is because we want to keep money away from the "Death Star" back East and the middle America that is duped by their destructive policies. But someday down the road, DC and middle America might change for the better (who knows?). The other compelling reason is sustainable purchases; the idea of husbanding fuel so we don't have to cart so much mass across the continent when we could construct or grow more products locally. So, in sum, "buy local" is a great first step, but I would encourage others to fine tune their social investing strategies as they go along to reward blue companies in other regions (when you can't find a local alternative) and eschew red companies in their back yard.

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