Buy Local is Economic Illiteracy

Commentary, Economy, Caitlin Rose Morgante

In his 1776 seminal work, The Wealth of Nations, Adam Smith wrote: “It always is and must be the interest of the great body of the people to buy whatever they want of those who sell it cheapest. The proposition is so very manifest that it seems ridiculous to take any pains to prove it.” However, the buy-local movement’s current popularity requires us to do precisely that and recover some wisdom lost over the past two centuries.

The pandemic has revived nationalist and parochial sentiments and intensified “locavorism,” the practice of eating locally produced food. Last summer, the Canada United movement launched an advertising campaign to encourage consumers to shop locally, offering extra points on customers’ rewards cards.

There is a national security case for reducing trade dependence on other countries, especially on drug manufacturing from China; however, much of the justification for the buy-local movement rests on faulty logic and ethical appeals. That is not to say you should not support the mom-and-pop shop in your community. The problem arises with the broader movement undermining mutually beneficial transactions. 

Economics Does Not Buy It

Activists simplify the world by claiming buying local is more efficient and the morally correct choice. Economists who have researched this issue disagree. If buying local truly were in consumers’ best interests, there would be no need for campaigns incentivizing them to do so. 

The buy-local movement is premised on the belief of a multiplier effect: money spent at local businesses circulates within the community longer than money spent at chains and non-local stores. The research on this is both insufficient and unreliable, as most studies on the multiplier effect have been commissioned by localism advocacy groups.

If a family cannot afford dinner at a restaurant because they spent an extra $100 buying local groceries, how much have they benefited the local economy?

From the start, a conceptual challenge arises when defining “local.” Does it refer to one’s town, city, province or country? Regardless of the designation method, you are bound to randomly include some places and exclude others. Furthermore, if a good is to be classified as local, does that mean all the production inputs should be local as well? If I buy locally sourced carrots, but the fertilizer, tractor and other equipment used to produce those carrots were made elsewhere, do my carrots still count as local? Even if a consumer only buys from local producers, it is likely those producers are not all buying local themselves.

Guilt-Tripped into Doing Harm

Activists frame the movement in a way that makes it almost impossible to object to. A survey conducted this past October by Dalhousie University’s Agri-Food Analytics Lab found that 79.5 per cent of Canadians said they were willing to pay more for locally sourced produce, but only 25 per cent actively sought it out. This is a textbook case of the stated-versus-revealed preferences conundrum, where people say one thing but do another.

People import products from large distances if they are cheaper and superior to those offered in the local market. Labour may be cheaper elsewhere and production more efficient, resulting in increased variety, lower prices and greater consumer surplus, which occurs when the market price is lower than the price buyers are willing to pay.

The way to prosperity is through specialization, trade and economies of scale, not protectionist policies that make everyone worse off. In The Locavore’s Dilemma, co-authors Pierre Desrochers  and Hiroko Shimizu note: “The available evidence strongly suggests that in most places, most of the time, ‘food patriotism’ needed to be forced down consumers’ throats with coercive measures.” 

Another purported benefit of buying local is lower greenhouse-gas footprints from reducing the distance food travels. Environmental concerns are an important motivator for consumers buying locally. 

Many would be both surprised and disappointed to discover that transportation itself accounts for a small fraction of the overall greenhouse gases associated with food. In contrast, economies of scale play a significantly larger role; big producers have more energy-efficient logistics networks than small producers. 

Many consumers believe buying products from developing countries contributes to worker exploitation. What these well-meaning people do not realize is that those jobs are actually some of the best local options. When so-called sweatshops close down, poverty, starvation and child prostitution rise. If we stop buying goods made by those in poor countries, we reduce demand for that labour, thereby increasing unemployment and harming unskilled workers the most. 

If you prefer the strawberries from your local farmer because they taste better, then go for it—just do not be deceived by the marketing that you are helping the environment or the economy. 

Caitlin Rose Morgante is a research associate with the Frontier Centre for Public Policy, a Boston University economics student and an Econ Americas intern.

Photo by ZHANG Shaoqi on Unsplash.