Economists debate the effectiveness small businesses truly have on positively contributing to the growth of an economy, as well as improving communities. Naturally, there is uncertainty when trying to determine whether prioritizing purchasing from local businesses as opposed to corporate suppliers is the best method for financially strengthening an area. However, the benefits that local businesses provide are apparent. Though no one entity should be responsible for providing goods and services to consumers, supporting small businesses over larger companies proves to be more effective in building both a strong economy and community.

According to an article Johnson Hur, the history of small businesses date back to ancient Roman times. In this era, small businesses took on the form of merchants, mostly farmers, who would attempt to sell their goods in the city marketplace. During medieval times, the range of small businesses expanded due to the needs and tastes of consumers evolving alongside the advancements of civilization. Since then, small businesses have further adapted to the everchanging tastes of their consumers over time. During the Industrial Revolution, small businesses were dominated by large corporations because they were deemed less efficient than a factory who could produce at a much larger scale. The current state of small businesses wouldn’t be developed until the late 19th century into the early 20th century in America. In America, most of their production were from small businesses, and this model would be adopted by several different countries. 

One of today’s problems is that the risk of establishing a small business is ever increasing. Due to franchising and large corporations taking advantage of resources such as ideal storefront locations and the ability to produce a large array of goods regardless of season, large corporations possess a significant edge over independent businesses. The scenario that this creates is one that is very detrimental. If most small businesses were to fail, and corporate businesses were to the main firms that offered goods and services, then consumers would suffer. Because of the lack of competition, large businesses would feel less inclined to maintain the quality of their product and consumers wouldn’t be able to turn to another vendor to purchase that good or service. Another factor that leads to the failure of small businesses is that the public isn’t aware of the benefits that arise from buying local goods, such as the boosting of economy and job creation. So, it is important to protect small businesses and educate consumers of their benefits.

Michelle Hustler, a trade and business development specialist, published an article titled 3 reasons why you shouldn’t buy local. In this article, Hustler lists her reasons why buying from local businesses can harm rather than help. The writer argues that a campaign that urges consumers to purchase from local vendors impedes competitiveness, and is hypocritical. She also argues that nothing is truly “locally produced.” She states that high duty rates, that once were applied to many goods, are now only applied to a few select goods due globalization. As people may have expected, consumers would buy locally produced goods since imported goods then became more expensive. “Instead, these sectors, in the absence of the helpful push of competition, became less and less internationally competitive, while the tastes and needs of consumers kept up with global trends” (Hustler, 2016). This statement concludes that small businesses become less competitive in the global market because they feel less inclined to be competitive due to a lack of local competition. Hustler then goes on to say that “the disparity between what [is] being offered locally and what [is] wanted by consumers, in tandem with increased online access to products from around the world, pushed [consumers] to buy these products from overseas, despite the high rates of duties.” The goods and services that local businesses offer does not fully satisfy the tastes of consumers, and consumers turn to foreign producers as a result. However, this shows that local businesses compete with international businesses to retain support from their consumers. Also, the idea that there are not enough local businesses to compete amongst one another isn’t entirely true. 

There are a large number of firms, both independent and corporate, to establish competition amongst one another. In fact, small businesses must compete with both small and large businesses, which makes it more difficult for these independent firms to become successful in any given market. So, to say that small businesses do not have an incentive to compete in the international market, or to compete in general, due to a lack of competition is false. Independent firms must compete with other local firms, corporate firms, and international firms to sustain their business. Because of multiple factors that may impede their individual growth, small businesses must adapt and develop innovations in order to remain relevant in their respective market. 

Another argument that Hustler presents is that the discouragement of imports in an effort to support local manufacturing hurts other local businesses around the globe. As a nation whose goal is to stimulate the growth of small businesses and rely on them as their main source of production, imposing tariffs to discourage imports makes sense. The very purpose of putting tariffs on imports is to promote development of local businesses. This also serves to create jobs and create a flow of money within the community to further stimulate small business growth because those small businesses invest in each other. 

Hustler also questions what classifies as a local business by saying “the definitions for ‘local’ are inconsistent and unclear.” She introduces examples of locally-owned franchise restaurants, such as a Burger King, and an independent restaurant opened by a foreigner. This comparison is invalid because what defines “local” isn’t as unclear as the writer suggests. Considering where the profit goes can be a determining factor. For a franchise store that is a branch of a larger company, the revenue from that store, though locally owned, mostly goes to that company. As for an independent store, most of the profit is retained within the store and the store owner is more likely to use his revenue to invest in other small businesses in the area to buy resources to sustain their own business. The argument regarding whether a business is considered “local” is not based solely on location, but whether a business is independent.

Karen Selick, a Canadian lawyer and writer, provides her take on why buying locally can be detrimental to growth. In this article, Selick points out fallacies that lie within purchasing from local businesses. Firstly, she touches on how trade is better for both consumers and the overall economy. “The smart part is the recognition that trade tends to improve people’s lives” (Selick, 2008). Admittedly, the gains that a nation receives from trade contributes a large part in improving an economy. There are multiple reasons behind this as consumers exchange money for a good that gives “greater satisfaction than the money would” (Selick, 2008). Another is that specialization allows countries to maximize their efficiency in producing a good because they no longer have to split their resources between producing two goods, and are then able to trade for other goods they may want instead of producing the good themselves. There is no one, definite method in developing an area economically. Although specialization through trading is something that has proven to be effective in growing a nation’s economy, it must be decided on amongst policymakers. They must declare whether they focus on pursuing globalization or decide to develop independent businesses as a main source of the nation’s income. What specialization allows a country to do is focus on producing one good over a number of other options in order to distribute their resources in the most effective manner. Whatever that country doesn’t produce themselves, they then trade with another who specializes in the goods they want. But as long as there is a scarce amount of resources dispersed amongst everyone, there are decisions that are made on what to do with those resources that will benefit one group of people, but will have a less desirable effect on others. Therefore, the economic plan that a firm or governing body chooses to implement should ultimately be unique to their interests and goals.

Choosing to purchase from local vendors is most likely one of the most efficient methods in boosting an economy for multiple reasons. The money that consumers use to purchase goods from local businesses stays within that community. Owners of local shops are very likely to take their profits earned and invest it into other local businesses within the area, which in itself can produce multiple benefits. When money is cycled in a community, it has the potential to create new jobs and improve infrastructure of an area.

 A journal written by Maria Ruane, an economics professor at the University of Guam, displays the positives that result from participating in a program that supports buying from local vendors by using data collected while conducting studies in the island country. The source begins by saying “the resulting positive contribution to the local economy increases with the amount that local consumers buy from local businesses, since it is these businesses that provide the majority of local employment, pay taxes to the local government and give back to our larger island community.” The effect that results from purchasing from local businesses doesn’t just apply to small island economies, but to any economy. The benefits that are offered by supporting small businesses can be measured by the spending multiplier. 

“The spending multiplier captures the process of spending an additional $1 ‘in the first round’ and how this $1 leads to subsequent rounds of spending in that, each additional $1 spent in the local economy becomes income to some local businesses and their employees, from which they would spend in the next round, thus becoming income to some other local business and their employees, from which they would spend in the next round, and so on. In the end, each additional dollar spent generates an amount greater than the dollar spent ‘in the first round’. Hence, each additional dollar spent ‘in the first round’ is multiplied.” (Ruane)

To simplify, this states that money that is spent in a local business creates a greater impact that its initial amount. This is the case because the money that is invested into the small business is given its employees in the form of wages and salaries, and that money is then spent within other businesses in that community. The value of the amount of money cycled within businesses of the community increases exponentially through this spending multiplier, and the economic status of that community improves. 

In order to truly assess the effectiveness of a buy local initiative, surveys were given to the residents in Guam. Based on the data received, it was proven that the buy local initiative was successful in many aspects. The purpose of this initiative was more than to increase support for local businesses, but to also increase the public’s awareness of the importance small businesses to both communities and economy. From the responses gathered from those who were surveyed, residents have a better understanding of how vital the support of small businesses is to growing an economy. The main reasons for which the respondents saw supporting local businesses as beneficial were because they now realized that money circulated within the community as a result from purchasing form local business multiplies and improves the economy. Also, that buying from local businesses creates jobs and increase local tax revenue.

To solve the issue of a large number of small businesses failing, there should more incentive place on purchasing from local vendors. Tactics such as a buy local initiative or placing tariffs on foreign goods so that consumers are more likely to purchase locally made goods should be implemented. Once individuals are aware that consumption within small businesses has potential to create jobs, enrich the community, and boost the economy, consumers are more likely to purchase from local companies. Because of the increased consumption towards small business, they’ll continue to operate and invest within their own community and create a cycle of improvement to both the community and economy.
