There is something unique about walking into a mom and pop shop and being on a first name basis with the local business owner or feeling a sense of pride towards the rising entrepreneur from the same city or country setting their mark on the global market.
The truth of the matter is, there is nothing wrong with purchasing local goods and services, even when it is more costly to do so. The value of a product is subjective to each individual and that sense of community or local pride make any additional monetary cost worth it.
The problem of buying local only comes when the government adopts public policies designed to “encourage” consumption of these goods and services.
It is not new to hear a politician pushing support for national businesses, encouraging consumers to “buy local” while discouraging imports due to trade deficits or nationalism.
Moreover, the push for policies to support local businesses completely ignores the long-term effects of such policies. These can take the form of trade barriers, of course, but they can also include subsidies of local businesses, or government policies of only “buying local” when it comes to government procurements.
In the case of subsidies and government procurement policies, there is a reallocation of money with the purpose of benefiting a small number of individuals within a certain industry at the taxpayers’ expense. Grants or government spending on marketing and advertising — in order to promote local businesses — tend to hinder market flexibility.
Instead of allowing the market to adjust to an environment, there is a greater incentive to remain in an inefficient industry. Murray Rothbard in Power and Market also pointed out how this would encourage greater conflict among segments of society while hurting the wellbeing of society as a whole:
The greater the extent of government subsidy, the more the market is prevented from working, the more resources are frozen in inefficient ways, and the lower will be the standard of living of everyone. Further-more, the more government intervenes and subsidizes, the more caste conflict will be created in society, for individuals and groups will benefit only at one another’s expense.The more wide-spread the tax-and-subsidy process, the more people will be induced to abandon production and join the army of those who live coercively off production. Production and living standards will be progressively lowered as energy is diverted from production to politics and as government saddles a dwindling base of production with a growing and more top-heavy burden of the State-privileged.
Along with subsidies, governments can also grant local firms’ quasi-monopolies through the use of tariffs in order to compete with their foreign counterparts. Attempting to discourage imports, policymakers ignore that the costs of these taxes on international firms shift to the consumer.
In other words, this tax imposed on international firms falls on the national consumers purchasing these products, paying more had the tariff not been in place. Furthermore, in cases where imports are no longer accessible due to an increase in price created by tariffs, the products available to consumers are of a lesser quality.
However, the overlying issue with these policies are the long-term effects.
When the government plays a role in the consumption of domestic products, consumers suffer the most and at times so do the individuals within these protected industries. The lack of market flexibility incentivizes firms to rent-seek, instead of innovating and this lack of innovation does not allow for the improvement of societal living standards.
When governments decide to stop subsidizing these industries, they are unable to keep up or catch up with technological advances and the processes of recovery and adjustment are more difficult. The anti-capitalist mentality in many developing nations is partly due to how protected national industries were and after market liberalization, many of the individuals working within these industries could not recover.
Even with all of this, somehow policymakers have a tendency to ignore both history and economics and continue to promote protectionist policies, not taking into account the long-term effects and costs they might have.
Consumers deserve to be able to hold international and national firms to the same standard. Having them compete for the consumption of their products, without the need of subsidies or tariffs. There is nothing wrong with purchasing local goods and services, but at the same time there is also nothing wrong with purchasing products from abroad. Individuals who find value in the sense of community mom and pop shops offer or pride in sporting a product made by a local entrepreneur, regardless of monetary cost, should continue to do so.
Nonetheless, in the case where individuals decide not to, punishing them with higher prices or lower quality goods in the name of supporting local business, is both unnecessary and inefficient to the market and overall wellbeing of society.
Gerald Celente hosts and gives his expert analysis on the current trends in the economy.