Last February, a study by Civic Economics showed that a 10 per cent shift of spending by British Columbians, from chain stores and restaurants to locally owned alternatives, would create 31,000 jobs and put $940 million in workers’ wallets.
Skeptics like Pierre Desrochers, a geography professor at the University of Toronto, and Hiroku Shimizu argue in The Locavore’s Dilemma: In Praise of the 10,000 Mile Diet, that changing consumer behaviour like this is wishful thinking, because local goods and services are always more expensive. A growing body of evidence, however, shows the opposite.
One indicator of the competitiveness of small businesses can be found in the U.S., where the contribution of small businesses to the gross domestic product has remained steady since1980. The most recent data available for B.C. show that small businesses here are responsible for 30 per cent of provincial GDP, slightly up from 2001.
The performance by local businesses is remarkable, given that public officials and economic developers essentially tried to kill them. The vast majority of economic-development spending in North America, for example, is to “attract and retain” global companies. The impact of these subsidies, if not the intent, is to make small business less competitive.
Even if foolish public policies remain in place, there are deeper trends in the global economy that actually are increasing the competitiveness of small, local business. Fifty years ago, services in the U.S. and Canada comprised about a third of consumer spending. Now it’s two-thirds and growing. Once you have your third car, your fourth computer, your fifth television set, you begin to see the virtue in spending your next available dollar on more education or leisure.
This trend is great news for localization, because most services are inherently local and depend on face-to-face relationships with people we know and trust.
Local businesses in all industrial sectors are learning how to compete more effectively through collaboration.
For years, Home Hardware stores, all locally owned, have successfully competed against Canadian chains through a producer co-operative. Tucson Originals is a group of local food businesses in Arizona that collectively buys foodstuffs, kitchen equipment and dishes to bring down costs. There appears to be no economy of scale that local businesses cannot realize through the right type of collaboration.
Even from the standpoint of investors looking for a profit, big business has become less attractive. In the U.S., sole proprietorships, the category inhabited largely by small businesses, are now three times more profitable than corporations, the category where large businesses can be found. A recent study by Statistics Canada shows that the highest returns are enjoyed by firms with five to 20 employees.
If local businesses universally provided goods and services with low value, then consumers — given the real facts about more expensive and shoddy local alternatives — would flock to the chain stores. In fact, buy-local campaigns always move consumers in the opposite direction. For example, a recent survey of independent businesses in the U.S. found that their sales growth in 2010 more than doubled if they were in a city with a “Buy Local First” initiative. The more information consumers have about local alternatives, the more they apparently buy locally.
By the end of 2013, LOCO B.C. will be expanding its successful efforts to promote local purchasing to the entire province of B.C. If the province really wants to create tens of thousands of new jobs, it will focus its economic-development spending with laser-like precision on programs like this one.
Michael H. Shuman is the author of Local Dollars, Local Sense: How to Shift Your Money from Wall Street to Main Street and Achieve Real Prosperity. He is teaching local economic development at Simon Fraser University on Sept. 27 and 28 and giving a public presentation as part of the SFU Public Square 2013 Community Summit in Vancouver on Sept. 30 and in Victoria on Oct. 1. To learn more, go to www.sfu.ca/cscd/ced
