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 BookSense.com, 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!