Why Shop Local?

I’ve had extensive conversations with Sankalp Gosain about why I think Cash Mobs and, by extension, shopping local, is important right now for our economies.  Basically, it comes down to support for local economies and local businesses as engines of wealth-creation in our communities.

I’ll start with three basic, and I think non-controversial, propositions:

1. The wealth of a community is the sum of the wealth of the individuals within that community.  A community with wealthy individuals will itself be wealthy; a community with poor individuals will be poor;
2. Wealth can be measured in a variety of ways (including family strength, health, etc.), but the most measureable and comparable way is in terms of dollars; and
3. When we spend money within our communities, more of that money stays in our communities than when we spend it outside of our communities, or with people or businesses that are based outside of our communities.  Indeed, every $100 spent in the local economy has an additional impact of $58. 

When we buy local, from local businesspeople, wealth is both created and retained in the community.  At a time when people across the country are concerned with international business, Wall Street and “too big to fail” banks, it’s natural that we’d want to support ourselves and our local businesses first before giving our money to businesses that aren’t based in our communities.

Here are two situations that can occur in a normal consumer transaction:

In the first situation, a buyer goes to Big Store to buy a trinket. Big Store bought the trinket for $1 and is selling it for $10.  The buyer pays $10 and takes the trinket away. Big Store uses the $9 it made at the transaction first to pay for running the store and employing people, then to buy a replacement trinket for the sold trinket, and finally takes any other profit that it made and sends it to its corporate headquarters.  The profit is then used to open other stores in other markets, pay C-Suite salaries, and as dividends to shareholders spread far and wide.  The profit is thus distributed thinly around the world.

In the second situation, the buyer goes to a Local Store to buy a trinket.  Local Store bought the trinket for $1 and is selling it for $10.  The buyer pays $10 and takes the trinket away.  Local Store uses the $9 it made at the transaction to pay for running the store and employing people, then to buy a replacement trinket for the sold trinket, and then the owner retains the profit.  The profit is thus concentrated and controlled by someone in the community.

At this point, Big Store and Local Store have both “made” money in a very Napoleon Hill sense when they sell each item; until then, the item is simply the potential for value to be created.  When the item sells, money is created for the seller.  The Local Store’s owner then, can take this money and save it, invest it, buy things with it, give it away to charity – anything, really, that they want to do with it.

Regardless of what the owner does, however, he or she will end up with more than what they had before the transaction, either in material goods or mental satisfaction.  They have created wealth for themselves, and the more wealth they create the wealthier they – and the community – will be.  The community will ideally be able to support more and bigger businesses, more infrastructure, more employees and a larger, more vibrant economy.  When this happens, the community is more self-sustaining, self-controlling and self-sufficient.  It is in each community’s self-interest to make sure that their local businesses are thriving; Cleveland should be taking care of Cleveland, Portland should be taking care of Portland and Indianapolis should be taking care of Indianapolis.  Also, the act of growing these businesses is where wealth is generated; it is better to start a business and reap the benefits of growing it than to invest late and just collect a few dividends.

When we shop local, it is as much about making an investment in our communities and economies as it is about getting things we normally would have bought elsewhere.  Marty said that, for him, Cash Mobs was all about “LOVE.”  For me, it’s about “COMMUNITY.”  When we support the businesses in our community, they support us right back.