Buying Local, Trade, and Protectionism

I always buy locally-made products…unless I can find non-locally-made products of the same quality for a lower price.

“Buying local” is one of the current trends in our culture. Various companies and brands craft entire marketing campaigns around the fact that their products are produced locally, made out of local materials, and/or created with local labor. Now, why would the fact that a company is selling “local” products be persuasive and enticing to consumers?

One potential explanation would be that local consumers buy into a variation of “protectionism” on a smaller, local scale.* This explanation would argue that local consumers want to support their community and facilitate economic wellbeing within the local business environment by shopping primarily or exclusively at local dealers. This might be more of an emotional situation where consumers not only buy a product, but also purchase a good feeling of sorts.**

One of the problems with this line of thinking is the same problem that large-scale protectionism faces. When considering the economic well-being of a certain area, one must look at both the producer and consumer side of things. Buying local products at a higher price (and from my experience these locally made and marketed products tend to be more pricey) may benefit certain local producers but it also hurts local consumers (including you). If a whole bunch of consumers buys overpriced, locally-made coffee, the local coffee shop benefits at the expense of the five consumers.*** Therefore, it is difficult to argue that the local community is better off on net.

And why should local producers be my primary concern? Not to say that I should intend to hurt my community, but this sort of thinking can have the effect of hurting many foreign (or non-local) producers. Think of producers many states away who are efficiently producing cheaper, equal quality goods. Why should I turn away their products, which are of equal quality and a lower price?

Competition and trade forces producers to innovate and cater to consumers. Therefore, consumers should want as much trade as possible and as many product options as possible. This forces producers to use their time and resources in the most effective way possible. If local producers know that I will buy their goods because I am emotionally motivated to support them, then those producers will not be worried about their non-local competition and will be less likely to innovate, produce quality goods, and charge low prices. While this is a much smaller scale example, the “buy local” marketing scheme is similar to an import tariff in that it attempts to limit local consumption of non-local goods.

Now some might say that it saves resources to buy local. And this may or may not be the case. Dr. Arnold Kling in his recent book Specialization and Trade: A Re-Introduction to Economics argues that buying local can actually waste resources:

“Many people believe intuitively that it saves resources to “buy local.” Surely, we think, cheese or vegetables from a local farm must save on the energy required for transportation. However, if the grocery store sells cheaper products that comes from hundreds of miles away, some factor must offset the higher transportation costs. Chances are, the land elsewhere is more suited to growing crops, so that fewer acres are being used to produce a given amount of output. The local land might be better used for housing or as wilderness.
Water or other resources may be used more heavily locally than on distant farms. Whenever produce from distant farms is cheaper than locally grown produce, the price system is telling us that “buying local” wastes resources.”

So next time you are tempted to buy a product merely because it is locally-made, consider the bigger picture. Look into non-local options and try to use your purchasing power to support producers who make the highest quality product in the most efficient way possible. Don’t discriminate against high quality, cost-effective producers just because they live far away from you.

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If this post resonates with you or irritated you, leave a comment below and tell me what you think of it. You can always send me an email as well; I’d love to hear your thoughts. Thanks for reading!

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*Ironically, one of the most startling side effects of protectionism is that a significant portion of local producers is actually harmed by this type of behavior. Every dollar spent subsidizing the inefficiencies of one producer is a dollar that could have been spent supporting the innovative and efficient ones.

**The price that consumers pay for “local” goods could potentially involve a base price, which would be identical to the price of the product elsewhere, plus a premium to support the local market. This premium portion of the price would then be similar to a charitable contribution in the sense that the only benefit the consumer receives for this added cost is a good feeling for having “supported” the local community.

***How do producers benefit at the expense of consumers? After all, this is voluntary trade, which should be mutually beneficial. The key here is that consumers do benefit, but they could benefit even more by buying a less expensive product of equal quality elsewhere. Thus, this transaction is at least somewhat inefficient, because consumers bear an extra cost without a corresponding benefit.