Tuesday, June 25, 2013

"Buy local": a slogan in search of a rationale

There may be a good reason to favor local firms, but movement supporters don't seem to know what it is.

Ten or fifteen years ago, a good way to impress upon students the virtues of free trade would have been to point out that it would be silly to restrict trade between, say, Texas and California because such restriction would eliminate obvious benefits for both sides; and then to point out that restricting trade between the US and other countries has much the same effect. (I'm pretty sure I saw this example in Caplan's book, although it may appear elsewhere also.) Alarmingly, the idea that we should actually restrict trade within the US is becoming more fashionable. A local source says this:
Did you know that Keep Austin Weird really means Keep Austin Local.
The Austin Independent Business Alliance says for every $100 spent at a locally owned store, $45 stays here. But shopping at a chain store leaves only $13.
Similar statements come from other organizations, and some subset of the population seems to be on board. The enormous flaw in this line of reasoning is that, as in the case of protecting the US rubber industry, the value that consumers get by buying from nationwide firms is ignored. The quotation seems to be implying that consumers in Austin will ultimately be better off if they keep the money in Austin, but that simply is not the case. The implications of buying locally are perhaps easier to see if we take it to an extreme: imagine our lives in Austin if we refused to to trade with anyone outside of the city, or even the state. No maple syrup from Vermont, no oranges from Florida, no cheese from Wisconsin. Texans could produce these products themselves, or substitutes of some kind, but not in the kind of volume or to the level of quality that other states could. Furthermore, we would have much smaller markets for products produced in-state: beef and video games, to name two. Things would be very, very different. Maybe better in some ways--that's worth mulling over--but I don't think this is what "buy local" advocates have in mind.

So, promoting local economic prosperity, as "prosperity" is usually envisioned, may be the stated goal of buying locally, but it is not the outcome. I like to look at all sides of an issue, so I've been thinking about other possible rationales for supporting local businesses. The first of these corresponds to one aspect of the popular "Keep Austin Weird" slogan. I haven't seen any discussion of the others (although I admit I haven't really looked).

  1. Local firms are cool, corporations are lame. But what value are consumers getting from local firms, apart from the value they get by shopping at these firms? I think that a lot of consumers like the idea of mom & pop shops existing, but would rather do their actual buying from chains. According to Shop Local, buying from local firms "supports the people and businesses that give Austin its unique character." If this is true, and if this unique character is itself of value, then one could argue that there is an externality associated with buying locally. Pay more when you buy from mom & pop, but contribute to local character, from which everyone benefits. The role of the slogans, then, could be encouraging consumers to internalize the externality. It actually strikes me as a nice alignment of the nature of the externality with the mechanism for dealing with it: those who care most about local character are most likely to be affected by the slogan and thus favor local firms, even if it is costly in other ways for them to do so. By the same token, it isn't a particular problem if some consumers choose to disregard the slogan when the value of local character is insufficient to justify sacrificing other dimensions of value obtained from national firms.
  2. All those transportation costs are bad. Why truck goods in from all over the country when we can avail ourselves of local goods instead? Again, there is a potential externality. If all transportation costs, including pollution, were factored in to the price, there would be a natural incentive to buy from local firms because their products would be cheaper. Since prices do not take some factors into account, it could be welfare-enhancing to create a preference among consumers to buy from local firms. In this case, I would definitely favor dealing with the externality through some other mechanism (like higher gasoline taxes) and then letting the prices of the final goods do their jobs.
  3. Corporations exploit their labor. It's not obvious that this kind of thing is a source of inefficiency--a standard (although somewhat facile) response to this concern is that workers can simply quit if they think Wal-Mart is treating them badly. Perhaps the labor market isn't functioning quite the way it should, and workers' rights are not being sufficiently protected. Then punishing the corporation by withdrawing one's patronage could serve the same purpose as legal sanctions. The problem with this one is that these kinds of misbehavior tend to be specific to a corporation, or a subset of them, whereas buying locally means not patronizing any national firms at all. Unless advocates of buying locally assume that all these firms misbehave to some extent.
  4. Corporations have disproportionate political power. Given the staggering difficulties in reforming our political system, withholding patronage may be the most realistic means of reducing the power imbalance. Buying locally isn't specifically about avoiding large corporations, although the firms that do business far from their own location do tend to be larger.
I'm not sure how compelling any of these are. Really, I'm just looking for whatever rationale there may be. I wonder if there is some kind of popular aversion to corporations that is based on some combination of the above and/or other factors, and advocates of buying locally rationalize that aversion with the story about increasing local economic prosperity, a la Haidt. It also has to be said that the local businesses themselves are probably the primary impetus of these campaigns, and they clearly favor anything that gets them more business.


  1. http://www.city-data.com/forum/general-u-s/253221-keep-_______-weird.html#b

    i'm not sure if you are aware that almost identical slogans exist for other cities.

    and i think most people see these huge corporations as taking jobs from people protected by labor laws and giving them to people who are not protected by labor laws. A kind of lose-lose scenario. So we have one person with no job and another person with a terrible job. i don't think people take it further than that, but one person having a good job and another person having no job doesnt sound much better, either.

    1. Yes, I am aware of similar slogans in other cities; thus the references to "other organizations" above. I was just using Austin as an example. The labor issue is a possibility, but I don't hear people mentioning it explicitly. If that really is the key point (or a key point), then it is worth talking about what exactly is going wrong in the labor market that we are trying to address. I don't know what the conclusion would be there, but that would be the question to ask.