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Local Currencies: An Overview
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By Cathy Tuttle

Even prior to the economic breakdowns we are now experiencing, economists who study globalization found that only about 20 percent of the money we spend in chain stores stays local, while the other 80 percent quickly zips back into the global market of manufacturers, distributors, transporters and investors. Spending your money in a locally owned business has the inverse effect, with 80 percent of money you shell out bouncing around for a while in local wages and suppliers.

Local currency systems keep money circulating locally even longer. That’s a good thing for building local skills, products, and resilience into floundering communities (one notable success is the Brazilian Bancos des Palmas). Keeping things local also has a profound effect on lowering the amount of embedded energy and carbon in the things we buy.

The global economic breakdowns make thinking about local economic systems an attractive alternative. Throughout human history people have found that being “cash poor” doesn’t mean economies stop. People always have skills and goods that other people value. The question is finding the best models to effect fair exchanges and keep accurate records.

At the third annual Transition Town Conference in London in May, I learned about three models currently being implemented: Time Banks, Local Exchange Trading Systems (LETS), and local currencies.

LETS and Time Banks are voluntary, opt-in systems that are rapidly gaining popularity. Several software packages exist to keep track of member hours and taxable income for LETS and Time Banks (it is hard to get away from the government, even in alternative economic systems).

Time Banks value people’s hours equally. An hour of legal advice is paid at the same rate as an hour of massage or an hour of childcare (I’ll take the massage, please!) That exchange usually means that people whose professional training usually translates to an increased time value -- lawyers, for example -- tend to be less than enthusiastic about Time Banks. Transition Town Norwich has been one of the more advanced Time Banks with Norwich Lokes. (Read about another time bank, the Oregon-based OurNexChange, in the Worldchanging archives.)

LETS, in contrast, assign value to goods and services in a way that's more like traditional commercial markets. Professional skills are usually pegged to real-world costs, and unlike Time Banks, LETS aim to involve local businesses as partners. Existing LETS tend to be good at the service exchange, with most local currency being pegged to the currency of the dominant culture.

In order to convince people to buy into almost every local currency system, money is sold at a five to 10 percent discount: I can buy $100 worth of BerkShares in Massachusetts for $95 US or 100 Totnes Pounds for £90 pounds sterling. As a result, consumers have been relatively easy to sell on the concept: In the small town of Lewes (pop. 16,000), thousands of pounds are in circulation; in the Berkshires, millions of dollars.

LETS' success in involving local businesses, however, has varied wildly. In an ideal local currency system, all of the local businesses in the community agree to accept the local form of payment, and in turn pay their employees and local suppliers in local currency. In an ideal local currency system, the small business owner also uses her local currency to pay other merchants – to buy clothes or go out to dinner or pay to repair her bicycle. And of course she’ll give me my change in local notes too.

Local currency developers in the small UK Transition Towns of Totnes and Lewes have spent untold hours convincing local merchants to use this new form of cash. Small business owners just don’t want one more thing to keep track of in their till and are worried that their customers, suppliers, and employees won’t accept non-standard banknotes. Local businesses communities have, however, been strong partners in some alternative currency systems, including the Totnes and Lewes Town Pounds. The Lewes Town Pound in particular has been such a success that it is being issued for a second time on July 3, 2009 in denominations of L£1, L£5, L£10 and L£21 notes. (The L£21 notes will highlight the fact that 5 percent of the currency goes into a Live Lewes Fund for local development projects.) The new Lewes notes will be sold in several places (not banks) including the Lewes Town Hall and farmer’s market. Scores of merchants have signed up to accept Lewes Town Pounds and many of them offer discounts to customers who use the new local currency. A survey of Lewes pound users found more than half of them consciously increased their local spending.

Overhead can also be a challenge. It turns out local currency systems incur their greatest cost not in distribution, publicity or record-keeping (many of these jobs are done by volunteers), but in printing costs for producing individually-numbered securely marked bills on high quality paper. Nations print bills in such huge numbers that individual bill printing costs become negligible. Lewes Town Pound developers have addressed the problem in party by turning individually numbered bills into an advantage, using bills as raffle tickets for merchants participating in the system.

At this time, many local currencies have value for collectors. Totnes Pound notes sell on eBay for up to 20 times their face value. Of course novelty value will disappear once more systems develop and more bills are printed. Then the real value of local currency for local economies will find its real worth, community by community.

Money is nothing more or less than a social construct, an agreement between groups of people that the little pieces of paper we wave around have value. What happens when we challenge and deconstruct this model? How do we buy things? Economists and social thinkers have been playing with this idea for a long time. Some notable examples of money going “off the grid” in the historic past include Robert Owen’s Labour Exchange System of the 1830s, the development of Credit Unions in the 1930s, and Argentina’s development of credit notes during its hyperinflation in the 1990s.

The alternative economic models used in Transition Towns were described by Peter North who teaches geography at Liverpool University and authored the Transition Guide to Money (Green Books 2009), Josh Ryan-Collins, an author and researcher at the New Economics Foundation, and Oliver Dudok van Heel, a tutor in Sustainable Business at Cambridge who helped to launch the Lewes Town Pound.

Photo credit: flickr/Earl - What I Saw 2.0, Creative Commons license.

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Comments

Wonderful, informative post. Thank you!


Posted by: Matt on 22 Jul 09

"economists who study globalization found that only about 20 percent of the money we spend in chain stores stays local, while the other 80 percent quickly zips back into the global market of manufacturers, distributors, transporters and investors."
This is a classic misuse of a study. I don't fault you for thinking this as the LLE move pushes this as Gospel, but it is at best an overstatement. The studies were done by ONE economic consultant, Civic Economics (Dan Houston, in fact, does not even have an economics degree). None of them were peer reviewed and many do not find their findings valid. In fact, no professional or academic economist has cited them, that I know of. I certainly would not.
Finally, and this is what is critical, the author of the reports states very clearly in his report that the results of his Austin study only apply to the specific stores that were studied (a local bookstore, music store and a borders, in the Austin study) and CANNOT be used to make a general statement about the flow of money from local stores and chain stores.
Spreading misinformation is irresponsible and counter productive. The whole notion of the liberal enlightenlment framework is intellectual fidelity. Skewing studies to fit your agenda puts you in the camp of those that would deny climate science. If you are going to use a source in your stry, please read it first.
It is just scary how these civic economics reports are being abused. The reports are misleading enough as they are.


Posted by: Bill S on 23 Jul 09

I just want to add that Dan Houston's four (I think there is a fifth now) studies and Michael Shuman's writings contradict the mainstream economic perspective. You can argue that they are right and thousands of economists are wrong, but to characterize their views as what "economists [have] found" is dead wrong. All you have to do is Read Shuman's work to see that his central premise is that mainstream economic thought is flawed. You could say, a handful of semi-professional economists think money spent at local stores is better. That would be accurate.
Most economists have found the law of comparative advantage very difficult to deny, even if they do not like what results.


Posted by: Bill S on 23 Jul 09

"untold hours convincing local merchants to use this new form of cash. Small business owners just don’t want one more thing to keep track of"

Jct: As an original LETS engineer, I don't worry about merchants who don't want the extra business if keeping track of local currency is as hard as keeping track of both Canadian and American money in sales. When the crash hits, they'll jump onto the community currency lifeboat too. Until then, it's tough to compete with the lure of Mammon.


Posted by: KingofthePaupers on 23 Jul 09

Almost everything in the posts by Matt and Bill is wrong, and their condescension, rather than serious engagement with the important arguments of localization, underscores why their views have been losing so much public support in recent years:

- There have been a dozen or so studies done on this point, most NOT done by Civic Economics, and they all point in the exactly same direction. There have been studies from the Institute for Local Self-Reliance, from Christopher and Hazel Gunn, from the Urban Affairs Center in Toledo, from Iowa State University, and from the New Economics Foundation in London.

- The Civic Economics studies were LED by Dan Houston, but actually collaborations done with dozens of economies in partner municipalities. Their results were more peer reviewed than the 90% of what gets published in the name of mainstream economic development\

- The contention that no mainstream economist makes these arguments is absolutely untrue. The Civic Economic studies are cited by leading economists like Ann Markusen and Thomas Michael Power. The same basic arguments are made by economists like Robert Costanza (University of Vermont), Ann Davis (Marist College), Herman Daly (University of Maryland), Carlena Ficano (Hartwick College), John Ikerd (University of Missouri), Stewart Smith (University of Maine), and Wim Wievel (University Illinois at Chicago).

- What all these studies underscore is obvious, and widely know to anyone who uses input-output computer models. Local businesses spend more money locally and have higher multipliers. There is not a single study, inside or outside mainstream economics, peer reviewed or not, that has ever shown otherwise.

- The superiority of locally owned businesses in generating local multipliers has little to do with the concept of comparative advantage. You cannot achieve comparative advantage by ignoring cost-effective opportunities for import replacement. And from an economic development perspective, the best comparative advantages are achieved through locally owned businesses. A blind embrace of globalization, as advocated by Matt and Bill, means losing the multiplier benefits of cost-effective self-reliance and of locally controlled export industries.


Posted by: Michael Shuman on 23 Jul 09

Dear Michael Shuman: I'm very interested in a bibliography of the studies you are mentioning in your comment reply, in order to update the reference site at the P2P Foundation, which follows open money developments closely. Thanks for considering it!

Michel Bauwens


Posted by: Michel Bauwens on 24 Jul 09

All the studies are referenced in my two books, GOING LOCAL, and THE SMALL-MART REVOLUTION. Except, I think, for the Iowa State study. I'll try to hunt that one down for you.


Posted by: Michael Shuman on 24 Jul 09

Has any town tried creating a local version of a paypal account/credit card type system instead of printing alternative money? Perhaps all the money/hours tracking could exist online, and when shopping you could use a type of credit card (like a paypal credit card) and that amount goes into the shop's account to be spent locally through their local-only credit card? Not sure how much effort would go into setting up a system such as this, but I'm guessing it could be less complicated in the long run than volunteers creating and printing un-counterfeit-able bills....


Posted by: Jill on 24 Jul 09

Hey Jill,

Check out this project going on in Oregon: http://www.worldchanging.com/archives/009127.html. They are working to set up an online system.

S


Posted by: Sarah on 24 Jul 09

I've been a member of the YorkLETSystem since the early 90s when we started and although not a huge lot of trading happens and we have relatively few members, the sense of community and friendship is strong.
I've met some amazing and lovely people through LETS, and what often happens is that two people meet through the system and start trading in Yorkys... and then they continue helping each other but stop using the currency to lubricate those transactions.

However, we are hoping to go on the web soon, and members will be able to have their own page in an online directory, and the job of managing the system will become somewhat easier. We'll be able to concentrate on getting new members then! (software from LETSlink UK)

Good article, gonna try some of those links.
Find 'LETSlink UK' for a really good source of UK info... they have a map of all the British systems.

John, York, UK


Posted by: John Cossham on 25 Jul 09

It's good to see World Changing covering this topic again but the article does tend to blur a few things together.

Purpose: There are two main kinds of community currencies - those with a primary focus on growing community and those whose main focus is growing economy. Not mutually exclusive of course, but the focus will dictate lots of other decisions about how you run them and market them.

Community development: both types of system are focussed on different kinds of community development, whether strengthening bonds between people (growing social capital) or protecting the local economy against the icy blasts of globalisation (growing financial or economic capital).

Matching local assets: the particular contribution of community currencies is to seek out and match up underused local assets with local problems, needs and goals, which monopoly market money often fails to do.

Individuals AND Communities: the potential power of community currencies does NOT only lie in transactions between *individuals* or businesses but also in what individuals are willing to do for the whole community for a small reward - running community organisations, protecting the environment, saving energy, supporting each other to be healthy or to learn etc. - all that keeps the 'operating system' of society running as Edgar Cahn, inventor of Time Banking puts it.

Issuance mechanism: 'mutual credit' sytems like Time Banks and LETS have a different way of recording contributions and obligations to others than Transition Town currencies which are limited by their backing in national currency, which automatically excludes anyone without money to start with.

Sustainability: there have been thousands of experiments on several continents over the past few decades. Many have failed to sustain themselves over time. Keys to success are careful integration into local conditions and an effective organisation to run the currency itself with sound governance and good management.

For a broader overview of current global developments see my article 'Currency is Destiny' in IM Magazine, archived at my website http://valueforpeople.co.uk/expertise

You can also find there a guide for new start-up systems to help them answer some basic questions that are key to sustainability.


Posted by: John Rogers on 25 Jul 09

I've done some research on the federal reserve system, and a local currency system seems like a good idea.

The European union basically formed a system that galvanized nearly every country's bank in the continent. And rumors have been whispered about the same thing happening here and abroad. Once this gets established, these unions merge, and the punchline is one form of currency for the entire world. And while this may have its perks, one banking system means one center of power and that means this new "bank" will effectively control the world.

This alternative however could stop this doomsday scenario from occuring.


Posted by: Cullen Kappel on 25 Jul 09

Re: Michael
As per usual, he takes a steam roller to smooth a crinkle with little evidence and lots of dramatic language. I guess he's find drama compelling. I prefer facts.
I'll just say this: read dan houston's studies and each one says that the results cannot be generalized beyond the specific stores that were examined.
If Michael were intellectually honest, I would engage the debate, but he is intent on pushing his fantasy that buying globally produced goods from "local" stores is going to save us all.
The fact remains that the notion that a "local" store has an 80% multiplier compared to a 20% multiplier for a "big Box Store" is a general rule is absurd. I'll gladly grant the multiplier for a local store would tend to be higher, but there is no general rule and there is no way it is that much higher.
Again, the only person that makes these statements is Michael and the LLE gang. I bet Cathy had to call Michael to defend her post since she is just parroting him and doesn't understand the research.
It is really disappointing that Worldchanging has such low editorial standards. I wonder how many other posts are this wrong.


Posted by: Bill S on 27 Jul 09

Michael,

How about ONE study not done by Civic Economics, even Dan Houston, that documents the 80%/20% numbers. Just One. Not your typical, "there are dozens of them".


Posted by: Bill S on 27 Jul 09

I don't think my opinion matters much since I am not trying to push an idea like Michael or Cathy or BALLE, and I have seen how Micahel slanders people and attacks them for disagreeing, so I have no interest in debating him.
I appreciate what the LLE movement is trying to do. In fact, I used to be very excited about it. The problem is that their leaders, Michelle, Michael and David, push their agenda in a way that skews the facts. Multipliers are really not where the action is and skewing them to say that buying from locally owned businesses distorts the issue. It's interesting because it all fits well with local currencies.
Here is what I would say in general to the LLE Buy Local meme:
A global economy carries more risk: upsdes and down. The realtionships that develop threaten your economy when there are problems is other parts. In an extreme case, an artificial "financial" collapse could leave an area that produces computers unable to buy food...imagine people stop buying computers and there is no money to buy food. The interrealtions also allow the most efficient producers of food to trade with the most efficient producers of computers so that we all get more of each.
Going local, which is still more of a concept than a plan, I have to assume would mean that we buy from more local businesses. So why don't we buy from them now? Why don't I buy computers made in my hometown? because they would be more expensive and I would be able to buy less other stuff (computers are an extreme example, but the same is true of clothes, which have a chance of being produced locally). Now you can argue that we do not need to have so many iPods and it would be better to have a less connected economy that was more stable. I find that discussion interesting. But we would have less stuff. And the multiplier argument infers that the economy will grow and we will have more stuff. That is how comparative advantage comes into play. Buy artificially "buying local" we lose that comparative advantage so that our money can "circulate longer".
My point is that 1) the going local argument is playing a shell game with these issues and 2) there is a significant leap of logic from buying shoes made in Asia from a locally owned store to solving the sustainability and human rights challenges that plague our economy.
Of course, if you are a bully like Michael Shuman with a chorus of small business owners and anti-gloablization advocates and you are finally getting traction attacking globalization with a misleading argument, why would you pay attention to such details?


Posted by: Bill S on 27 Jul 09

This is what you get when you engage Michael Shuman:
"A blind embrace of globalization, as advocated by Matt and Bill, means losing the multiplier benefits of cost-effective self-reliance and of locally controlled export industries."

Somehow my subtle argument against the misuse of a study has become a "blind embrace of globalization". Such leaps of logic make up most of his work. Hence the faulty conclusions. Thankfully, most economists rightly ignore his work instead of wading in its quagmires of logic.


Posted by: Bill S on 27 Jul 09

Bill,

Before I engage with you further, why don't you let us all know who you are, what kind of work you've done in the field, and why you claim the expertise you do. And then I'll reply to all your specifics.

If you want a civilized debate, let's at least begin on a level playing field, where we both know who one another is.

Thanks, Michael


Posted by: Michael Shuman on 27 Jul 09

So you can assinate my charater? No thanks.
Did you read anything I wrote? Probably not.


Posted by: Bill on 27 Jul 09

So you can assinate my charater? No thanks.
Did you read anything I wrote? Probably not.

Again, my arguments speak for their self. Besides, it's not like I believe anything you have any credentials to be an expert on these things. Especially when you are constantly bashing every school of thought. Where could you possibly have studied that would give you the authority to say that modern economic theory is flawed? You are saying every economic school is wrong.


Posted by: Bill on 27 Jul 09

Oops. Should have edited that post.

My point is that our credentials are not going settle the debate, logic and facts will. If I am a trained economist, then my school of thought will be flawed. If not, then I will not have proper credentials.

Also - note that when Michael cannot make a convincing argument, he needs to go to character assassination. He would probably like to be able to characterize me as a NeoCon or something. We already saw how he mis-characterized me a blind supporter of globalization.


Posted by: Bill S on 27 Jul 09

Andersonville Study, page 12-13:
"However, given the narrow focus of these studies, there has been no clear and accepted consensus regarding the applicability of these findings in other settings. Indeed, Civic Economics has repeatedly cautioned against assuming the Liveable City findings were universal, given the unique attributes of the local merchants studied."
http://www.civiceconomics.com/Andersonville/html/reports.html

Now Civic Economics does now say they have repeated the study enough for a trend to be revealed. I did not want to discuss that because it gets messy. But I already started to there... so I will just say this: I concede there is a small advantage to buying local. If you are buying locally made products at the same price there is likely a substantial advantage.

The problem here, is that if expound, they Michael will just run with it. He likes to go on tangents. They soot his arguments.


Posted by: Bill S on 27 Jul 09

Another typo... I didn't want to get into the LLE debate because it is messy and very few people understand I/O models, so what is the point? It will be a he said/ he said debate. And if you want to believe one side or the other, you will.

Point it, there is still no study that claims a generic multiplier or average multiplier at 80 and 20. And I sill have not seen any evidence that even the most bleeding heart liberal economists have confidence in the Civic Economic studies. Despite the fact that Michael assures me they have been peer reviewed.


Posted by: Bill S on 27 Jul 09

Let’s recap the way Bill engages a debate: He attacks the credentials and integrity of those he disagrees with, and then when anyone he attacks responds with reasonable force, he accuses them of bullying. “I prefer facts,” he intones, with the same condescension as his initial post.

Yet the careful reader of his posting will find no “facts” whatsoever, but more on that in a moment.

What the reader finds instead are a bunch of ad hominem attacks: that I “take a steam roller to smooth a crinkle with little evidence”; that this is “per usual”(ie, distrust everything I say or write or argue); that I’m not “intellectually honest” (otherwise, he says, he might grace us with his own evidence); that WorldChanging has “low editorial standards” to dare publish a piece supporting local economies; that Cathy Tuttle, the original author, is just parroting me and intellectually shallow; that he, unlike everyone else, is not trying to “push an idea”. Bill sprays bullets in all directions, and one senses it won’t be long before he starts attacking telephone companies for allowing us to discuss our views on the internet.

And we are the ones who are guilty of “bullying” and “slander”?

Enough insults, Bill. Pull yourself together and let’s have a real discussion.

Let’s go back to the beginning – what Cathy wrote: “Even prior to the economic breakdowns we are now experiencing, economists who study globalization found that only about 20 percent of the money we spend in chain stores stays local, while the other 80 percent quickly zips back into the global market of manufacturers, distributors, transporters and investors. Spending your money in a locally owned business has the inverse effect, with 80 percent of money you shell out bouncing around for a while in local wages and suppliers.”

What Cathy wrote is absolutely true. The first Civic Economics study, on bookstores in Austin, found that 13% of total spending at a Borders bookstore remained in a local economy after the first round of business expenditure. The comparable percentage for a local bookstore was 45%. A bunch of other studies, from Maine to London, all NOT done by Civic Economics, similarly found that about only 10-20% of spending at chain stores remained in the community. So, Bill, we can show you literally a dozen studies that have actually measured carefully the dollars going in and coming out of a chain business, and they show that Cathy’s 20% number actually was conservative.

The finding is important, since an implication of the Austin study is that if you buy the exact same book locally at the same price from a local bookstores instead of Borders, the community would get roughly three times the income and wealth effects, three times the jobs, three times the tax collections,.

Bill challenges “the notion that a "local" store has an 80% multiplier compared to a 20% multiplier for a "big Box Store" is a general rule….” But it turns out that Bill is mixing up the numbers. No one, including Cathy or me, is saying that local businesses spend 80% of their money locally, only that their local expenditures are significantly higher – a point you actually concede.

The results of these studies should not be surprising. Unlike local businesses, chains do little local advertising, don’t hire local business services, don’t deploy their top managers locally, and don’t have a stream of profits coming into a community. Just these four line items can easily be 10-30% of a business’s expenditures. It follows, therefore, that businesses that typically spend a third MORE outside a community are unlikely to have higher local multipliers. To the best of my knowledge, there is no published critique of these studies and no studies that suggest that chain stores put more than 20% of their money back into a community..

For several years now, I’ve heard and been subjected to periodic attacks from Bill and a couple of his buddies who are economists at the University of Washington. (Yes, turns out I know who Bill is, but since he won’t unmask himself, I won’t get into his colorful habits of attack and the seemingly endless scores he’s bent on settling.). If he and his colleagues wanted to do a serious critique, they could have dug into the Austin study and show why certain numbers were mismeasured. Perhaps there were expenditures that Dan Houston wrongly categorized as non-local that should have been local. Perhaps some numbers were just wrong. Perhaps they might proposal a better system of business-expenditure accounting.
Instead, they attack ad hominem Dan, Civic Economics, the sponsoring organizations, those of us who use the study, and anyone else who challenges their views. They try to discredit the study by claiming it hasn’t been peer reviewed, when it turns out that very little these attackers have done almost no research – either in their own fields of expertise or in their critiques of Civic Economies – that has been peered reviewed either.

I should say, on behalf of Dan Houston and Matt Cunningham, the lead authors at Civic Economics, that they actually do take a fairly scholarly approach to their work. They dig deeply into the best data sets they can find about business expenditure patterns, they recruit lots of economists in the communities in which they work to review their work, and they do caution against over-generalizing the results. But as their studies have evolved – from Austin to Andersonville, San Francisco, and now Grand Rapids – their data bases have improved, as has their methodology. Lined up with the similar studies I cited, the pattern is absolutely clear and critically important for economic development purposes. Nonlocal businesses spend considerably less (between a quarter and three quarters) than equivalent local businesses do, and therefore contribute far less to local economic multiplier.

Bill is right that most economists don’t discuss these ideas, but it’s not because they disagree. It’s because they haven’t paid any attention to them. The prevailing view among economists is that all firms are alike—big and small, local and nonlocal. Few have read these newer studies, though many, to their credit, do once they are made aware of the research. There’s a need for these studies to be improved, for honest critiques of the methodologies offered by Bill and his economist buddies, and for better studies to be deployed. I welcome these.

But I want to underscore again that there is not a single study that shows that locally owned businesses have lower multipliers than similar nonlocals. If there is, Bill, please share it.

In Bill’s most recent posts, he begins to ask a different question: “Going local, which is still more of a concept than a plan, I have to assume would mean that we buy from more local businesses. So why don't we buy from them now? Why don't I buy computers made in my hometown? because they would be more expensive and I would be able to buy less other stuff.”

This is another common view of Bill and his economist buddies. I’ve refuted these arguments at length (http://www.community-wealth.org/_pdfs/articles-publications/state-local-new/article-shuman.pdf ), but let me briefly comment here. The view overlooks all the reasons the economics literature provides why consumers make poorly informed purchasing information. They lack information (especially from local stores with poor advertising budgets). They are unaware of the transaction costs (from driving and cash-register overcharges). They are not thinking clearly about their end uses (who cares if nonlocal computers are cheaper than local computers if a locally recycled computer might suit the job better).

Bill assumes that local businesses are uncompetitive, charge higher prices, and therefore localization is guaranteed to deprive us from the gains from trade. But there is little data to support this view.

His implication – that local businesses are losing ground to nonlocal businesses – actually is no longer true. In the United States, local businesses have actually stabilized their market (GDP) share in most industrial categories, and in other industrial countries like Australia they are actually increasing their market share. And all of this has occurred despite a public policy environment that heavily subsidizes nonlocal business and deprives local businesses of needed investment capital.

So, contrary to Bill’s assertions, localization is about helping consumers find great local deals on goods and services, from competitive local enterprises, that they are presently overlooking. It is also about helping local businesses improve their global competitiveness. And it is about remove the inequities in public policy that currently tilt in favor of nonlocal business.

There is nothing about these ideas that is antithetical to mainstream economic thought. And that’s why a growing of economic development authorities – not just in the United States but in Canada, France, and Australia, all of which recently have had me keynote conferences – are rebranding their economic development work around “local living economies”.

Bill will no doubt come back again, complain bitterly that this response is but-another horrible attack on him, but I invite the reader to observe that I’ve been exceedingly careful to stick to the issues above (except repeating Bill’s insults at the top). I encourage Bill to ponder the famous Shakespearean line -- “Tis’ the hollow ship that makes the greatest sound.” – and see if he can respond in kind.


Posted by: Michael Shuman on 28 Jul 09

Here's the deal. Michael is very good and mixing these things up and spitting them back out in a way that suits him. He says that I am insulting him. I was simply explaining why I was not going to engage Michael in a debate, because despite his claim, he cannot follow an argument. One simple argument. If he could, we could have a conversation. Sadly, I am not even trying to debate him and he has decided to attack me, instead of responding to my original point. So if a person lies (which I don't think Michael does) am I insulting him by calling him a liar? Now I implore you all to put all of the reasons that I will not engage him aside and look at the facts. I believe that Michael is a well intentioned person. His career shows that he is trying to make the world a better place, even if I find it impossible to converse with him as I hink he glosses over subtleties and obfuscates with tangents to make his point. And please assume I am a hypocrite. I am not the one making claims - I am saying that the claims made by the author are unsupported. And feel free to dismiss me for not wanting to engage Michael, but can you honestly say he has rebutted my original qualm with this story? Also, has Michael ever been able to respect someone that disagrees with him?

I said that no study says there is a general rule about spending patterns being 80/20 local to non-local. I showed a quote from the Civic Economics Andersonville study stating the effects should not be taken as universal. Can anyone doubt that this is still the case?

Of course, if you would rather put your faith in a guy who argues that you can produce computers in your hometown for less (let alone buy one) than a computer made in Asia, Michael has written volumes.

I just want to know Michael, you are a published author, have advanced degrees and have been working on these issues for round 20 years now, if your case is so solid and you are re-writing the economic theory, why do you need to attack an anonymous poster? Why can't you just cite a study that answers my initial complaint and move on?

Finally, I am fine with WC posting stories on local economies. I support local and national and global economies. I even support interstellar ones. Who doesn't want a sustainable economy. What I don't support is a sloppy use of studies to make something seem true when it isn't. This is a very complicated issue and spreading misinformation is bad for all of us in the long run. Because, Should the LLE movement get big enough for people in power to care, the conservative economists are going to crush it, and they are going to start by highlighting the misuse of models and studies (And Michael's rants in Going Loco). And all of the important points about community and resilience and sustainability that "buy Local" raises will be dismissed as liberals abusing stats to push an agenda. Again, for the time being, he is easier to ignore.


Posted by: Bill S on 28 Jul 09

... And I have not even attempted to dissect the studies that have been done. They have plenty of flaws and that is because they are very complicated. I'm not sure I could do much better. And I assume that Dan is well intentioned and careful in his work.

I am just saying that the studies themselves contradict the statement made in the article. In fact, the quoted statement is key to the credibility of the studies. The data just does not exist to make general statements other than, locally owned businesses tend to spend more at locally owned businesses than at chains.


Posted by: Bill S on 28 Jul 09

Bill,

You've proven yourself unable to have a civilized, let alone a meaningful, argument. We're done.

Michael


Posted by: Michael Shuman on 28 Jul 09

I was just reading through Michael's last post again. It's so funny. He is so paranoid. He somehow thinks I am a guy who keeps attacking him. Me defending my critique of this article is an attack on Michael!? He started attacking me! He doesn't even know who I am. I saw the article he wrote about Hart Hodges and have seen him talk in different forums. But whatever. Don't take my word for it.
He comes here and attacks me for critiquing the article that someone else wrote. The fact is that Alex and Cathy could look at the reports and see what I am saying if he wanted to.
I think BALLE owes a lot to Michael - if he were not so... how do I characterize Michael without him complaining??? .... if he were not so intent on crushing anyone who disagrees, the movement would likely putter.

But who is going to argue with him? I can just see a City council member asking a question and Michael yelling "Dozen of studies", "Globalization Sympathizer", and "You have no qualifications".
I bet he even feels justified since corporations pull so many dirty tricks of their own. And that is what I cannot stand about BALLE... everything is nicey-nice until you start asking questions. Then you are a traitor. You are trying to kill small business.

Again, I don't say this so that you don't listen to Michael's arguments. You should. And then you should think about it for yourself. There are some very good points in Going Local and we economic development does need to re-balance its appreciation of independent business. Economic development never should have been about bringing in a WalMart... though that has benefited several communities!
I am also saying that Michael also gets things wrong and I have yet to see a venue where he has come close to admitting an error or conceding something. What I have seen is a flurry names and reports and lashing people. The only logical conclusion, from what Michael presents is that I am a stalker bent on ruining him and he is immune to error.
Until he changes, we can never have a decent discussion of the issue.


Posted by: Bill S on 28 Jul 09

I love it. He still can't answer my argument, so he is done.
Finally silenced? Likely not.
Anybody know a good body guard service?


Posted by: Bill S on 28 Jul 09

Dear readers,

We have decided to let this discussion stay up as is, since many of the comments are insightful. However, please note that any future comments that appear to be strictly personal and devoid of any constructive commentary will be deleted.


Posted by: Worldchanging Team on 28 Jul 09

I would also like to apologize to Cathy and the readers for being acerbic. I lose my temper quite easily with this issue and should know better to choose my words more carefully. I will try to use more restraint in the future.


Posted by: Bill S on 28 Jul 09

I would like to apologize to Cathy and the readers for being acerbic. I lose my temper quite easily with this issue and should know better to choose my words more carefully. I will try to use more restraint in the future.


Posted by: Bill S on 28 Jul 09

Bill,

For the record, I did answer all your questions, and told you where you could find the cites you were looking for. It's up to you to listen and learn.

Michael


Posted by: Michael Shuman on 29 Jul 09

For the record, I asked one question:
Name one single study that claims to establish that for any given independent business the indirect multiplier is .80 and that for any given chain business, the indirect multiplier is .20?
So far I have provided text from one study that says the results of the study are not universal and that they have warned of this repeatedly.
The most recent study, Grand Rapids, sites the need for broader studies and is a broader study. There they report multipliers of .68 and .43 for local and non-local.


Posted by: Bill S on 29 Jul 09

I have listened. Apparently more closely than most because when I ask questions, they are so threatening as to be attacks. Listening will not create reports that do not exist.

I want to make this clear because I was very sloppy about it earlier.
My ad hominem arguments against Michael are merely to explain why I have no interest in debating him - as this exchange shows. They are not meant as a dismissal of his work. His arguments, like anyone else's, are as good as the data and logic that support them. Michael's are sometimes even more effective due to their emotional appeal.
What a careful reader may note is that Michael has demonstrated a tendency to dismiss those who question him. So when reading it, there is no reason to assume that the claims he makes have been substantiated by any serious critic and the reader needs to bring their own scrutiny to bear. Just as you would anything that I have written.


Posted by: Bill S on 29 Jul 09

From the Grand Rapids Study:
"Second, this study provided our broadest sample to date of participating local businesses. The owners of 19 firms took the time to complete extensive and intrusive surveys, trusting us with highly confidential data about revenue, wages, profits, procurement, and charitable giving. This extensive sample allowed us to better identify outliers and to follow up with the surveys with interviews to resolve very specific issues. We are confident that this analysis provides the best data to date on the practices of local pharmacies, grocery stores, and restaurants"

19 is the largest sample size to date! The data they need for chains is estimated using aggregated data - which is probably reasonable.


Posted by: Bill S on 29 Jul 09

"In 2004 Civic Economics produced the "Andersonville Study of Retail Economics" (andersonvillestudy.com), which found that locally owned businesses keep $68 in the local economy for every $100 in consumer spending, compared to $43 for chains.

The study wasn't published in a professional journal, and one of the few mainstream economists to take note of it is Hart Hodges, who directs the Center for Economic and Business Research at Western Washington University. He considers the study inconclusive, because it failed to consider other ways businesses can contribute to the community, such as offering longer hours of operation, lower prices, and better employee benefits. How much is it worth to have the local pharmacist-owner know you and your kids? And how do people weigh that against, say, being able to fill a prescription at Walgreens 24-7?

Like the Grind's Jenny Ackerman, Hodges doesn't think anyone is well served if poorly run local businesses are favored just because they're local. He suggests alternative ideas localists might consider: "Why not have 'best customer service' or 'most environmentally conscious' or 'best employee compensation' awards to show which businesses are meeting the goals of a community? A program like that would help consumers know which businesses are performing in ways that they like, and consumers could support those businesses as a result. . . . The point is simply that communities can encourage all businesses to perform in ways that meet the goals of the community--and can do so in a way that makes sense in terms of the economics."

http://www.chicagoreader.com/chicago/banning-the-big-box/Content?oid=922561


Posted by: Bill S on 29 Jul 09

Jct: I financed Michael Linton's first LETS software package in the hopes it would model how the global UNILETS time-based currency bank would work.
See: http://youtube.com/kingofthepaupers


Posted by: KingofthePaupers on 29 Jul 09

As the author of a multiplier study that included data from 22 food-related companies, (Why Local Linkages Matter: Findings from the Local Food Economy Study), I was interested to read the above exchange, not least because that makes me the author of the study with the largest sample -- something I didn't know! (It also happens to be a cluster study which few of the other examples are that I am aware of.)

The argument that Bill S seems to be making is that few of these studies show a 4 to 1 indirect multiplier advantage. I feel that this argument is acknowledged all round, so I am not quite certain why he keeps returning to this particular point. I'm not going to take up the argument if there is even one study that shows this advantage because I think that misses the point of these studies. In the end, you must consider the purpose of the studies as important, if not more so, than any specific finding. We live in a dynamic world after all.

That specific numbers from these studies have been misguidedly generalized is also the case. But I would like to know of a field of research where that doesn't happen (though it's too late for me to change careers). Yet rarely, in my humble opinion, is misquoting the results of a study the fault of the authors. At the same time, I would argue (and Michael does this eloquently above) the general public is getting the sense of these studies -- that spending in locally owned stores generates a larger local impact. Hey, that may be something consumers want!

What I do think a focus in on multipliers obscures is that it is the breadth of spending (the percentage of the population spending locally) - as well as the depth (the multiplier) - that matters. So even a small difference in a multiplier can have a large effect, if widely applied. In my study, I determined that a shift of 20% of food dollars into locally directed spending would result in nearly a half billion dollar income increase in one metropolitan county (King County, WA). For the record, the multipliers I generated in my report covered a range for each category of local producers along the value chain, from a high of .93 for a self-sufficient farmer to a low of .16 for a distributor. The highest average was for community-based restaurants -- that is restaurants that consciously sought out local suppliers. The point is that there are many factors influencing what a multiplier is for any given producer, some of which have to do with location, some with ownership, and some with other factors such as where a business is at in the value chain. Probably, the most important is the ability to form reciprocal, mutual relationships (as I argue in my study), which is closely related to being community-minded if not exclusively.

And just to say, there are a number of assumptions in routine impact studies (which are constructed from a very different methodology) that beg the questions, such as the assumption that the structure of dollar flows from sector to sector are uniform across all regions of the country. Yet economists use such multipliers routinely. Any worthwhile report will point out these assumptions and other data limitations.

As to the use of local multipliers, there is more than just proving the effect. This has been important but there are other purposes to these studies. I myself used them in conjunction with qualitative data on business practices and a social network analysis to develop strategies for where we should focus next on growing a sustainable regional food system. And just with drug stores that stay open 24/7, I would argue that there are many, many benefits to local food production for local consumption beyond the economic impacts. In fact, I would say more.

Ultimately, it all depends on what story you want to tell.


Posted by: Viki Sonntag on 4 Aug 09

I’ll take the bait and weigh in here. I’m Dan Houston and I’m a partner in Civic Economics, an economic development consulting firm. Neither Matt Cunningham nor I hold ourselves out as economists and routinely correct journalists who do. Reading the first paragraph of the piece above, I must say I did not think the reference was to Civic Economics. We are not economists who study globalization and we’ve never reported a generalized 80:20 difference between local and chain retailers.

What we have done, in Austin, Chicago, Grand Rapids, and (coming soon) New Orleans, is a surprisingly simple exercise and a relatively small portion of our practice.

We ask local business owners (selected based on geography and lines of goods, generally) to work through a detailed and intrusive survey about, in essence, where the money goes. The goal is to quantify the proportion of the firm’s revenue that recirculates locally in the form of wages, profits, local procurement, and charitable giving. We then estimate the same for one or more chain stores (selected based on lines of goods and availability of credible information, primarily drawn from SEC filings and reports to investors). The result of this exercise is a comparison of what happens to a given consumer dollar when spent at, for example, Borders or BookPeople.

Because the survey is quite time-consuming and requires business owners to reveal to us data they might hesitate to share with their accountants, our sample sizes are smaller than we’d like but, we believe, large enough to support our conclusions. As has been noted here, we caveat those findings pretty clearly.

Now, say what you will about the sample size or the variations we’ve found in each study, the underlying and consistent fact is that, almost without exception, locally-owned businesses recirculate a great deal more money locally than their chain competitors. That essential finding is not really controversial – there are, indeed, other studies out there that produce similar outcomes. If one complaint, Dr. Bill, is that there aren’t more studies or that they haven’t been peer reviewed, well, I invite you to do the damn research yourselves if you think it merits discussion. We’re a consulting firm and that’s not what we do.

Our work certainly has a place in the broader macroeconomic discussions, but we limit our work to our areas of expertise. The rather conservative economic development argument we do routinely make is that governments (particularly local economic development agencies, who are routine and thoughtless offenders in this regard) should not be in the business or providing development assistance or tax forgiveness to chain stores and their developers. These expenditures simply move buildings and taxable transactions from one jurisdiction to the next, all the while giving a competitive advantage to non-local firms. Our studies make clear that such policies also impose a further cost to the community. Our clients mostly use these studies to request that local government take the thumb off the scale.

Speaking for myself, let me say I am a fan of the “buy local” campaigns that routinely cite our work. Without regard for the imperatives of world trade, I simply prefer that the communities in which I am involved make relatively painless changes that enhance the local economy and community. When you need a prescription filled at 10 PM, by all means hit the Walgreen’s – I buy the $4 generics myself. But it takes very little initiative – and arguably no additional money – for a given household to support local businesses more often.

Taking it one step further, I think it is often wise for cities to invest in those neighborhoods that house a mix of local businesses, precisely because they produce greater economic returns than big boxes do. If Starbuck’s and American Apparel want in, fine; just don’t bulldoze the block at public expense to make spaces for them.

Now, having clarified who we are and what we do, I’ll turn the floor back. We are pleased that our work has bearing on the broader issues and will continue developing original research in a variety of economic development issues.


Posted by: Dan Houston on 6 Aug 09

I'm happy to have Vicki's and Dan's input here, since it helps to underscore how extreme, disconnected, and out of step Bill Schenkin's substantive remarks are (let alone his venom toward me and other advocates of local economies).

Per an earlier promise, I wanted to add a reference to David Swenson's study on the significantly greater job impact of a locally owned ethanol plant in Iowa. Swenson is a widely respected economist at the Iowa State in Ames. Click here to download and read: http://www.econ.iastate.edu/research/webpapers/paper_12645.pdf


Posted by: Michael Shuman on 13 Aug 09

interesting debate. bill's original critique was intellectually correct, and still has not been fully answered. michael mentioned some data from other studies, but didn't identify it. that's problematic in terms of support for the argument. anyway, it seems that those studies don't support the article anyway and as bill mentioned, the authors agree that the studies are far from conclusive. sample sizes of less than 20 for such a complex issue?

more importantly, why weren't those studies cited in the article? the point is that this issue is so complex, its irrepsonsible to cite the 80/20 statistic and make recommendations based on it. what if it turns out to be the reverse say, 20/80? would you all support global businesses instead of local ones? this seems like something that should be pinned down before conclusions are made, no?

bill pointed out that there is not adequate support for the core argument in the article, and then that it was somewhat irresponsible to make broad conclusions based on it. its a very important point he makes. but his argument, though skeptical, was initially dodged. michael's dodge ironically underscored the thrust of bill's initial post--that people are avoiding addressing the core support for their arguments. often this avoidance i find is a result of people having chosen, or invested in, a side (or "team" as i call it) and then just making an argument to support it, rather than looking at an issue critically and anew.

its unfortunate that anyone would take skepticism personally. i'm not suggesting that we paralyze the debate by waiting for bullet proof data, but i am suggesting that it is very important to address the logic behind conclusions. bill admitted that the general tilt of the claimed statistic was probably correct, he just challenged the basis for the claimed numbers.

i have no horse in the localization debate. i tend to think that it ignores, and possible buries, the real and more important issues which have nothing to do with which retail businesses people choose to purchase their goods from. i do have a horse in whether people advocate positions that are unsupported and whether those unsupported opinions result in action that affects society.


Posted by: Will B. on 13 Aug 09

Wow. I find this so fascinating. In my mind it is so clear. I had to have some friends read the exchange to make sure I wasn't losing my mind.

Viki- the reason I keep making this point is the reason I made it in the first place. There is no research that supports the claim of a universal multiplier for chain stores and independent stores... and the lead paragraph claims that not only is there one, but "economists" have established it. I find your defense of the misuse of studies very dangerous. The abuse of studies leads people to dismiss science, especially social, which I believe is a great peril to us all. That is the reason I take such offense with this article.

Dan - Thanks for agreeing with me. You have again shown your integrity in the face of those who want to distort your work.
I think you miss understand that my qualm is not with your studies, but with what advocates make of them. I am very sympathetic to the constraints of consulting work. I afraid that this is the reason that consultants tend to use models in the way that academics design them. So while the multipliers stand, IMHO, there is more work to be done to get to the impacts that you claim... precisely because your use of IMPLAN is innovative. Even given the multipliers, do we know that the same amount will be spent at independent stores? What impact will a shift to independent stores have on induced impacts (money spent by employees)? Are there enough entrepreneurs that are willing to create enough independent businesses? Can they do it at prices comparable to chains or will we see changes in consumer spending patterns? I honestly do not have answers and have not seen answers.

So while I appreciate your invitation to do the research, for now my goal is simply to make sure the research is not used to make claims that it does not support.

Will - thanks for clarifying my own ideas. Yes, I am taking a skeptics stance here. In places where I provided other opinions, it was to demonstrate that I am not totally unsympathetic to the LLE movement.

Michael - Really? I feel sorry for you at this point. To say that Dr Schenkin has venom for supporters of local economies is just sad. Dr Schenkin seems like an excellent Pedatrician. But really, why would anyone ever oppose a local economy? It is just desperate you are with or against us thinking. I made my comment because I want to help supporters of local economies be technically accurate... though there is not much about my tone that would indicate that!


Posted by: Bill S on 14 Aug 09

To have issues with Dan's studies and not have qualms with them may sound disingenuous. What I am trying to say is that I do not think the intent is to be misleading the way that others are. I am just saying that I do not have much faith in the scale of the impacts... at least not yet.


Posted by: Bill S on 14 Aug 09

Cathy - so if Dan is not the source for your lead paragraph, who is?


Posted by: Bill S on 14 Aug 09

The 20-80 number I cited of what percentage of our money goes global or stays local when buying local came from a workshop I reported on at the 3rd Annual Transition Town Conference in London in May 2009. The workshop was led by Peter North who teaches geography at Liverpool University and authored the Local Money (Green Books 2009), Josh Ryan-Collins, an author and researcher at the New Economics Foundation, and Oliver Dudok van Heel, a tutor in Sustainable Business at Cambridge who helped to launch the Lewes Town Pound.

I'm not an economic researcher but it sure seems logical to me that buying an ice cream cone made in my local family-owned gelateria is better for my neighborhood's economy and the health of our planet than buying a cone at Baskin-Robbins. I wish we did produce more locally so we would have even more to trade without embedded carbon. Scoop it up!
http://greenwallingford.ning.com/profiles/blogs/transition-money


Posted by: Cathy Tuttle on 20 Aug 09

Cathy - Thanks for your response. I should have asked in the first place.
Well there is not much I can do to research the source when it was in a presentation at a workshop. Since I have not seen any studies by those mentioned on the subject, I have to assume it was there own assertion... likely based on dan's work. Did you make any attempt to verify their claim or ask them for their sources? If I heard something as startling as this... that independent businesses have a huge multiplier difference, I would want to know the basis of the claim.

The response that it "seems logical" frightens me. Many things have seemed logical to people. It "seemed logical" that the earth was flat, that black people were inferior to whites and that giving tax breaks to walmart to build a store would create jobs. Eugenics seemed logical at the beginning of the 20th century. I just think it is irresponsible to pass off what you think "seems logical" as "what economists have found". Especially when you could just start the article by saying "it seems logical to me that"...

What if you are wrong? What if Wallingford follows your advice and is a ghetto in 20 years? OR, more likely, what if everyone in sustainable wallingford can no longer afford to live there and it is redeveloped by those fully invested in the global economy? It just seems irresponsible to me to pushing a point of view when you don't understand the research.


Posted by: Bill S on 21 Aug 09

The New Economics Foundation in the UK has done numerous studies on local multipliers, so I don't think it's Dan's work they were citing in the workshop Cathy attended. (Actually, anyone who had researched this issue in a systematic way should be aware of their work.)

I still think Bill's focus on the 80:20 citation is a straw man argument. Hey, I am entirely in agreement that people misuse scientific data and that it undermines the effectiveness of this data but I also think that mainstream economists make far worse claims -- for example, hyper-rationality in consumers. And they think they are being scientific.

In their research, NEF doesn't claim there are universal multipliers -- a point everyone who is an economist acknowledges. That's why we do the impact studies -- to find out what the effect is for particular activities in particular locations.

However, all of these studies show there is a decided local economic benefit to buying locally. Demonstrating this was the original impetus for NEF's work. And it was effective -- they shifted the focus of economic development arguments. Many municipalities are making investments in growing their own economies through supporting local businesses instead of putting all of their efforts towards recruiting outside businesses into the community.

Incidentally, I have to walk back my claim of having the largest sample. The Northumberland study to which NEF contributed had a sample of 400.


Posted by: Viki Sonntag on 4 Sep 09

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