By Dan Coleman
The analogy is simple and the numbers compelling. Suppose you had funds to invest. Suppose further that you had a choice of two investment vehicles, one offering 6.8 percent, the other 4.3 percent, both decent returns in the current economy. All things being equal, you would choose the 6.8 percent return. So much the better if the larger return was coupled with an investment that provided additional benefits.
Economic-development policy in Orange County and the municipalities faces a similar choice. Studies show that for every $100 spent at a locally owned business, $68 stays in our community. Spend that same $100 at a chain store and only $43 stays local. Clearly, the big returns in economic development come from increasing opportunities to buy local rather than buy chain. These studies refer to retail sales, but similar results can be found in most sectors of the economy.
Locally owned businesses also bring a range of other benefits economically, environmentally and socially. For a typical list, see sustainableconnections.org/thinklocal/why
Yet conventional wisdom in economic-development circles clings to a recruitment model. Rather than build an economy from their own resources and talent, states and communities enter a zero-sum game competing to lure businesses with a variety of incentives.
When economist Michael Shuman spoke to the Carrboro Board of Aldermen a few years ago, he gave the example of Google, which, to locate in North Carolina, was offered incentives of $800,000 per job, a whopping sum by any standard. What if, Shuman asked, you offered North Carolina businesses such an incentive to grow and create jobs? Or even a fraction of that amount? Wouldnâ€™t they give the state more for less, and be more likely to stick around?
To underscore this point, Shuman cited an Oregon study that found that the subsidy per job averaged 30 times as much for a recruited firm as for a local firm, around $60,000 per job as compared to around $2,000.
Shumanâ€™s point is not that you reject non-local businesses, but rather that you place your economic-development priority on supporting and growing local business, just like investing your money at a 6.8 percent return rather than 4.3 percent. And he offers a simple methodology for determining how to do so.
Localizing the economy is done through a process known as import substitution, whereby you rely more on local products and services than on imported ones. The tool for developing an import-substitution strategy is called a leakage analysis, which looks at various areas of expenditure, determines which ones account for the greatest proportion of imports and which of those can most readily be localized.
Although Orange County discussions tend to focus on retail goods, nationally the five top categories of household expenditure are housing, transportation, food, pensions/social security and health care. Most of these are amenable to localization. Here, for example, we have a strong local-food movement with our various farmersâ€™ markets and CSAs (Community Supported Agriculture).
Our commitment to alternative transportation also contributes to economic localization. Investments in fare-free bus, sidewalks and bike lanes allow many residents to live without having to purchase cars and to spend much less on fuel. The money saved can be spent in the local economy.
Recently, Chapel Hill and Carrboro received a federal â€œRetrofit Ramp-Upâ€ grant that provides funds for energy-efficiency retrofits of existing buildings. Energy is one of the top areas of economic leakage. Investment in retrofits has the potential to support local firms while sending fewer dollars out of Orange County to distant shareholders of energy utilities.
Note that these are all programs or investments that improve the local economy and improve the quality of life of residents.
A paradoxical effect of economic localization is that when a community succeeds it becomes of greater interest to relocating companies. Recently, a couple of software firms relocated to Carrboro, not because of any recruitment efforts (there werenâ€™t any), but because they and their workers valued the walkable, unique qualities of our downtown.
What is the potential for economic localization in Orange County? We donâ€™t know because it has not been studied. Too often an uncritical reliance on received wisdom guides our efforts in other directions. But it behooves our governments to reassess conventional thinking and to determine thoughtfully which economic-development investments will give the greatest return to our citizens.
Dan Coleman is a member of the Carrboro Board of Aldermen.