Locally Owned, Import-Substituting Businesses

Description

By Michael H. Shuman & Doug Hoffer:

"A growing body of evidence suggests that the businesses most beneficial to a community economy are those that are locally owned and import-substituting.

• Local ownership means that working control of a company is held within a small geographic area.

• Import-substituting means that the company is focused first and foremost (though not

exclusively) on local markets."

(https://mvcommission.org/sites/default/files/docs/leakagestudy.pdf?fref=gc&dti=322508360006)

Characteristics

"Local ownership turns out to matter for economic development in at least five ways:

• Locally owned businesses generally contribute more to the “economic multiplier” than nonlocal businesses – which translates into more income, wealth, jobs, and tax payments – because the former spend more money locally.

• While absentee-owned businesses increasingly move away to Mexico or China to secure a higher rates of return on investment, even if the consequent exit throws a U.S. community into an economic tailspin, locally owned businesses reliably stick around and produce wealth for many years, often many generations.

• Because local businesses tend to stay put, a community can raise labor and environmental standards with more confidence that these businesses will adapt rather than flee.

• A community made up of locally owned businesses is better equipped to promote smart growth, draw tourists, attract talented young people, and seed an entrepreneurial culture.

• Compared to economies rooted in a small number of absentee owned big enterprises, local-business economies appear to have greater social stability, lower levels of welfare, and more political participation."

(https://mvcommission.org/sites/default/files/docs/leakagestudy.pdf?fref=gc&dti=322508360006)

The Multiplier

"Every purchase triggers purchases by others within a community. For instance, a dollar spent on rent might be spent again by the property owners at the local grocer, who in turn pays an employee, who then buys a movie ticket. This phenomenon is what economists call “the multiplier.” The more times a dollar circulates within a defined geographic area and the faster it circulates without leaving that area, the more income, wealth, and jobs it creates. This basic concept in community economics highlights the importance of maximizing the numbers of dollars being spent locally and minimizing their “leakage.”

More information

• Michael H. Shuman, The Small-Mart Revolution: How Local Businesses Are Beating the Global

Competition (San Francisco: Berrett-Koehler, 2006).