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October 27, 2014 Talking Points

Are your dollars building a local economy?

Anthony Price

The next time you drink a cup of coffee or tea, put on clothes, go out to eat, shop at a brick-and-mortar retailer or online, think about where the products you consume come from. One doesn't have to look too closely to know that the majority of products are no longer locally produced. Most are made outside the United States. Daily decisions about which products consumers buy have a profound impact on Connecticut's economy — and around the globe.

The U.S. economy is a $17.3 trillion juggernaut, the largest in the world. In a global economy, the price of a product is a major determining factor of whether consumers buy it. Each dollar spent sends a powerful message to the producer to make more products. Yet consumers are becoming increasingly savvy about where and how products are sourced, made, and purchased. Many of today's consumers are activists who vote with their dollars, and researchers believe those dollars are best spent at local small businesses and retailers.

Money is critical to the health and well-being of a local economy as it flows and circulates within a community. Small businesses are the bedrock of a local economy's ecosystem. Michael Shuman, author of the book “Local Dollars, Local Sense” says, “Every job in a locally owned business generates two to four times as much economic development benefit as a job in an equivalent nonlocal business. The more times a given dollar circulates (multiplier) in a community and the faster it circulates without leaking out, the more income, wealth, and jobs are created in that community.”

Furthermore, small businesses are known to spend more money locally, which boosts the local economic multiplier. They support Little League baseball teams and charities and purchase products from other local businesses.

Given such circulation, economic development professionals and elected officials must focus on policies and strategies to develop local business. Amy Cortese, the author of the book Locavesting, says, “Everything from federal tax policy to investment allocation to local development initiatives has favored the largest, most powerful enterprises — at the expense of the small entrepreneur.” One way to support local businesses is with dollars. Spending money at a local business is a powerful economic development strategy for the business owner, its employees, and the local economy. They all need each other to not only survive, but also thrive.

Shuman developed three rules for developing a local economy: 1) maximize the percentage of jobs in the local economy that exist in locally owned businesses; 2) maximize the diversity of businesses in the community, so that the economy is as self-reliant and resilient as possible; and 3) prioritize the spreading and replicating of local business models with outstanding labor and environmental practices. These three rules don't require billions of dollars to implement, but could have a tremendous impact.

The local food movement offers an example of working with local businesses. As a result, consumers have access to a myriad of restaurants offering seasonal menus with fresh, locally sourced foods from Connecticut farmers. This movement focuses on creating a local food ecosystem of self-reliant small businesses that are environmentally and socially conscious.

Consumer dollars are critical to sustaining and supporting the local economy of small businesses, which provide the lion's share of new net jobs in the state and around the country.

Today, consumers have an opportunity to purchase products that reflect their values. Next time you pull out your wallet, think about what you are supporting. Are those dollars supporting local businesses, providing funds that will circulate many times to build a stronger economy? If not, maybe it's time to make a conscious decision to support the local economy.

Anthony Price is an economic development executive in Hartford.

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