Monday, August 21, 2006

Locally-Owned Businesses Vs. Corporate Chains

One of the important ways I try to involve my values in my financial decisions is by supporting locally-owned small businesses over corporations.  I try to do this in my personal spending (although I'm not as consistent as I'd like), and I am very proud that my $20K+ savings are in a community development bank that, among other things, supports locally-owned businesses in low-income neighborhoods.

There are a number of reasons I feel strongly about locally-owned businesses.  For example, studies have shown (PDF) that when a dollar is  spent at a locally-owned business, about half (or more) stays and recirculates in the local economy, which is twice or three times as much as for chains.  Part of this is because locally-owned businesses are more likely than corporate chains to purchase their supplies and products from other local businesses.  (Which is also good for the environment-- less transportation!)  Also, since the profits go to the owner who lives in the community, the owner spends much of his or her earnings in the area and pays taxes which stay in the community.  Corporate profits mostly go to national-level management and to shareholders, dispersed all over the country.  Because stock is disproportionately held by higher-income folks, higher-income communities benefit most from this system.  That's one reason why I think this is a problem in general and an especially big problem in low-income communities.

Also, locally-owned businesses involve local decision-making.  The owner of the business lives in the community, and (at least to some extent) cares about the interests of the area.   They are more likely to make local charitable donations.  They're also more likely to pay higher wages to their employees, people they interact with on a regular basis and who are often their neighbors.  And they are more willing to stay in their own community for their own convenience and to serve local needs, as opposed to chain stores which may close their doors because they see a more profitable opportunity three towns away.

(See this site for links to studies across the country documenting how local businesses keep more money in the community, or this PDF summary.)

There are other benefits, too.  There are important social and psychological benefits to having successful small business owners in communities, especially in low-income areas.  Long-time local businesses may be in the center of downtown while chain stores often contribute to urban sprawl.  And of course, a multiplicity of smaller local businesses owned by individuals leads to more creativity and variety than the repetitive standardization of corporate chains.

I don't mean to suggest that all local business owners are saints.  Obviously that isn't true.  Many are just as profit-driven as corporate honchos, sometimes more so.  Yet they have a lot more freedom to shape their businesses as they wish.   They have the choice to say, "I want to make a good profit for myself, but I also want to pay my employees what they deserve, and make choices that protect our local environment, and support a Little League team and the local soup kitchen.  A good balance is more important to me than making the absolute maximum profit."  No, not everyone will take that route-- but they can, unlike in the corporate model with its tremendous pressure to maximize profits and externalize costs.  (There are some corporations that are exceptions to the rule, at least to some extent, but it involves a great deal of swimming against the tide.)  Preserving the breathing space for local businesses to make these kinds of decisions seems like a worthy goal to me.

Despite all of this, I still struggle to support local businesses with my spending as much as I'd like.  I'm still lured by cheaper prices, more convenience, knowing exactly what to expect.  But it's a goal of mine.  And in the meantime, I'm glad that ShoreBank is using my savings to help local businesses grow and thrive in low-income areas.  (Also, when I post links to books on this blog, I use, which connects people to local bookstores, instead of Amazon.  I encourage you to check out their affiliate program.)

What do you think? How do you approach these issues?  What are your experiences with local businesses versus chains, as a consumer, an employee, and/or an owner?  And if you disagree with my arguments, I'm all ears!


D said...

I am totally for the small businesses. I try to shop local as much as possible. For obvious reasons this is not always the most financially sound decision. Or is it? I look at each purchase as one I kept out of Wal-Mart's hands.

Plus the locals are so much nicer and care about my business. Wal-Mart doesn't care about me.

Tiredbuthappy said...

Penny, as usual, you're speaking my mind. I definitely hold the ideal of shopping at locally-owned businesses. Do I always do it? Well, I'm inconsistent about it.

For many years I just chose one industry--books--to really hold the ideal. I never, ever shopped at chain bookstores for most of my twenties. Then I started getting the occasional Borders gift card for Xmas, so I slipped a bit, but still didn't spend any money otherwise at Amazon, Borders, or the other giants.

But about a year ago I started using online shopping affiliate programs (first Upromise, then others) and the ideal just went out the window. Now all of my brick-and-mortar book purchases are still at independents, but online I buy from the big guys.

Sigh. It's an uphill battle having morals, isn't it? But I would rather have morals that slip occasionally than not care about anything but myself, though.

Him said...

Awesome post.

Her and I always try to shop at the independently owned local businesses. I'm sure you know as well, in Chicago there is no shortage of them.

The difficulty, though, is that we're in so much debt that sometimes a trip to Jewel or Target or Kohl's is all that's in the budget.

Sally Parrott Ashbrook said...

Excellent post. I try to buy local--especially for restaurants--but still have a long way to go. I admire your commitment to community development investing and am going to put up a link to your post.

cathy said...

I don't know where you are writing from but I am in Atlanta GA .We are at the beginning stages of organizing local businesses through a non-profit In spiringFutures which sponsors a local chapter of BALLE ( Business Alliance for a Local Living Economy). Balle will be sponsoring (along with Flexcar and several other organizations) an talk by Michael Shuman author of Going LOcal. This talk will occur 10/19/06 in conjunction with the Bioneers Souheast Forum. More info about this can be found at Michael Shuman event may not be posted quite yet. Info on Bioneers can alos be gleaned at
I am inspired by your example and glad to have run across your posts.

mOOm said...

I don't care about who owns the business but I would definitely support a business in a downtown business area rather than an out of town mall/big box strip mall to every extent possible. So it isn't so much for me about local business but about supporting activity in environmentally (and socially) friendly locations.

Anonymous said...

If you buy from Amazon, you help me out (Seattle resident). If I buy from Coke, I help someone in Atlanta out. The money doesn't dissappear when it goes somewhere else, so I fail to see why creating a bunch of little isolated economies is better than a larger, more efficent one. Buying a burger from Red Robin isn't immoral- just as many of your neighbors work there as do at the non-chain place. The only difference is where the profit goes, but the profit is a pretty minimal result from your purchase. Most of your money flows down the supply chain right away and is distributed anyway.

Why not just give your money directly to a charity if that's what you care about and shop at the cheapest place possible?

Oeconomist said...

Your BookSense affiliate links are next to useless for me, as I live outside the US. First thing it does is ask me for my zipcode.

I'd love to shop locally for books, but BookSense isn't the answer.

Penny Nickel said...

It's great to hear from all of you on this. You're right that it's hard to be consistent and it definitely can be pricier, but we're in the "uphill battle" together!

Cathy, I'm in Chicago. That's great work you're doing with BALLE; best of luck!

Anonymous, good questions and I'm glad you brought them up. As I said, I have more concern than just where the money goes, like the importance of local and smaller-scale decision-making processes. But regardless, I don't buy that where the money ends up all evens out. The CEOs and shareholders are more likely to live in rich suburbs. I don't think the people in poor or middle-class small towns or suburbs or cities end up with their fair share.

And while it's a fair question, I fundamentally reject the ideas behind "Why not just give your money directly to a charity if that's what you care about and shop at the cheapest place possible?" In my mind, that's the equivalent of saving on gas by walking across jagged rocks, and then using the savings to buy bandaids for your feet. (Sorry, lame analogy.) We keep digging ourselves into deeper holes if we don't think about how to make systems work better, if we insist our financial decisions should be amoral.

oeconomist, I'm sorry! I didn't even think about that. I'll try to look for alternatives for non-US readers; let me know if you come across anything.

oeconomist said...

Does have an affiliate program? I know they have booksellers all around the world.