Joe, Owner of Carefree Buffalo, helps a customer

And what about the candles?! People are coming to dinner Friday, it’s already Tuesday, and our supply of candles is pretty beat up. Ahhh, Amazon has candles, they’ll be inexpensive, and they’ll have them here by Friday; I’ll get my candles online from Amazon.
Or…I could go to Target or Wal-Mart. They have candles, and they’d be cheap. But then…I know the greeters and salespeople are well-trained, but I always feel a little funny when I walk out of a big box store. Like I’m made of plastic or something. Not sure why. Plus, I’ll have to drive out to Crater Lake Ave.

You know what? Terra Firma and Pico’s have candles. Mark and Michael, the owners, are friends of mine. And Willowcreek, Farmhouse Treasures and Blue Door Garden Store have candles. Plus I could ride my bike. It’s all right here in Jacksonville. Why do I feel better about that?

Hmmm…so much to think about. How does this local thing really work?

First, some definitions:

Let’s start with the basics: what is a local business? It’s a business whose majority ownership and primary decision-making is here in the Rogue Valley. The profits and dividends stay here; more importantly, the loyalty of the owners is rooted here; their kids are on soccer teams here, and they care about the local issues here.

And let’s define Gross Regional Product, GRP, much like economists define Gross Domestic Product, GDP: the sum total of all the business transactions here in the Rogue Valley. If I buy candles at Terra Firma, that adds to the GRP. While there’s much more to the economic picture than GRP, it’s still a decent indicator of the region’s prosperity.

Four Reasons Why Local Commerce is Good

Reason One: Jobs

Local shopping adds jobs to the economy, plain and simple. As economist Michael Schuman points out, local commerce multiplies local jobs two to four times compared to remote commerce. Just think about the importance of this single factor. Local unemployment is around 12%, so adding jobs hits very close to home.

And it’s not just any jobs. Those Jacksonville companies each hire a local lawyer, accountant, tax person, advertising person, and maybe a real estate person; with Wal-Mart or Amazon, those professionals are hired far away from here. As the per capita GRP increases, the area becomes more attractive for entrepreneurs and high-skill new businesses.
In short: spending your dollars right here adds good jobs right here. Those local candles are looking better and better!

Reason Two: Prosperity

Local shopping makes us all richer, on average. As the GRP rises, our individual incomes rise. This is complicated, and for sure there’s more to a good lifestyle than GRP (like schools, libraries, recreation, etc.). But GRP and prosperity are definitely linked.
Reason Three: Oil dependence

Local shopping reduces our dependence on oil-based infrastructure. That includes factors like shipping our dollars to Libya in exchange for their oil, then fighting expensive wars to “protect our interests.” It also includes the air and water pollution that oil causes, the economic shock of oil depletion, and the environmental damage like we experienced in the Gulf or the Yellowstone River in just the last few months.

Plus if you ride your bike to Pico’s, you’ll be healthier and it won’t cost you a dime.

Reason Four: Community

This is the hardest reason to explain, but the most important: local shopping builds community. If you buy your candles from Mark at Terra Firma, you get to know him and the folks who work there. Rest assured, they and all the owners of Jacksonville businesses are involved with the community in a big way. They care about the trucks rolling through town and about the parking problem with the Britt. You can talk to any of them about your issue, and they’ll listen.

And yes, the greeters at Wal-Mart are nice folks, and they’re well-trained; but it just isn’t the same. There’s a sense of the soul of a place, warts and all, when you shop locally, and it just isn’t there in the remotely owned stores. I’m pretty sure that you know exactly what I’m talking about.

Mechanisms and Numbers

OK you say, those four reasons sound pretty good; but how do we know they’re actually right? Here’s where economics come in. Let’s look at some real-life studies:

Retained Revenue: Three Times Better

If I spend a dollar on candles at Target, about 15¢ stays here in Jackson County; most of that is wages for the folks who work there. But if I spend a dollar at Willowcreek, about 45¢ stays here…three times more! That’s because (almost) all the overhead and profit stays here: legal, accounting, real estate, landscape, advertising, contributions to non-profit organizations; as well as the eventual profit from the operation. Willowcreek’s cost of goods, plus income tax and a few other things, leave the area.
That is huge! Don’t underestimate the importance of Retained Revenue.

But, there’s more…

Local Sourcing: Grown in the Rogue Valley

What if the candles were actually manufactured here? Then that 45¢ jumps up a lot, depending on the details. A great example of local sourcing in the Rogue Valley is food and wine. We have luscious produce and wine, right here. Organizations like THRIVE have done a good job at promoting the idea of Locavore eating, and establishments like Gary West Meats, put the idea into practice every day. Eat at Gary West: the food tastes great because it’s fresh and local, and every bite puts another dollar into the GRP! Lots of our restaurants get their food from local farmers; you can too, at places like the J’ville Farmers Market on Saturdays or White’s Country Farm. Do it!

Local Multiplier: The Theoretical Basis

Imagine that, on average, half of every dollar spent here stays here. I spend one dollar at Pico’s; Michael, the owner, spends half that dollar, 50¢, locally; that recipient spends half that 50¢, i.e., 25¢, locally, etc. If you add up all that expenditure, it turns out to equal $2.00. So the local multiplier applied to my original dollar is exactly two; my impact on the GRP is doubled.

But what if we decide to amp up our local prosperity, such that 80% of each local dollar stays local. If you run through the arithmetic using 80% instead of 50%, you get a 5x impact on the GRP instead of a 2x impact.

Again, that’s huge! More than a doubling of the GRP, and therefore our collective prosperity, just from our shopping habits. This is serious business, and each of us can make a real difference.
A Dash of Reality, and a Pair of Challenges

This sounds so good, and the facts as I’ve presented them are pretty much beyond dispute. They even apply to local procurement at the government (city, county) level. But in fairness, there is another side to the story.

Why Does Local Seem to Cost More?

Several reasons: first, massive government subsidies of so many things like oil, sugar, highways, etc. Second, the big companies use economies of scale and government influence (lobbying) to achieve lower costs on their end, and they typically worry less about paying fair wages than do the smaller local companies. And third, the big box companies have much deeper pockets, so they can offer low prices at a loss, long enough to bankrupt the little guy. This actually goes on, quietly, deliberately, brutally.

As shoppers and voters, we have to be extremely attentive to notice these factors and ultimately do something about them. But make no mistake: these factors are real, and until we decide as a culture that we want things to be different, they will remain.
On the other hand, when you consider the local multiplier effect, that extra 15% you pay for locally grown tomatoes will come back around and have a positive impact on you and your family. It’s so easy to be penny wise and pound foolish: to save a few bucks at a big box store, only to short-change the prosperity of our local economy.

This effect is absolutely key; yes, it adds complexity to our purchasing decisions, but our prosperity depends on our thinking clearly and acting responsibly.

The Shopping Experience

Large companies spend a lot of time and money on what’s called “the shopping experience.” This means advertising, packaging, merchandising, signage, store layout, lighting, training, financing, things like that. And since that investment is spread across hundreds or thousands of stores worldwide, it has a generous payback for them.
Jacksonville stores can’t afford to hire MBAs to focus on the shopping experience. So sometimes the local companies have a bit of a backyard feel to them; not as crisp and packaged as Target.

Challenge to you as a shopper: do you really care about elaborate packaging? Fancy lighting? Cool signs? Radio jingles? Especially when you consider the environmental and economic price you pay for them? Maybe homespun is looking a little better.
And lastly, a challenge to local store owners: put extra effort into quality! If your signage looks shabby, fix it! If you don’t have a good eye for that sort of thing, hire someone who can help you. Same for your store layout. Same for your logo and branding. Same for your merchandising. Same for the treatment of your employees, by far your most valuable asset. Same for each and every component of your business: focus on quality first, do what you can to out-maneuver and out-think the big boxes. You have the home-court advantage: use it! Be a better place to shop!

What’s at stake here is the prosperity and the quality of life of the Rogue Valley. Liberals and conservatives alike, we’re all in this together. Let’s give it our best shot.

Oh…the candles…I almost forgot. I bought them here in town, and I rode my bike. The dinner was a grand success–the glow cast by those candles seemed particularly warm and bright. Those local candles meant something.

Acknowledgments: A big thanks to folks who helped with this article: Arnie Klott, owner of Pronto Print; Whitman Parker of the Jacksonville Review; Lynn Blanche, Co-Executive Director of the Sustainable Business Network, and Gail Lamy, my wife and number one advisor.

John Lamy retired from 30 years of engineering management and consulting in Silicon Valley. He is currently Co-Executive Director of Southern Oregon Sustainable Business Network, a new non-profit devoted to environmental sustainability, economic resiliency, and cultural energy. If he and his wife aren’t home (Jacksonville), they’re probably visiting their grandsons or hiking in the Applegate.