0

By 

Lucas Continentino

Marketing Consultant

Brand & Content Department Member

Whenever there is an Economic issue within a country, the first policy that surfaces is the “Buy Local” campaign. This campaign is centered around the concept of creating incentives to boost the local economy. Looking from the political viewpoint, this is a great maneuver, most of the times guarantying votes from local and small entrepreneurs. Politicians love this strategy, since by “supporting” the local and regional economy they are “creating” more jobs and “helping” the community around them, right? In theory yes, however theory in most cases is short lived, and practice usually takes the spotlight. There are three pillars to the buying local “scam”, overall competitiveness, economic policies and defining “what is local?”. This article will be split into those three-independent section since each point could be an explanation on their own.

With the rise of globalization, the biggest threat to local economies was always the entry of international firms that by their sheer size could create a monopolistic market. However, monopolies are not efficient, and preventing monopolies by creating barriers for large companies to enter markets is only possible with a strong centralized government. Such governments are not very common and are usually found in Economics textbooks. Consumers will not buy from a seller that has abusive prices, terrible customer services and bad product quality, even if there is only one seller in the market. This concept ties in perfectly with the concept of the Invisible Hand introduced by yours truly, Adam Smith*. This concept from the laissez-faire style of approach, implies that the individual’s natural will regulate how the market behaves and all members of the society have a role to play in the market; either as buyers, mediators or sellers. In a market where there is an abusive selling body, individuals will work around in order to ensure that the overall societal welfare is maximized. This might read as a mouthful, however, there will be no need for an intervention when individuals are aware of their needs. Note that the transactions will probably not be carried by individuals themselves, but from firms that see the inefficiency of a single company operating in a market and due to the free-market environment. Resulting in the entry of other competitors that can either be regional or foreign. Competition is never bad, competition in its core is a way to ensure that firms remain active and there are hundreds of different factors that serve as advantages for individuals. The competitiveness can also come from down the sector line, instead of it being in the final product it can be while acquiring the material to make such product.  

*Adam Smith was a British economist, philosopher, and author born in Scotland, as well as a moral philosopher, a pioneer of political economy, and a key figure during the Scottish Enlightenment, also known as ”The Father of Economics” or ”The Father of Capitalism”.

When the state attempts to regulate or control the economy, such attempts are in the form of economic policies. Increasing or decreasing taxes, regulations, subsidies, and in more extreme cases, prohibition. This section is inspired by the recent law in the United Kingdom that proposed an extra tax on goods that were bought via e-markets. Various experts such as Tom Ironside, told The Guardian about the risk of imposing another tax on products that are bought online. “Taxing the sale or delivery of online goods would simply be another burden on an already overtaxed industry, one that would ultimately hit consumer spending through higher prices.” This tax was proposed in the UK parliament by the treasury department after consumers were discouraged to buy from in-person retailers during the period that shops resumed activity from the decrease in Covid-19 cases. The economic reason for this tax was the £322bn hole in the public accounts that resulted in the largest recession in over 300 years in Great Britain. Rishi Sunak, H.M. Treasury Chancellor, proposed an extra 2% tax on online bought goods, and an extra tax (value not mentioned by Mr. Sunak) on the delivery from such goods. Adding to this tax, another tax known as the “Amazon Tax”, which is another 2% tax on products that are present in physical stores but sold online. The ineffectiveness of this tax is shown by the predicted income, <£4bn, just above 1% of the entire deficit. In the UK, before Covid-19, the average citizen spent 20% of its spending on online shopping. The value rose by 50%, to 30% of the overall spending in goods. The UK is already familiar with online taxes, seeing as in late 2017, the former Treasury Chancellor introduced a tax plan towards large tax firms more notably Google, Facebook and Amazon; this tax plan raises an estimate of  £80m every F.Y. according to an article by The Guardian in early 2018. What is surprising about both the tax plans are how little they actually contribute to the deficit. The most recent plan is attempted to increase shopping locally in person, seeing as even if a small store tries to engage in e-commerce this tax is even more harmful. Also, it is important to highlight that many countries tried to minimize the mortality in some industries by creating lifelines and safety nets for SMEs.

Local goods are often found in small shops that are often referred to as “neighborhood shops” or in Portuguese as “lojas de bairro”.  

When we are encouraged to buy products that are branded as local, we sometimes stop and think, what about our products is actually local anyway? A shoe bought in Portugal, was probably manufactured in Vietnam, where it was made using machines designed in Europe. This machine was operated by an A.I. that was designed in north America and perfected in India. The number of international agencies that somehow have contributed to the manufacturing of those shoes and to the dozens of other goods we use in a day-to-day basis is ever growing. It is understandable that in order to help local economies we should buy goods mainly manufactured and the raw materials were gathered in Portugal let’s say, but in the end of the day the price difference and sometimes even the quality just seem so far from what we are to expect. Another point that could be made about a local product or franchise is who it is owned by. Europe is a Continent that has always been very welcoming of foreign investor and businesspersons. With this in hand, when we go to a local restaurant or shop, how many of them are actually European? The concept of local is very messy, some might give the ‘Webster’s’ definition while another might give the ‘Oxford’ definition, and still the question is not answered, but just made even harder to understand. On 2016, Michelle Hustler, Caribbean Trade Specialist, wrote an article with a similar purpose to this one. However, by using Bajan examples, she tried to expose the “buying local fraud” in the Caribbean by questioning readers whether an international franchise owned by a Barbados local was considered local and if a neighborhood shop owned by a foreigner was considered local. “How about buying a meal at a Burger King, a locally owned franchise (owned by the well-known Barbadian, Ralph “Bizzy” Williams)? Or supporting a restaurant owned by a Barbadian who lives abroad?”

In developing countries, the informal economy contribution can range anywhere from 25% to 40% of the GDP. According to a research paper by the Utkal University. 

With all this in mind we should not forget about the positive aspects of buying from small shops and locally produced goods, we are improving the life quality of people around us. While even for myself it might seem as a hard to swallow pill, deep down we do help our local area. Not to mention the special attention that we all receive while buying from the fruit shop down the road or the small convenience store underneath our apartments. The main take-away from my part is that we should not encourage or discourage buying from a certain shop, this decision should be taken by consumers. This is the reason why nowadays, it is very important to write reviews on-line telling “the world” about our experiences while shopping somewhere, be they positive or negative.         

References:

https://www.britannica.com/biography/Adam-Smith

https://www.investopedia.com/terms/i/invisiblehand.asp#:~:text=The%20invisible%20hand%20is%20a,as%20a%20whole%2C%20are%20fulfilled.

https://fee.org/articles/7-more-falsehoods-about-the-free-market/

https://www.theguardian.com/uk-news/2018/oct/29/hammond-targets-us-tech-giants-with-digital-services-tax

https://www.theguardian.com/business/2020/jul/27/rishi-sunak-online-sales-tax-protect-high-streets-coronavirus#:~:text=Britain’s%20biggest%20supermarket%20said%20a,by%2020%25%20for%20all%20retailers.&text=Online%20shopping%20has%20risen%20since,%C2%A32%20before%20the%20crisis.

https://connectourfuture.org/tools/buy-local-campaign/

http://www.tradeready.ca/2016/trade-takeaways/3-reasons-why-you-shouldnt-buy-local/


0 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *