The Benefits of Buying Local

President Trump has brought the issue of buying local to the forefront once again. He is enacting laws in support of “Buy American, Hire American” principles which he ideologically believes in. This would not be the first case wherein governments are encouraging consumers to buy locally. When government agencies procure materials for government use, a lot of them are mandated by law to procure a certain percentage of local produce. This holds true in capitalist America as well as socialist China!

There are some very obvious benefits to buying locally made goods and services. In this article, we will list some of these benefits and explain them in detail.

Reduced Dependence on Imports

Businesses may find cheaper alternatives to goods and services outside their country. However, ideally, they should resist buying these goods in bulk. This is because, over time, imports become the predominant source of supply. The local businesses tend to suffer and close down. This obviously has a negative impact on the economy. However, the consumers also do not completely benefit from these imported goods. Imports increase the reliance of an economy on other nations. This can also lead to a drop in political power amongst nations. Free trade across the world ought to be encouraged. However, it is economically better in the long run if communities sourced a large portion of their requirement locally.

Job Creation

If consumers spend $100 at a local store, close to $75 stay within the same district. This is because the small businesses tend to hire people from the local area. They also tend to buy raw materials from other small businesses who also hire people from within the same geographical area. Hence, buying locally drastically increases the employment. This can be seen from the fact that unemployment rate in America was not so high till manufacturing of major products like cars used to happen within the nation. It is only after Americans started buying imported goods in large quantities that unemployment became a real issue. Now, since companies like Wal-Mart sell a majority of imported products, the local employment rate has been decimated.

Higher Tax Base

There are many advantages to having money circulate within the local economy. One of the advantages is that the tax base becomes higher. Hence, governments can generate the same amount of money with same or lower tax rates. If a consumer spends $100 at a local store, $75 remains within the economy. When this $75 is spent, once again the local governments can tax this transaction. As a result, even though the quantity of money remains the same, its velocity increases. This leads to a higher local GDP which in turn causes a higher tax base. The result is that governments end up earning more money even though consumer spending remains exactly the same.

Increased Competition

From a consumer’s point of view, it is better to spend money at a local store than at a big business. The nature of big businesses is such that they move the industry towards an oligopolistic structure. This means that only a few firms control the entire industry. As a result, these firms end up having a lot of bargaining power over other business associates. The end result is exploitation of local communities. These big firms try to dominate their suppliers as well as their employees.

Instead, if customers spend their dollars at the local stores, they ensure that the other stakeholders are also treated respectfully. The fragmented nature of small businesses makes it impossible for them to dominate the other suppliers.

Environment-Friendly

Small businesses also tend to be environmentally friendly. They have a smaller ecological footprint than all the bigger corporations. This is because the smaller organizations tend to source their products locally. As a result, the amount of fuel that is burnt while getting the products to the stores is very less compared to multinational organizations. Since the products are not transported as often, they do not need to be packaged extensively. This leads to the use of much less plastic and other non-bio degradable packaging material.

Also, the products sold by small businesses seldom require facilities like refrigerated warehousing. Once again, this translates to lower ecological damage. This is because fewer greenhouse gases are emitted in the process. Hence, small businesses are also beneficial for the environment since they are much less likely to cause destruction on the scale that mega-corporations do.

Conclusion

The bottom line is that large corporations end up damaging the local economy. They tend to hike up the rents and drive down the wages in every small town that they enter. The most important point is that larger businesses remit money from the town to the headquarters of the company. This could be in the same country or abroad. However, the effect is that same since money is sucked out of the local economy. This often leads to revenue loss for the governments who are then unable to meet the welfare obligations of the employees which have been laid off.

The negative impact of mega-corporations on small communities has been well documented and well understood. It is for this reason that the governments are making it mandatory that a part of the product should always be sourced locally.


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The article is Written By “Prachi Juneja” and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.


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