‘Buy Local’: Nice idea, but does it make sense?

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There's something intuitively appealing about the notion of supporting local businesses. Some municipalities have procurement policies that require local governments to buy from local vendors, or at least give local businesses preferential treatment. It seems only logical to keep those dollars within the community.

Many cities even have advocacy groups that have gone to the trouble of printing their own physical complementary paper currencies as a way of encouraging local commerce. In Calgary, for example, a local grassroots club operates the Calgary Dollars program, which, according to its website, "keeps our money local, which supports local businesses and entrepreneurs, and gives them our money instead of large corporations."

But as well intentioned as these efforts are, do they make any sense?

One of the problems with the "buy local" movement is defining what actually qualifies as local. For example, an independent neighbourhood dry cleaner that is owned by someone who lives down the street is clearly a local business. But what if that business owner starts spending six months a year in Florida? Or hires a manager to operate the shop and moves to another province? What if you don't know where the owner lives at all? Is it still a local business?

Or what about a single-outlet coffee shop owned and operated by someone in the community who eventually expands the operation into an international chain? Is it still a local business? Even Starbucks was once considered a local business in downtown Seattle. At what point does a company's size strip it of the distinction of being a local business?

Or what about a big, multinational fast-food chain – we'd hardly consider it local. But what if it's a franchise operation, and the franchisee is your next door neighbour? His kids play soccer with your kids. Is his hamburger restaurant now a local business?

The main problem with "buy local" movements or policies is that they require us to discriminate between businesses based on ill-defined criteria. That can lead to poor choices and a misallocation of resources in ways that can be economically damaging. Purchasing from a vendor deemed to be local may end up costing more, and there's no certainty those dollars will remain in the local economy anyway.

Certainly building a strong sense of community and citizenship among businesses is a laudable goal. But there are other ways to do this that don't require printing artificial money or producing lists of businesses that we're expected to support. Business networking lunches and groups such as the local chambers of commerce are excellent ways to build strong communities.

But probably the best reason to drop the "buy local" campaigns comes from what we call the Golden Rule: Do to others what you would have them do to you. When the U.S. introduced "Buy America" policies in the midst of the last recession as a way of boosting its own domestic economy, Canadians were angry. Not only does it fly in the face of free-trade deals, it just doesn't seem very neighbourly. And when cities and countries care only about keeping their dollars within their own economies, the benefits of global trade start to shrivel.

It would be logically inconsistent for a community to have a strong "buy local" attitude but still expect to sell to customers elsewhere. Every Canadian city promotes itself as being globally competitive and could probably rattle off a list of domestic companies that are selling abroad. But if buying local is good for Vancouver, for example, then consistent reasoning would require a service provider in Vancouver to tell its customer in Asia: "We're sorry, but we believe in supporting local businesses, so please find a local business within your own city and support it."

The best decision-making criteria for any consumer should be straightforward: Is it the best price? Do I trust the seller? Does this purchase impose an unnecessary burden on the environment? The answers may well result in a purchase from a local business. Or they could lead to purchasing from a multinational corporation. But none of us should be cowed into buying local when we can't even define what local means – or worse, when it results in a bad decision.

Todd Hirsch is the Calgary-based chief economist of ATB Financial, and author of The Boiling Frog Dilemma: Saving Canada from Economic Decline.