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3 things to consider when trying to get the most bang for your “buy local” buck

Mar 9, 2015

Credit Lindsey Smith / Michigan Radio

Our MI Curious project is a news experiment where you submit the questions - your questions are put up for a vote - and we investigate the winning question.

Holland resident Josh Bishop submitted this question; “I love supporting my local economy, but does "buy local" really have a big impact?”

“I get the 'heart' thing. I mean if you want to sell me on “shop local” because you feel good and because you want the shops to stick around, I get that. It’s the economic argument that I'm just, I’m not sold on,” Bishop said.

The sad thing is there’s not a simple answer. Sorry guys.

The complicated answer is, buying local matters to the local economy, at least some of the time. But honestly, it depends.

It depends on a lot of different things. It depends on what you’re buying, how many people the business employs locally and how much the business pays. What is considered local anyway, my town, metro area, or state?

If you’d like to be dragged through that nightmare, please scroll towards the end of the page. I make an attempt to sort out the arguments a little.

For everyone else, I’m going to help you spend your dollar to get the biggest bang for your region’s economy. More bang for the locally spent buck.

Step 1: Find out who actually owns the business

“A lot of people think about local and they think geography. What we really need to be thinking about is ownership,” said Elissa Hillary. She’s the executive director of Local First; a group that advocates for locally owned businesses in West Michigan.

Hillary argues owners of private companies are more sensitive to their communities.

“When I’m making business decisions about whether I’m going to keep jobs in the community or whether I’m going to move jobs or what I’m going to do with my waste, I have to face up to the people who are in my community every day; who I’m going to bump into at the grocery store, who I’m going to see at church,” Hillary said, “I’m more likely to make decisions that would be good for my community as well as myself.”

Hillary’s group did a study in 2008 that looked at the impact local businesses had in Kent County.

Not all local businesses are small businesses. The Kent County study listed retail giant Meijer as local. But Spartan Stores, now SpartanNash, are not. Both chains are based in Kent County. But Hank and Doug Meijer still own Meijer stores. It’s not publicly traded.

"They're importing cash back into our community and then they're investing it in ways that we sometimes take for granted," Hillary said of regional, privately held business.

The theory is profits at privately owned businesses are more likely to be spent in town where the owner lives, while profits at publicly held companies go off into the stock market.

But I need to stop here to acknowledge a good point from Don Boudreaux. He’s an economics professor at George Mason University.

“Some shareholders of some of these large companies, even though they’re headquartered in different states, might very well be your next door neighbor, might very well be you,” Boudreaux said.

But having Spartan Stores headquartered in Kent County does have an impact on the economy there, even if the company is publicly traded. That’s why when Spartan merged with another grocery chain based in Minneapolis a couple years ago, people in Kent County fought hard to keep the company headquarters.

So dollars spent at SpartanNash stores have a bigger impact in Kent County than if shoppers went to say Kroger, based in Ohio, or Wal-Mart, even less “local” because it’s not even based in the Midwest.

Step 2: Look for businesses that buy from other local businesses

The second step to making sure your dollars make a bigger impact on your region’s economy is more complicated – but really important. You have to look for businesses that buy from other local businesses.

Dan Houston studies these relationships for Civic Economics, which did the study in Kent County. He says this step is where locally owned businesses really rev the economic engine.

“It’s the effort that they make, right? The restaurants that care to go down to the market and pick stuff that comes from Michigan,” Houston said, “They brag about it.”

Houston says big, national chain stores and restaurants tend to use big, national suppliers. But locally owned businesses have much more flexibility.

The study he did in Kent County in 2008 shows for every $100 you spend at a locally owned business, $68 of that $100 gets spent in Kent County the next time. At other businesses, they estimate $43 recirculates the second time. Houston says that recirculation boosts the local economy.

Step 3: Consider whether the business donates time or money to your favorite local causes

The third thing to think about when trying to spend your money to boost the local economy is – charity. Do the places where you spend your money give to your favorite local causes?

“God, Grand Rapids has the most unbelievable family held company cluster in the country and you know those people really do direct, can I say sh*t-tons of money back into their community because they love the place. They live for it. Other cities would kill for that,” Houston said.

The price question

Josh Bishop’s original question had a lot to do with the price of goods he buys “local.”

“I started thinking thinking about it when it was Christmas time and I thought ‘Wow I can order a lot of things online for a lot less money or I can buy these same things locally and spend more money on them,'” Bishop said.

Bishop isn’t the only one with that perception. We asked Michigan Radio listeners on Facebook and they generally felt the same way; buying local means paying a higher price, but getting a higher quality product and in some cases, better customer service.

“I think there are a lot of large companies that have significant marketing budgets that can tell us that their prices are less and I think sometimes that’s true and sometimes that’s not true,” Local First’s Elissa Hillary replied.

Some business owners told me they have lowered prices because they have to compete with online and national retailers. George Mason University’s Don Boudreaux says this is a very important point. More choice and competition is better for consumers.

"Your living standards are not improved by restricting your range of choices just for some geographic reason," Boudreaux said.

Boudreaux says “local” businesses would love more people in their region to shop local, but says they’re more and more depending on selling globally.

“I think thinking Local First is about finding balance in that,” Hillary said, “There are certain things that will never make economic sense for each community to produce individually, like cars.”