There’s a movement afoot to change how we buy. It’s not about how much we buy or even the kinds of products we buy. Instead, it’s directed at the “origins” of what we buy and “where” we buy. Broadly speaking, it’s called the “buy local” campaign.
There are two elements to this campaign. The first has to do with the origins of the products we purchase — specifically, in what country are they made. The argument is that the more products we buy from companies located in the United States — rather than foreign countries — the more money stays in the country and the more jobs are created here.
There is compelling evidence for this viewpoint. The U.S. imports $2.3 trillion of products and services annually. Using an average rate of job creation per dollar of domestic production, purchasing all these goods and services from domestic companies would create more than 20 million jobs.
Of course, there are some things we import which we just don’t have domestically — at least in the short run. Oil is a good example. If we kept importing oil but reduced all other imports to zero, then we still would add 17 million slots to our employment base.
However, there are three twists to this conclusion. One is exports. If the U.S. replaced its non-oil imports with domestic production and buying, what if other countries did the same, bringing our exports to zero?
This would have a big impact on job creation from “buying local” because our exports are also huge, totaling $1.8 trillion annually. If both our non-oil imports and all of our exports went to zero, we would net 1.8 million jobs in the country, a 1.4 percent increase from current employment levels.
The second twist is foreign investment. Foreign countries that sell more to the U.S. accumulate U.S. dollars, and eventually those dollars find their way back to our country in the form of foreign investments. These foreign investments can take many forms, including the purchase of U.S. government securities, stocks from U.S. companies, or the building of factories and other facilities in the U.S. Foreign-owned auto factories are a good example of the latter kind of foreign investment.
It’s estimated these types of foreign investments support almost 6 million domestic jobs. Without international trade, some of these jobs might disappear, or — at the least — they wouldn’t expand very fast.
Last, sometimes the specific product or service a person wants just isn’t available in our country in the quantity needed to satisfy domestic demand (like oil), or if it is, the price is higher than a foreign-made substitute. So here the buyer is faced with a dilemma. Does the person purchase the domestic-made version and pay more while creating jobs here, or does the consumer buy the foreign-made alternative and save some money?
Now let me move closer to home and look at the second piece to the “buy local” movement: the “where” you buy. Here the idea is to shop at retailers and sellers in your city or county rather than at merchants outside your immediate area. By doing so — the theory is — money will go to local businesses, be respent locally, and create local jobs.
There’s no question this can work. On average, every $1 million spent locally will support between 15 and 30 community jobs. The reason the job creation number isn’t higher is because most local companies purchase a significant fraction of their merchandise from outside the local area. So all of local spending doesn’t remain in the local area.
And again, that’s just the rub of trying to buy only from local sellers. Even more than at the national level, many products and services simply aren’t available in all localities. Small communities, especially, tend to specialize in what they do and what they have to sell. Bigger cities — because they have more people and consequently a wider diversity of talent and skills — usually will have more of what buyers want.
“Buy local” may make for a good slogan and sentiment, but it likely won’t be the “game-changer” for our sluggish economy.
Michael Walden is a William Neal Reynolds Distinguished Professor at North Carolina State University.