Why Local Economies Matter

Michael H Shuman is an economist, attorney, author, entrepreneur, and a globally recognized expert on community economics. In the interview that follows, Mr. Shuman speaks to MCB, the largest bank in Mauritius, about the financial and social benefits of a strong local economy. So much of what he says is in line with what we stand for at The Local Frequency, and below are some of our favourite moments. You can read the entire interview transcript here: http://michaelhshuman.com/?p=443

It can seem counter-intuitive in the age of globalization to advocate for local. Does this thinking make sense?

It IS counter-intuitive, because people misunderstand what “local economy” building really means. Smart local economy building means becoming as self-reliant as possible AND exporting as much as possible. And it means doing so through companies that are locally owned and maximizing the use of local inputs. The paradox of localization is that if every country pursued it—because it’s a wealth building strategy—the level of global trade would probably INCREASE.

Why does it make economic sense to go back to “local”?

In the United States, we have a mountain of studies that show how “local” is a necessary (if insufficient) condition for community prosperity. For example, a study by a group of Harvard economists found that communities with the highest density of small business had the highest per capita job growth rate. Another study by the Federal Reserve in Atlanta showed that those counties with the highest density of locally owned businesses had the highest per capita INCOME growth rate.

What’s in it for the people?

Besides more income, more equality, more resilience (from self-reliance), better health (from local food), more tourism, more beautifully unique places, higher levels of democratic engagement—not much. Seriously, we have studies that prove that local-business communities can readily achieve all these goals.

Why was there a shift to looking outside? Why is it important to go back to our roots of local?

It’s important to remember why much of the world moved away from “local.” Global businesses were heavily subsidized by national governments, as were the fuels (oil, gas, coal, nuclear) and the infrastructure necessary for globalization. The leading lending institutions, such as the IMF, World Bank, and World Trade Organization, set new incentives and rules in place that were biased in favor of global industry—and against local business. For example, rules that restrict local labeling to induce local purchasing are economically irrational since they deny consumers potentially valuable information.

Despite this unfair playing field, exacerbated by weak antitrust laws, local businesses have actually performed quite well and are becoming more and more competitive. For example, worldwide there’s a shift in consumer preferences from goods to services. Once people have basic creature comforts they tend to want more education and health care. This is great news for local business, because local services are almost always more competitive than their global counterparts.

We have studies in the United States that show that localization promotes greater income equality. And again, localization is a wealth-building strategy. It tends to expand smaller, locally owned business who spend more locally and increase the “economic multiplier.” This rising tide of wealth lifts all boats. A strategy that depends on foreign companies is less successful because more of the money they make leaves the local economy – for foreign profits, nonlocal inputs, management salaries, etc. – and does no good for local prosperity.

What’s the difference between protectionism and localization?

Protectionism means that the state limits consumer choices through tariffs and non-tariff barriers. Smart localization means giving consumers MORE information and choices. The world of globalization has actually been far more protectionist than the world Utopies and I are advocating, in that it heavily subsidizes global business and infrastructure. In a truly competitive marketplace, I’m confident that local businesses can meet 80-90% of local demand.

All photos by Robert Lowdon Photography via The Winnipeg Chamber of Commerce