Financial Resource Center

Credit Union Difference

Buy Local for Broad Impact

by Dianne Molvig / May 28th, 2012

If you walk around downtown Portland, Maine, you'll notice nearly every store has a "buy local" sign on its door, says Joe Gervais, executive vice president at University Credit Union and a board member of Portland Buy Local. In Portland, as in communities across the U.S., the buy-local movement is gaining momentum among consumers. "I think 'buy local' appeals to the same folks who responded to Bank Transfer Day," Gervais says. "They are individuals who like to have control in their lives and who are speaking through their purchases." On the other side of the country, in Roseburg, Ore., Virginia Elandt sees the same phenomenon at work. "When people purchase from a local business, they're voting with their dollars," says Elandt, adviser to Think Local Umpqua. "They see they have the ability to gradually change the face of their community, one dollar at a time."

Why local?

Buy-local advocacy groups help locally owned businesses within a community to band together to support each other, such as through joint marketing campaigns. These groups also strive to educate consumers about what buying local means to the community at large. "Local is not just about location. It's about commitment to place," explains Elissa Hillary, executive director of Local First West Michigan based in Grand Rapids, and a fellow at the Business Alliance for Local Living Economies (BALLE). When local businesses are owned by people who live in the community, "those owners care about the quality of life, the school system, the roads, the condition of the river," Hillary says. They're not likely to make decisions that negatively affect them and their families.
The economic effect of "buying local" ripples through a community.
Even small changes in shoppers' habits can have a huge impact locally, Hillary points out. She cites a study conducted by Civic Economics in Grand Rapids a few years ago that showed shifting just 10% of shoppers' spending from chains to locally owned businesses could create nearly $140 million in new economic activity and 1,600 new jobs for the area. "That doesn't involve spending any more money," Hillary says. "It's just being conscious about where we spend our money and keeping some of it close to home."

Boosting the economy

Several other studies also have demonstrated how local businesses are a boon to local economies in communities nationwide. And some studies have compared the impact of local businesses to chains. As just one example, a Civic Economics' study of Chicago's Andersonville neighborhood found that each $100 spent at local businesses generated an additional $68 worth of local economic activity, compared with just $43 for chain stores. This impact is due to what economists call the "multiplier effect," explains Jeff Milchen, co-founder of the American Independent Business Alliance (AMIBA). "The owners of a locally owned business are spending more of their money locally," he says. "They're hiring local graphic designers, accountants, printers, and service providers of all kinds." That local business owner also spends a chunk of his or her salary locally on personal purchases, as do the business' employees. The same goes for the owners and employees of those other local businesses—the accountants, printers, and so on—from which the first business buys goods and services. This effect ripples—multiplies—through the community.
Buying local satisfies another human desire: feeling connected.
A chain business, on the other hand, isn't as likely to buy from local businesses but instead spends most of its money somewhere else, such as in some distant city where it has its headquarters. This dynamic plays out at credit unions and national banks, too, says Steve Rick, senior economist for the Credit Union National Association, Madison, Wis. "When Bank of America makes a profit off you, that money goes to New York City," he says. "But your credit union's earnings get reinvested into new branches and member services. That money stays in your community. And it comes back to you in better fees and higher interest rates on deposits. You're bettering the community and also yourself."

Creating vital communities

Benefits of buying local go beyond economics, says Stacy Mitchell, an early organizer in the buy-local movement and senior researcher at the Institute for Local Self-Reliance. Buying local satisfies another human desire: feeling connected. "We miss and yearn for that sense of community we've lost in many parts of the country," Mitchell says. "If you're fortunate enough to live someplace where you can run your errands by visiting a neighborhood business district, you're going in and out of businesses where the owner may know you by name. You run into neighbors and get into conversations. All that builds a sense of connection." Another noneconomic reward is improved health, according to a study published in March 2012 by a research team from Baylor University, Waco, Texas, and Louisiana State University, Baton Rouge. They found that communities with a greater concentration of locally owned businesses have lower rates of mortality, obesity, and diabetes than do those relying on large companies with absentee owners.
Buying local appeals to people who like to have control of their lives and to speak through their purchases.
One underlying factor, the researchers concluded, is that communities with vibrant local businesses have an "entrepreneurial culture" that fosters public health. There's a "can-do climate" and "a practical problem-solving approach in which the community takes control of its own destiny," said one of the researchers in a Science Daily interview. Still, people assume they'll save money by shopping the chains and big online retailers. Often those sources do have cheaper prices, Milchen says, but he urges consumers to consider the overall value they're getting. "Think about the value of personal service and the knowledge you gain from independent merchants," he says. "That can ultimately save you time and money." What's more, chain stores don't always come out ahead on price alone, says Kimber Lanning, director of Local First Arizona and a BALLE fellow. Local businesses often can compete on price, "especially if they have a level playing field—meaning the big-box stores aren't getting subsidies and tax breaks," she says. "People should shop around, compare, and never underestimate the little guy." No one is suggesting that consumers should buy local all the time. Most of us want or need to shop at big-box stores, chains, and large online retailers now and then. And that's OK, buy-local advocates emphasize. "It's important to remember," Lanning says, "that this isn't about 'buy local always' or 'local only.' It's about 'local first.' We want people to know that by taking incremental steps and making small changes, they can make a big difference."
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