How to Retain Capital in Your Community
This article is part three in a new in-depth series we’re launching on the economic challenges facing resource-based communities, and strategies that can help build lasting prosperity. Read part two here and part four here.
Image via Flickr.
When money flows into a community and then quickly back out again, it’s the economic equivalent of eating junk food: the empty calories may give a small sugar rush but do little to build a healthy body. Similarly, money spent at chain restaurants or corporate retailers provide little opportunity to build local wealth, as the profits that could add to local capacity exit the community too quickly.
For resource-focused communities, the business model of corporate America is wealth extraction. They are not there to build the community’s wealth and capacity but to extract it, and to do so quickly, cheaply, and with the lowest amount of long-term commitment. That doesn’t make them bad—they are providing a service people value and are willing to pay for—but it is also not wrong to point out that their interests and the community’s interests diverge.
After all, who is going to stick around when the going gets tough? Not the multibillion-dollar corporation headquartered elsewhere and operating locally out of a throwaway building. They are not here for the long haul.
To build local wealth and capacity, a community needs to divert money that is being extracted from the community into enterprises and undertakings that keep that capital local. The quickest and easiest way to build local capacity is to have a dollar pass between multiple local enterprises before it leaves the community.
This is sometimes oversimplified to a “buy local” mantra, but that’s not what import replacement is. It’s not about shaming a local consumer to spend double on a hammer from the local hardware store instead of buying it from the national chain retailer; that’s not a viable long-term strategy. Import replacement is about replacing things we send money out of the community for with viable local alternatives.
Some examples of import replacement include:
Buying a cup of coffee from a locally owned coffee shop instead of a national chain.
Hiring a local technician to repair a broken refrigerator instead of buying a new one.
Banking at a local bank or credit union instead of one of the nation’s large banks.
Choosing to walk or bike to a destination instead of spending money on driving.
Most of this is about tweaking preferences, not spending more. In fact, a successful import replacement strategy often winds up saving people money. No community is going to replace global supply chains for televisions, computers, or smartphones, but they don’t have to. Huge progress can be made with many small, easily achievable steps.
A Necessary Mental Shift for Import Replacement
Shifting to an import replacement strategy requires resource-focused communities to think differently about some things.
Not all jobs or business opportunities are equal. The extreme pressure local decision makers feel to create jobs and experience growth leads to a lot of hasty and harmful decisions. Just because something creates a job or a new building doesn’t make it a worthy pursuit.
The national economy might be about capital flow, but a local economy is not. The federal government and most state governments tax income, profits, and capital gains, all of which accumulate from transactions. It’s no surprise, then, that they tend to favor business models that generate a lot of transactions. Local governments (along with families and small businesses) largely depend on the wealth of the community, not how rapidly the community spends, to make ends meet. Local economic strategies need to focus on building wealth (stability), even if that reduces capital flow (growth).
Chasing low prices is part of the resource trap. The poorer a community becomes, the more the people there benefit from lower prices on essential goods and services. The way for a business to offer lower prices is to increase scale and lower wages. This reduces opportunity and makes the community poorer, making people there more dependent on low-price offerings. This is a trap, a cycle of decline that can only be arrested by shifting away from the resource trap model.
“Buy Local” is not a solution, but import replacement can be part of an overall approach. There is no viable solution that depends on everyone doing the opposite of what is in their own best interest. Import replacement creates local alternatives that are competitive with options from outside the community, allowing natural opportunities for local capital to stay within the community.
Implementing an Import Replacement Strategy
Getting started on an import replacement strategy is easy. Here are some things you can do:
Become More Efficient with Imports. When a community cannot source something locally, there are outsized gains to be had with improving the efficiency of how that import is used. Take energy, for example: If no electricity is generated locally, all the money spent on electricity leaves the community, so becoming more energy efficient (i.e., using less electricity) will provide the community with more resources to spend locally.
Seek Local Substitutes. A community retains capital anytime it can substitute something imported with something sourced locally. The list of potential substitutions is endless, from haircuts to food to transportation. For example, a shift to biking and walking instead of driving. Or medical care that emphasizes local prevention over distant and more costly treatment. Or fixing an old appliance instead of ordering a new one. Be creative and recognize that nothing is too small, especially if it builds momentum.
Support Local Business Ownership. It is obvious, but important, to reinforce that there are tremendous advantages for resource-based communities in supporting their local businesses. This doesn’t require people to become bad or indiscriminate consumers, but it does require intention. And when the local alternative is not selected, let them know why. Everyone has a stake in making the local option the best option.
Never Subsidize Corporations, Franchise, and Other Non-Local Competitors. Some communities have gone so far as to ban franchises, but that is less important, and much more difficult, than simply not subsidizing them. Corporate chains are expert at obtaining direct subsidies (such as tax abatements, tax increment financing and utility rebates) as well as indirect subsidies (such as the community’s assumption of infrastructure maintenance liabilities) to construct buildings their own pro-formas don’t expect to last more than 12 to 15 years. Even when there is no obvious local competitor, subsidizing outside corporations to export the community’s capital is a costly unforced error.
Start Small. Scale to What the Community Can Support. No Strong Towns strategy is a silver bullet, but with import replacement, it is extra important to appreciate the value of small steps. When seeking substitutes, becoming more efficient with imports, or choosing local options, there is no action that is too small. The effects here are cumulative while the actions are habit-forming and self-reinforcing. Go ahead and start small.
Local Food is the Literal Low-Hanging Fruit
Looking for a head start on an import replacement strategy? Most of the cost of food on a grocery store shelf is due to transportation and processing, and all of that capital goes to people outside the community.
By supporting local agriculture with farmer’s markets, food-to-table initiatives, and rentable commercial kitchens, that escaping capital can be redirected locally, quickly expanding opportunity and growing local capacity.
Plus, most people tend to prefer the taste of local food over processed food, making the shift not only economically beneficial but also one that adds to the overall quality of life.
The generational ranch model has been wobbling since WWII, but here's how one small community in Montana is keeping grazing land as working lands, as well as bolstering opportunities for young producers.