Main Street is reeling and the pressure on small and medium-sized businesses (“SMBs”) is not going to let up anytime soon. One study has shown that “a combined 63 percent [of SMBs] have either zero cash reserves (32.4 percent) or enough cash for a short-duration event (30.7 percent).”[i]
There will be no quick fix, but we should take heart. There are numerous stories about how local businesses and communities are weathering the storm together. What we need are more meaningful, sustainable solutions to increase the resilience of our local economy.
What if I told you that an impactful, long-term stimulus plan exists within your own sphere of influence? Communities grow stronger when they bear weight. Bearing weight means taking local responsibility.
For a while now, we’ve seen that one key to creating a healthy economy is to support the businesses where we live through shopping goods and services at physical locations and eating at local establishments. Most people would not argue that shopping local and eating local provides some value, but perhaps many do not know what a profoundly effective strategy this has proven to be.
One dollar spent at a locally owned enterprise generates three times more direct, local economic activity than the same dollar spent at a corporate-owned peer. This “activity” includes jobs, income growth, local business listings, taxes, charitable giving and even political engagement. This says nothing of the increase in relational capital that results from “buying local”.
Need some evidence? Let’s take an example here in the South. Economist and author Michael Shuman performed a study in Cabarrus County, NC that demonstrated just how impactful this 3X multiplier can be. Like many places in America, Cabarrus County was mostly local businesses or institutions. Shuman used computer models to provide an “economic leakage analysis”.
This leakage refers to “the outflow of dollars that occurs when residents unnecessarily purchase goods and services from nonlocal producers or sellers”[ii].
Note: The term “unnecessarily” is important. The extent of our modern division of labor and globalization are not economic evils. Without them I would not be writing this blog and communicating over the internet. That said, much of what we consume and enjoy can be sourced from the people in and around where we live.
So what were the results of the analysis?
… a shift of 25 percent of residents’ nonlocal purchases toward local businesses could create 9,492 new jobs: 5,208 directly, 2,157 indirectly, and 2,127 induced. [The analysis] predicted, moreover, that these new jobs would lead to $397 million more in wages each year, $676 million in additional annual value-added production (the regional equivalent of gross domestic product), and $59 million more in business taxes.[iii]
If we want to increase the long-term health of our local economy, this is certainly a good place to start.
But what if we took this a step further? What if we could not only shop local goods and services and eat local – what if we thought more about investing local? What if we prioritized connecting with business owners and even local shops that have an online presence and run an online business. When it comes to investing, the conventional wisdom over the past few decades has told us to get a good job and save pre-tax through your 401(K), IRA or other traditional investment vehicles.
In this scenario, most people have little knowledge of the companies in which they are investing (if they even know the companies at all). Search results might deliver some information, but there will still be big question marks. To be sure, most of the dollars are moving to large, distant corporations that contribute to the “leakage” described above.
What if just a portion of these investment dollars were allocated locally? What if a local search yielded local listings for you to invest in? Imagine if just a small percentage of the more than $80 trillion in household financial assets[iv] were kept within our city or state. The “local stimulus” would be profound. This would also enable the 3X multiplier to directly reach “off-main” businesses in addition to the retailers and restaurants discussed above.
To quote Shuman again, “Local businesses have always been the building blocks of a successful economy, but now we can’t afford to get distracted by global businesses. Putting a penny into attracting an Amazon HQ—let alone a few billion dollars—rather than expanding locally owned businesses is the most counterproductive approach to economic development imaginable.”[v]
The expansion he references requires growth capital. This requires investment. While we can be grateful for actions taken at the national level, a significant form of local stimulus is a bit closer to home. Best of all, we all have the potential to be active and influential participants in creating a thriving local economy.
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[ii] Shuman, Michael. The Local Economy Solution. Vermont: Chelsea Green, 2015.