Opinion and Economic Analysis and Economy

'Buy local' offers no protection for bad businesses

April 27, 2009
These days, the "buy local" crowd seems to have a stronger voice. I am gleeful about this for a variety of reasons, but it is helpful to view some of their claims with a bit of skepticism. At least that is what economists should do.

Buying local certainly has the potential to boost the local economy. The spending on local goods and services recirculates through the region, perhaps boosting local employment, wealth and income. This effect is the primary reason for much of the buy-local sentiment that seems to be resurgent during this recession.

There is more smoke than fire to this issue, though. Almost no goods or services are dependent primarily on local inputs. The biggest part of whatever we buy comes from somewhere else. And almost all spending leaks out of the local economy quickly, whether it is for the fish at the local restaurant, gas at the local station, or coal that makes the electricity at the local hairdresser,

There is some danger to the buy-local movement, in protecting an underperforming firm. That is why the constitution specifically forbids, in the interstate commerce clause, any law requiring local buying. In truth, that is not much of a problem in the United States today.

One thing the buy-local effort does not do is help the environment. This is especially true with agricultural produce. Since total energy costs are the single biggest part of the cost of food, the place where it is produced probably has the lowest energy costs—and therefore the smallest environmental impact.

For example, I often hear arguments about buying local food couched in environmental terms. The problem with this is that the examples usually include only transportation costs for the item. The reality is that moving produce is far less costly than raising, preserving and storing it.

It would be a pretty nice thing if buying local was really better for the environment than simply stopping by the local grocery store. Sadly, it is just not true. In fact, growing and canning at home is probably far more detrimental to the environment than buying canned foods. The food may taste better, but really, is there anyone out there who thinks their kitchen is as energy-efficient as a canning factory?

The environmental claims of "buy local" are the fruits of poor thinking. The big boon to businesses of a buy-local campaign is that it exposes them to the real crucible of performance. In the long run, only good businesses survive, whether or not "buy local" is the mantra. The local restaurant is far more likely to heed the customer than the chain store. That's how they get good enough to open a couple of franchises.

So, the next time you are in Muncie at lunchtime and happen down Walnut Street, there's a little place that serves the best tomato bisque soup in the world. Stop by and try some. If you are lucky, it might even open a franchise in your hometown.

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Hicks is director of the Center for Business and Economic Research at Ball State University. His column appears weekly. He can be reached at cber@bsu.edu.
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