The idea that we should “buy local” or that goods should be produced locally is fairly popular, but economically incoherent. There seems to be two main arguments for localism: 1) that long distance transportation is wasteful, and 2) that local spending benefits the local economy and makes people better off. Both arguments are wrong: localism is wasteful and can only impoverish us.
At the most basic level, all goods are produced locally to some people (at least the producers and their neighbors). Why does the location of production matter at all? A head of lettuce moving in a refrigerated truck is the same as a head of lettuce sitting in the refrigerator of the local store. Transportation doesn’t change the nature of the product. Furthermore, “local” is an arbitrary point on a continuum—is local 100 or 1000 miles? Why not 101 or 1001 miles? Taken to its logical conclusion, localism implies that everyone should be a self-sufficient producer and eschew all trade—it doesn’t get any more local than that. To put it bluntly, localism is a bad idea, based on a non-understanding of the economics of trade. Trades are mutually beneficial (else they would not occur) on all levels: from local to global.
Consider an Alaskan and a Colombian trading salmon and coffee. Despite the great distance separating them, this arrangement is the cheapest way of providing the Alaskan with coffee and the Colombian with salmon. If they were to “buy local” they would have to resort to very costly (wasteful) methods of production (such as greenhouses or cold-water tanks) or forgo the product entirely. Needless to say, they are both much worse off without trade. The general principle I’ve outlined is that cost, not location, is the key factor. Alaskans can produce salmon at a much lower cost than Colombians, who can produce coffee at a much lower cost than Alaskans. If the savings from using efficient production exceed the transportation costs, then they both gain by trading because they can acquire the other product at a lower cost than if it were produced locally. By specializing and trading, they minimize waste and conserve scarce resources. To forgo mutually beneficial trades because of location is to shoot yourself in the foot.
The economics lesson here is about scarcity. Since resources are scarce, we must economize their use in order to maximize prosperity. By using the lowest cost methods of production, we minimize the amount of resources that are used up in producing goods. This leaves more resources for the production of other goods, increasing our well-being. In other words, the least cost method is the least wasteful method. So rather than worry about where the product comes from, just look at its price. If local goods happen to be cheaper, then they were produced less wastefully. Same for faraway goods. (Keep in mind, however, that this only holds in a free market, as government distorts prices which hides true costs). A lower price means that less resources were used in bringing the product to you (including the resources used up in transportation). This is why so many goods are produced non-locally: the savings from producing in a more efficient location exceed the costs of transportation. We all benefit from these savings by enjoying more goods at lower prices.
Globalization is often smeared as evil, but in truth, it is one of the greatest triumphs of human civilization. Localism is the real evil as it engenders waste, which can only bring poverty. Global free trade is the engine of worldwide prosperity and continues to be one of the most important solutions in the eradication of world poverty.
Well done: you've managed to boil Adam Smith's mammoth The Wealth of Nations down to a single blog post!
Self-sufficiency is the road to poverty, and the benefits of trade and specialization are limited by the size of the market. Whenever we increase the number of available voluntary trades, we increase prosperity.
One nit: the economic benefits of globalization extend to the most important non-scarce goods in the world. Ideas. An idea is something that can be shared with others without being lost by the sharer, and globalization maximizes the distribution of valuable ideas, including new technologies that can be copied.
Which means that one threat to globalization is the attempt to lock down ideas through intellectual property laws. To the extent "free trade" agreements do this, they are detrimental to actual free trade, which is simply the absence of barriers to trade. So we must always be careful to make sure our support of globalization does not include a support of global interference in the flow of ideas.
Great point. Actually, Tabarrok makes exactly that point in the TED talk I linked to.
[...] on trade move us away from this optimum. To the extent that beneficial trades are foregone, prosperity is sacrificed and waste is promoted. But the logic of the argument applies not only on the level of nations—it also applies with full [...]
What you say if fine, in a perfect free economy.
But obviously, we don't have that and you failed to even hint at the fact that the link between far away production centers and their far away markets, that would be transportation, is entirely state subsidized.
It the taxpayers and citizens of all the points from here to there that pay for the shipping of Alaskan salmon and Columbian coffee. Roads, ports, fuel subsidies, acess to resources, hard to even get a hint of the true free market in the field of transportation.
Not to mention state subsidies of products, overfishing, state confiscation of lands, etc, that affect and distort local markets relative to the world market.
So, the choice to buy local is just that, a free choice and is a much freer expression of the market than the transportation of far away products to far away markets.
We have no clue what the "real" cost of purchasing far away products might be but we can guess without state intervention it would be much higher. And, at that point it would truly reflect resource use. It doesn't come close at present.
We do know that the choice to buy local is just that, a free choice. I would think those who espouse free markets [me included] have no problem with free choice but maybe i am wrong?
"Self-sufficiency is the road to poverty" – really? Colombians and Alaskans trading?
Both of you are missing the point. If you get very serious about buying local, you're going to have to give up consuming products that are produced halfway around the world. People who choose to buy local are not making their decision based on economics, or if they are, they are from your way of thinking making a "bad choice" on purpose. They are choosing to, in most cases, pay _more_ for something that was produced nearby, often by hand or on a very small scale of manufacturing.
Why would they do such a thing? Because it strengthens their community. They are making a pro-community decision, and for that added benefit they are willing to pay more. If you don't think this happens or works, go to your nearest farmer's market or food co-op and spend an hour. Soak up that feeling. Then go to Costco or Walmart and spend an hour. You can feel the difference in every pore, if you choose to open your senses to such differences which are, needless to say, unquantifiable and do not compute in the calculus of your modern economic worldview.
And quickly, re: "self sufficiency is the road to poverty". This statement is only true if you have blinders on. Fair trade and globalization are great, they drive the engines of all our modern economies. But only a fool would think that this boom we are now experiencing will last forever – thinking like that is what causes stock market bubbles, no? When lean times arrive again, globally, self sufficiency will be the road to survival.
I agree wholeheartedly! Buying locally when I can is a way to support my fellow man here, as well as a way to take advantage of fresher foods and local culture, and strengthen the market in my own area. If I want salmon, and I can afford it, I'll buy from the Alaskans. I don't know anyone who strictly buys locally. Is that even possible? However, when I can, I do.
Some people try to do it. You've never heard of the "100 Mile Diet"?
While you are correct that localism is currently popular because of the incorrect idea that it is good for the environment and improves local economics, you have ignored the one plausible reason for buying local – that the local product is the better product!
Your example of lettuce shipped from 1000 miles away being the same as a head of lettuce in the local store is just untrue.
I just bought a head of lettuce from a local farmers market this morning, it was picked out of the field yesterday afternoon and made an enjoyable crispy salad for dinner this evening. Meanwhile, I'm sure there are heads of lettuce picked this morning in California, destined for Southern Ontario (where I live) and may be available to me next weekend. For me, there is no comparison in the taste between the local and California lettuce, the local lettuce is just crisper, fresher and just plain tastes better.
Buying local doesn't need to be an altruistic exercise. I buy local only when it serves my self interest (and my taste buds).
No doubt you are right! Local often also happens to be better, but I was just attacking localism when the local product is worse.
What about while there is unemployment in your own country you get produced goods in another country while the only reason is taking advantage of cheaper labor? Plus consuming a lot more oil.
All the free market idea is sick. Global warming, polluted water resources, destroyed ecosystem. No matter how wealthy you live for a few centuries which most people don't really, the world will be ruined as a result of it. You need to be completely brainwashed to believe in this kind of stuff.
Taking advantage of cheaper labor? Yes. But turn that around: isn't it good for those low-wage workers to be hired? Doesn't more demand for their labor increase market wages and give them more choices for work? The taking advantage of is mutual. Everybody wins.
As for ecological sustainability, Matt Ridley and others have made good arguments that economic progress is reducing our ecological impact.
No doubt through outsourcing you can manipulate the infrastructure of the racial makeup of a society.
This means you can have white people or to being near to white people like spanish people produce your product instead of black people or other undesirerable people.
This type of desirerable trade not only appears to make a purchased product appear superior, and less costly, it also has the availability to control the outcome of racial growth inside a country. Sort of a government without a government done through commerence, and business.
The U.S. population’s distribution by race and ethnicity in 2010 was this as follows:
White 223,553,265 persons of the population of 308,745,538 making ithe United States 72.4 % white out of 100% of the population excluding diversities.
Meaning you could cut the inferior percentage number in half to almost half white, white Jews, and to white mixed blood Native Americans.
Survey of Business Owners – White-Owned Firms: 2007
Whites owned 22.6 million nonfarm U.S. businesses in 2007, an increase of 13.6 percent from 2002. In 2007, White-owned firms accounted for 83.4 percent of all nonfarm businesses in the United States, 44.8 percent of total employment and 34.0 percent of total receipts.
California had the most White-owned firms at 2.6 million (11.6 percent of all such firms), with receipts of $1.2 trillion (11.6 percent of all White-owned firm receipts). Texas was second with 1.8 million White-owned firms or 8.1 percent, with receipts of $800.3 billion or 7.8 percent. Florida was third with 1.7 million White-owned firms or 7.5 percent, with receipts of $592.1 billion or 5.8 percent. New York accounted for 6.6 percent of all White-owned firms, and 6.9 percent of receipts, while Illinois accounted for 4.0 percent of all White-owned firms, and 4.6 percent of receipts.
In 2007, there were 4.6 million White-owned employer firms. These firms employed 53.1 million persons with a total payroll of $1.9 trillion, an increase of 2.3 percent and 20.1 percent respectively from 2002. In 2007, these firms generated $9.4 trillion in receipts, an increase of 24.1 percent. Employer firms accounted for 20.6 percent of the total number of White-owned firms and 91.9 percent of White-owned firms’ gross receipts. The average receipts for these employer firms was $2.0 million.
In 2007, there were 18.0 million White-owned firms without paid employees. These firms generated $834.5 billion in receipts, an increase of 23.8 percent from 2002. In 2007, nonemployers accounted for 79.4 percent of the total number of White-owned firms and 8.1 percent of gross receipts. The average receipts for these nonemployer firms was $46,483.
This doesn’t include white owned farms.
Open trade could benifit the growth of internal and external Fascism.