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Buy local and watch the multiplier effect bring… multiple benefits 

It won’t be cheap to shift the way we live to within the limits of what the planet can provide. Who will pay, and how? The answer could be right under our noses, with “buy local” procurement policies leading to promising results.

Saving the planet is not served by the logic of conventional capitalism, which has traditionally outsourced the environmental cost of its reckless appropriation of natural resources and services to beyond the balance sheet. 

The reason why it is difficult to finance activities which are socially and environmentally beneficial is that the economy has been used to paying a low price for the services nature provides. 

This is why it is hard to find a market for goods made from recycled materials that stimulates recycling to happen. 

It is why it is hard to find a business model for anaerobic digestion to deal with organic waste, because of the high upfront costs, despite the multiple, sellable products that result. 

And goes some way to explain why it is hard to finance the energy efficient deep refurbishment of existing buildings, despite the obvious long-term savings and improvements in the internal comfort that result.

Brave attempts are being made in the form of subsidies, tax breaks, natural capital accounting, and investor confidence-building with respect to energy efficiency projects. 

But until at national and global levels subsidies cease to be given to fossil fuel extraction, deforestation, and industrial processes that do not treat their effluent, and the tax regime shifts in favour of regenerative land management, and of closed loop, zero pollution manufacturing, we are fighting an uphill battle.

We’ve written in The Fifth Estate many times about Green Bonds and banks, impact investing and the double-edged sword of involving the private sector.

But now a small city in the north west of England is showing that there is complementary way, well within the power of both the public and private sectors within a geographic area, to bootstrap the existing social and human capital of that area, by using the local multiplier effect.

The local multiplier effect

It sounds like a pyramid selling scam, but it’s not! It works like this: whenever you spend cash, you have a choice – you can either spend it in locally-owned businesses or in businesses owned outside of the local area, via the Internet or through chains and multinationals. 

Whenever you do the latter, once it leaves your locality, it is unlikely ever to return. Gone, forever. But by supporting locally-owned businesses, the same money will be spent again – and possibly even again – in your patch. Each time, it benefits somebody in your area – supporting a business or a job. 

This is called the local multiplier effect, and it has been given a value, which varies according to the location, but typically it’s between 1.4 and two times the value of the amount spent. 

The New Economics Foundation has developed a tool, Local Multiplier 3, as a simple and understandable way for cities to measure local economic impact. 

If city authorities and other organisations choose to procure their goods and services within the city, enormous benefits can therefore result, considering the scale of their spending. 

A recent example is a city of Preston in the north of England, which bucked the trend during the recent decade of austerity that has seen living standards plummet, by changing its procurement strategies to buying local. 

It followed the example of Cleveland, Ohio. Cleveland has for a while had a variety of local procurement programs designed to drive contracting and purchasing to locally-owned businesses. 

Because of this, in 2014, the city spent 39 per cent of its total US$147 million (AU$200 million) in contracting with businesses that are either local and small, or local and minority- or female-owned. 

When Preston Council chose to emulate this as a way to challenge the traditional public-private partnership approach to inward investment that had too many strings attached, it found that local businesses were often too small to bid for their contracts. 

So one of the tactics the council used to overcome this was to split large tenders into smaller jobs. This enabled small local companies to put in offers. For example, instead of having a tender to supply school meals in their entirety, they were broken down into puddings, main meals, fruit and snacks.

One study of the policy concluded: “Since 2013, over £70 million (AU$122 million) has been redirected back into the Preston economy; £200 million (AU$350 million) invested into the Lancashire [the local county] economy; spending behaviour within public bodies has been transformed; and, new tools for a fairer economy have been developed.”

In 2018 Preston rose to the top of a list of “top improvers” British cities in a “Good Growth Index” from consultancy PricewaterhouseCoopers. The study found an improvement in employment, workers’ pay, house prices, transport, the environment, work-life-balance and inequality. Unemployment more than halved, from 6.5 per cent in 2014 to 3.1 per cent in 2017.

Another study has concluded with this comment on the benefit of community wealth building:

“[It] is a local economic development strategy focused on building collaborative, inclusive, sustainable, and democratically controlled local economies. Instead of traditional economic development through public-private partnerships and private finance initiatives, which waste billions to subsidise the extraction of profits by footloose corporations with no loyalty to local communities, community wealth building supports democratic collective ownership of – and participation in – the economy through a range of institutional forms and initiatives.”

It sounds like a win-win strategy. And it has the additional benefit of shortening supply chains and so reducing the carbon footprint of transport associated with the supply of goods and services. 

Why seek answers elsewhere when they could be right on your doorstep?

David Thorpe is the author of Passive Solar Architecture Pocket Reference, Solar Technology and Sustainable Home Refurbishment

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