To buy local is loco

Tom Papworth

2 March 2011

Over at Cafe Hayek, George Mason professor of economics Russ Roberts turns his guns on the ”buy local” fallacy.

Roberts is a far better economist than I am, and I have no doubt that he has a better understanding of the value of trade, but I am left feeling that somehow his article fails to get to the root of the issue.

At its core, buy local is an anti-trade doctrine. Anything that seeks to limit the range of people with whom one deals is inherently inefficient and destroys (or at least limits) welfare, for numerous reasons. Firstly, it relies on the hope that the best and most efficient producer is ‘inside’ (be it within my local community, my country, my racial group or whatever other arbitrary barrier I have raised to trade). Yet, as Roberts himself notes, if somebody ‘outside’ is able to make a better or cheaper car, trading with somebody locally simply reduces the buyer’s purchasing power and so benefits the seller at the expense of the buyer: ‘If I serve you poorly either by making a lousy product or one that is more expensive than the alternatives, but ask you to buy from me anyway, that is charity. That may be a nice thing to do… But don’t pretend that it creates wealth...’

But what if my neighbour is the best and cheapest producer? After all, buying local food in a market town in Normandy, or cars in Woking, might make sense. However, this ignores two other key features of trade. The first is specialisation: the more people within an economy, the more specialised each person’s contribution can be, and so the more efficient overall production. Adam Smith’s pin factory could only operate because it was able to sell pins beyond its immediate locale; but more importantly, the only reason that a man could dedicate his productive endeavours to drawing out, straightening, cutting or pointing a wire is because he is able to buy everything else he needs from elsewhere. If once considers the areas that have adopted the ‘buy local’ mantra, it should become immediately clear that not one of them could support anything like their current standards of living if they really did buy locally. It is not just that they would not have access to goods that cannot be made in the Shropshire Hills or Eastborne; they would not be able to specialise enough to make many of the goods that currently are produced there.

Specialisation is essential to the story, but not sufficient. Alongside specialisation comes the most beautiful and yet counter-intuitive fact of economics: that it is worth trading with people even if they are less efficient at producing any conceivable good. This is the Theory of Comparative Advantage popularised by David Ricardo. A simple example will suffice. Let’s say that David Beckham is a hundred times better at painting houses than me. Should he paint his own house, or pay me to paint it? The obvious answer is that he should pay me because, though he is a hundred times better than me at painting houses, he is thousands of times better at football, and can therefore earn the money to pay me to inefficiently paint his house far more quickly than he can paint it himself. In the same way, a poor worker in the least developed country in the world will benefit not only herself but also a rich worker in a developed country if she concentrates on what she is good at and sells what she does not consume so as to buy other goods from others elsewhere.

Russ Roberts acidly observes ‘We have tried buy local before. It is called the Middle Ages’. His criticism of the middle ages is unfair: they witnessed significant trade, as demonstrated by the fact that Italian city-states such as Venice grew rich, England sold wool and imported wine, and Iberian adventurers set sail towards the end of the world in the hope of reaching the Indies. His criticism of the buy local fallacy is justified, however. Buy local is not a sign of confidence in a local economy (if it was, there’d be a Buy London campaign!). Rather, it is evidence that a local community lacks confidence in its ability to trade with the rest of the world for mutual advantage. This pessimism is misplaced, and those who wish to better their own lives and that of their neighbours would be best placed trading openly with the world.

Tom Papworth is a Fellow of the Adam Smith Institute and the Director of Policy at Liberal Vision.

Tags: 'buy local', purchasing power, Tom Papworth, Development and trade

Submitted by Richard Wellings on Wed, 02/03/2011 - 13:29.

I see that the Scottish Conservatives seem to be supporting the 'buy local' campaign: http://www.buylocaleatlocal.org.uk/

This is deeply worrying. If the campaign becomes successful it could do serious damage to farmers in developing countries. Worse still, the 'buy local' movement may build political pressure for governments and supranational bodies to introduce further protectionist measures. We already have the CAP, which has arguably had a devastating impact on agriculture in the Third World.

Submitted by Kris on Wed, 02/03/2011 - 14:38.

We should start growing a local wine industry instead of importing it from Chile and New Zealand. The wine would surely taste like diluted water and cost £20 per bottle, but it would create jobs, support local communities, and cut carbon emmissions. It requires protection, though, because wine farmers in sunnier climates have an unfair edge.

Submitted by Mark Wadsworth on Wed, 02/03/2011 - 18:09.

Completely agreed. This kind of thinking reaches extremes when NIMBYs wail about "Keeping out the supermarkets to protect the small, local shops" and the idea that we can improve our "food security" (whatever that is) by spending less time manufacturing and exporting stuff and more time on growing stuff domestically (which leaves us with a small but unacceptable risk of a total crop failure, rather than an large but acceptable risk that there'll be a crop failure somewhere or other and food prices will go up "a bit").

Submitted by Richard on Wed, 02/03/2011 - 18:59.

If people choose to buy local then that's their business. Not yours and not the governments.

Submitted by Whig on Wed, 02/03/2011 - 20:41.

I agree with the basic premise. I would point out that buying locally is a perfectly acceptable activity if it is merely a form of marketing. In this instance, one might buy locally produced goods and knowingly pay a premium because ones feel that one wishes to (I don't - hence the impersonal pronoun). Of course, the emptor should be aware of any development issues - but ultimately it's an issue of choice, branding and marketing. Thus local suppliers are engaging in product differentiation. The problems come if government starts subsidising local purchasing either directly, in advertising and so on. If a fallacy is freely held then it will eventually be rejected freely - people will opt for cheaper 'distant' goods - or upheld because of subjective preference. If government is interfering with free choice, however, then we have an issue. That appears to be the case and it is a travesty, as the article suggests.

Submitted by Jane on Wed, 02/03/2011 - 22:27.

It seems to me that both you and Professor Mason only address one out of several reasons for buying local, that is the idea that it helps the local economy. There are several other reasons for doing so, and it is possible to agree with everything you say and still decide to buy local. Firstly there is the desire to reduce your carbon footprint. Goods which have traveled a long distance in fossil fueled transport will have a higher carbon content than goods which have traveled a short distance -- usually. There are exceptions. The one usually cited is tomatoes grown in greenhouses in East Anglia having a higher carbon footprint than tomatoes flown in from Africa where they've been grown in the open air. However, as a general rule, if you want to reduce your carbon footprint, then buy local. Secondly, there is the desire to conserve the character of your locality. A local tradition of industry or agriculture may be irrational from an economic point of view, but you may feel that its decline and loss would have a negative impact on the quality of life in your community. On that basis you may choose to buy local for conservation purposes. Buying locally made cheeses, rather than imported, or locally farmed lamb, rather than New Zealand, would be a good example of this kind of motivation in action. Thirdly, there is charity, will you acknowledge but discount. Charity is unlikely to save a local industry in the long run, but it can cushion its decline. That seems like a reasonable motivation for buying local to me.

Submitted by Ben C on Thu, 03/03/2011 - 00:23.

The problem with both this article and the one written by Russ Roberts is that they largely miss the point of the push to Buy Local. Certainly there are products where specialization benefits everyone and a local purchase would be nonsensical, or other some other form of intelligent purchasing could be more effective. I live in Seattle and as such Microsoft is a local company, I prefer to use open source software whenever possible even though I am hurting the local economy by not contributing to MS. I could argue that this may not be the case since I have very strong disagreements with Microsoft on local political issues relating to infrastructure. They recently ran a heavy handed lobbying campaign to shoot down a bridge renovation proposal that would have substantially expanded our light rail system (right now nearly nonexistent) and instead pushed to add two lanes on each side to the high way and remove bike lanes while also setting up off ramps right next to a very large and pleasant public Arboretum. I go into that level of detail to introduce the issue of lobbying. Under the realities of our current political system large specialized corporations have an incredible ability to influence legislation concerning their industries. Disagree with the principles behind that statement or not it does not change the fact that when you buy produce grown by Monsanto you are funding a corporation that is actively eliminating the ability for people to compete with it. If you find that statement to be too extreme fine, but understand that the core of the Organic movement (which heavily overlaps with the buy local movement) has more to do with food regulations than it does with any specific health benefits from eating non-genetically modified food. Because of how patent laws function on genetically modified crops a smaller scale farmer can but utterly devastated by law suits on the off chance that cross pollination occurs with a corporate licensed strain. In another light this would be like if you owned an Android phone and you connected to the same wifi network as an iPhone and suddenly your phone was locked unless you paid Apple a fee. This is only one example, for animal products it is a quite documented fact that large "efficient" suppliers tend to be more prone to violations of safety regulations (by sheer proximity of livestock), more prone to environmental damage (forget about global warming, old fashioned ground water pollution makes this case) and more prone to regular violations of labor laws (hiring and exploitation of illegal and undocumented immigrants is a big one). In addition to those arguments local small scale farms typically pay more personalized attention to the products and you end up with higher quality. You pay a higher premium for that but I doubt many readers would complain that they have to spend more at a restaurant with a chef that at a McDonald's. Tyson's frozen chicken nuggets are not going to compare to something killed this morning that you from a farmer's market. Fine, not everyone has healthy farmer's markets and not every region has access to a valid range of food year round. I certainly do not live on kale, salmon and squash exclusively in the long wet Seattle winter. In the same way that buying local as a blanket approach does not hold up neither does the statement "to buy local is loco." Everyone should be attempting to buy intelligently, and you cannot assume that just because someone is producing a cheap product that they have your quality of life in mind. As long as our politicians require millions of dollars to run ad campaigns and corporations are allowed to contribute millions of dollars to those campaigns then where you spend your money has much larger consequences than just how it impacts your wallet.

Submitted by Whig on Thu, 03/03/2011 - 10:26.

Jane - the concept of 'food miles' is entirely more complex than you allow. For instance - shipping lamb from New Zealand adds very little to its carbon footprint because shipping is so efficient in energy terms. The greatest addition of carbon is usually in the last mile (ie you driving to buy it, say) - you may find that the carbon footprint of local transportation and production actually exceeds that of transportation at a distance as has been shown to be the case for tomatoes, flowers and so on. So the environmental benefits of local production are unclear. There is also the issue of seasonality - local products will only be available at certain times of the year - this would severely limit our diets. English bananas anyone? Bananas!!! Why support inefficient industries in decline? There's no good reason for doing so other than sentimentality - preserving inefficient industries is a waste of resources. And why ought one prefer local producers over ones far away, who might be much poorer and have fewer economic opportunities - don't they also deserve a chance to sell you their products? As mentioned in the comments and elsewhere there are many other reasons to prefer a global economy than a closed local one - food security, improved choice, lower costs, development etc etc. Again, these questions only matter when it is a case of governments subsidising local production - be it either in the UK or abroad - otherwise it is simply personal preference. You may prefer local products, but you need to be better informed about why you are doing so.

Submitted by Philip on Thu, 03/03/2011 - 11:40.

@whig - from Jane's perspective there may be a personal aspect to this. There are seen and unseen economic consequences of all economic actions, of course and Jane's decision to shop at her local veg shop that might otherwise go out of business because she is famliar with him is an understandable one (even though somebody might end up being made unemployed from Tesco who might then be in very difficult personal circumstances as a result). One could regard that as sentimentality or as reciprocity (the veg shop owner might send her children to the pre-school that Jane runs on a similar basis - that is just an example, Jane, I have no idea whether you run a pre-school). From that premise some would argue that you get better social relationships in the local area. There are counter arguments to the economic points of course (the Tesco example) and also to the social relationships argument (are we becoming insular and developing closed relationships with those with whom we are famliar and neglecting the looser relationships that come from trade?). I therefore do not subscribe to Jane's argument but it is perfectly understandable. @Jane - as well as Whig's point, if one is thinking about whether to buy (say) Oxfordshire lamb (if one live's in Oxford) or some other (unidentified) lamb produced in the UK) it is fair to say (and the Stern report confrmed this) that road transport more than pays for its carbon footprint. And it is really very inefficient to buy locally produced food in this way. I come from East Yorkshire (very good for pigs). If I bought only local lamb and people in Wales bought locally too we would end up trying to rear pigs in the Welsh hillsides and sheep in Holderness. This is a very poor outcome (environmentally and economically). The division of labour and trade have allowed us to have all the material things that make life worthwhile. Limiting the division of labour and trade by buying local produce is something that those who rise up the income scale can then afford as a result of all the benefits that come from trade more generally - but it is not a good starting point for thinking about the economic and environmental impact of food production.

Submitted by Tom Papworth on Thu, 03/03/2011 - 16:04.

Thank you all for contributing. @Richard: "If people choose to buy local then that's their business. Not yours and not the governments." Well, yes and no. I'm not suggesting that people should be prevented from buying locally, or that the government should have a role. But is is perfectly legitimate to discuss the matter in the hope of educating those who may be making ill-informed decisions. @Whig: "one might buy locally produced goods and knowingly pay a premium because ones feel that one wishes to" That, plus "but don't think it helps the economy" was pretty much Russ Roberts' point. @Jane: "Firstly there is the desire to reduce your carbon footprint...Goods which have traveled a long distance in fossil fueled transport will have a higher carbon content than goods which have traveled a short distance" This is questionable, I'm afraid. One of the advantages of trade is that it maximses the efficiency of production. It may be counter-intuitive, but if yields are high enough, it can be more environmentally friendly to grow food abroad and ship it into the UK than to produce it in the UK. "Secondly, there is the desire to conserve the character of your locality" This is certainly true. I don't dispute it. However, I have never seen the 'buy local' argument put in terms of "Buy expensive, inefficient produce so that we can prevent the evolution of the area". "Thirdly, there is charity" I don't discount charity, but it is a strange way of going about it. The best form of charity is to give people money; paying them to do a job inefficiently is a questionable form of charity, which usually says more about the giver than the receiver (i.e. it's about the giver's interest in your second point rather than the receivers need for your third).

Submitted by Tom Papworth on Thu, 03/03/2011 - 16:14.

@Whig: "There is also the issue of seasonality" Indeed. When I lived in Sweden, I was frequently told that, prior to their joining the EU in 1995, the only vegetables you could find in Swedish supermarkets in winter were potatoes! That being said, we need to be careful to distinguish between campaigns that say "buy local if you have the choice" and those that say "buy local at all costs and give up having a choice." "The greatest addition of carbon is usually in the last mile (i.e. you driving to buy it, say)" There is a very interesting coda to that. I frequently hear people say that it is environmentally unfriendly to order food delivered because you are adding to carbon emissions by paying for that lorry to drive to your house. These people almost without exception ignore the countervailing fact that they would otherwise have driven to the supermarket! When they do, they tend to observe that their car is more carbon efficient than a Tesco van. However, what they invariably overlook is the fact that the van covers far fewer miles driving in a circuit around a large number of consumers than each of those consumers would collectively drive if they each went to the supermarket. An analogy would be to compare the length of all the spokes on a bicycle to the length of one spoke plus the circumference of the wheel. Also, of course, one big warehouse is more efficient than several stores. Which raises another interesting question about those who wish to protect small grocers from the major chains. How efficient is it (economically or environmentally) to have numerous small stores operating instead of one large one? These questions are far more interesting and complicated than most casual observers assume!

Submitted by Tom Papworth on Thu, 03/03/2011 - 16:14.

Note to IEA: need to enable the use of paragraph breaks in comments!

Submitted by D.R. Myddelton on Thu, 03/03/2011 - 16:56.

In the only book on economics I have written (so far), I used this example: 'I may be a better typist than my secretary, but she more closely approaches my superior standard in typing than she does in teaching. Hence I have a comparative advantage in teaching (though I have an absolute advantage in both teaching and typing); and my secretary has a comparative advantage in typing even though she is a worse typist than I am.' I then got my secretary to type out the example! But does the theory of comparative advantage assume that factors of production cannot move between countries? I wonder if this assumption is truer in short-term than in the long term?

Submitted by Nick Hayns on Thu, 03/03/2011 - 17:18.

@Tom Papworth - I definitely agree! Something we'll look into. Thanks.

Submitted by Tom Papworth on Thu, 03/03/2011 - 17:20.

@D.R. Myddelton: "But does the theory of comparative advantage assume that factors of production cannot move between countries?" To answer a question with a question, does comparative advantage only operate at a national level? Surely the point of your example is that comparative advantage is at an individual level. Therefore, it doesn't hugely matter where a person lives, except that there are transaction costs involved in any trade that takes place over distance. BTW: How did the example go down with your secretary? I picture a book full of spelling mistakes and deliberately unfinished sentences!

Submitted by Whig on Thu, 03/03/2011 - 17:36.

@BenC - you might be quite correct that larger corporations have undue lobbying power. However, the best way to prevent them using such power is to curtail the regulatory and interventionist powers of government. Large firms can only really 'abuse' markets in anything other than the very short run through the agency of government, which establishes barriers to entry etc. which destroy the small firms you champion. This is definitely true in the area of something substituable like foodstuffs. Buy local campaigns are, therefore, (where they are government sponsored) a government attempt to remedy a problem introduced by excessive government in the first place!! That we constantly see government behaving in this manner is unremarkable - people are ignorant of the sources of the initial problem and thus seek to remedy it from the wrong premise (Herbert Spencer was writing about this in the c19 - plus ca change!). I cite a recent instance I saw of a government poster campaign against buying smuggled cigarettes - a criminal enterprise made profitable by the excessive duty government places on cigarettes. @Tom - sorry, confess I didn't read the linked article, only yours, so apologies for repetition. It's a key point nonetheless. On carbon footprints - the fact is it's almost impossible to determine which is optimal, let alone actually do it, which makes something of a nonsense of much of the concept of 'food miles', even if we only look at them from a purely carbon perspective, which is extremely narrow. The other issue is that government is often unintentionally subsidising certain forms of behaviour which may be environmentally unsound (say, private car use), whilst at the same time punishing that behaviour via, say, 'green taxes' which is clearly absurd! @Philip - I'm all for reciprocity. However, I'm sure we both agree that it must be voluntary reciprocity, not coerced via government intervention in any form. Otherwise, government backing for local enterprises merely becomes the old 'picking winners' routine.

Submitted by Tom Papworth on Thu, 03/03/2011 - 17:42.

@Whig: "confess I didn't read the linked article, only yours" Careful. If people start reading my articles in preference to those of an Economics professor it might go to my head! OTOH, finding that you have created an original thought that reflects those of an Economics professor might go to yours. Unless you are one, of course.

Submitted by Whig on Thu, 03/03/2011 - 18:14.

@Tom - give yourself a pat on the back. His post was rather brief, but it wasn't hugely insightful as your post suggests. I'd also point out that at no point does he mention the difference between free choice and the coercive choice imposed by government (that I could see?). Whilst he's correct that the concept of 'buy local' is dubious, it's the involvement of the state that makes it malign. I'm most certainly not an economics professor - I resent that slur on my character. On DR Myddleton's secretary - I suggest he employs a PC with a word processor so the secretary can redeploy her resources to something more efficient. Or he could outsource his typing to someone in India, say, to do it more efficiently.

Submitted by Rio on Wed, 09/03/2011 - 16:09.

Isn't another reason we campaign to "buy national" an individual's effort at protectionism? Whilst Adam Smith's theory of specialisation explained a revolutionary practice, what if a country cannot develop a comparative advantage in enough fields? Is this not what has led to a national debt in the UK of over £2Trillion; An over-reliance on imports? And what of China's developing education system, and the potential threat to our services industry and comparative advantage in finance? The way I witness it, 'buy locally' or 'buy nationally' is more a reaction to fears of foreign economies and leakages in the economy, and an attempt to strengthen national industries.

Submitted by Tom Papworth on Wed, 09/03/2011 - 16:35.

@Rio: "what if a country cannot develop a comparative advantage in enough fields?" Forgive me, but this is to misunderstand the theory of comparative advantage. One can have a comparative advantage in something even if one has an absolute advantage in nothing. To put this another way, all countries (or rather individuals and firms) need to do is focus on produced whatever they are best at, and earn the money to buy everything they are not so good at, and they and everybody else will benefit. Thus even a low-productivity country such as Chad will have a comparative advantage somewhere when trading with a high-productivity country such as Germany.

Submitted by Tom Papworth on Wed, 09/03/2011 - 16:35.

@Rio “Is this not what has led to a national debt in the UK of over £2Trillion; An over-reliance on imports?” The “£2 trillion debt” results from governments spending more than they have. If government had run a balanced budget since time immemorial we would not have any national debt at all. I think you may be confusing the debt with the trade deficit (also not to be confused with the budget deficit). Remember, we can only buy imports if we have either foreign cash or people who will accept GB Pounds, and people will only give us their cash or accept GB Pounds if they can buy something from us in return. We don’t really have a trade deficit; what we have is a situation where we import good and export services and – at the moment – borrowing, which will have to be paid back some day.

Submitted by Tom Papworth on Wed, 09/03/2011 - 16:36.

@Rio: “And what of China's developing education system, and the potential threat to our services industry and comparative advantage in finance?” Not a problem. More educated Chinese = more productive Chinese = richer Chinese = Chinese who want to buy more stuff. Go back 100 years and you’ll see the same arguments being made about the rise of Japan and German and the United States, but their rise did not make us poorer; they made us richer.

Submitted by Tom Papworth on Wed, 09/03/2011 - 16:36.

@Rio: “The way I witness it, 'buy locally' or 'buy nationally' is more a reaction to fears of foreign economies and leakages in the economy, and an attempt to strengthen national industries.” Now that definitely is true. But those fears are groundless and those who are playing on them are usually doing so for their own benefit at the expense of the general populous, who would benefit from open markets.

Submitted by Kris on Wed, 09/03/2011 - 17:54.

Rio: "what if a country cannot develop a comparative advantage in enough fields?" That is simply mathematically impossible. Assume there are 2 economies, Productivistan and Laggardland. Both produce computers and wine. Productivistan needs 5 workers to produce one computer per day, and 3 workers to produce a barrel of wine per day. Laggardland needs 500 workers to produce one computer per day, and 100 workers to produce a barrel of wine per day. It's clear who's the leader here. But in order to produce a barrel of wine, Productivistan has to forego 3/5 of a computer, while Laggardland is only foregoing 1/5 of a computer. So Laggardland should produce wine, export it to Porductivistan, and buy their computers in return. It doesn't matter how big the proctivity gap between the countries becomes, you always have a comparative advantage in some things.

Submitted by Tom Papworth on Mon, 14/03/2011 - 11:24.

Kris's examble actually raises another interesting point. Imagine that Laggardland manages to improve its productivity in making computers, so that it takes 100 Lagards to produce either a computer or a barrel of wine. It now appears not have an advantage in producing anything. However, as Productivistan has to forego 3/5 of a computer to produce a barrel of wine, Laggardland still has a comparative advantage in producing wine. In fact, it is possible that Laggardland could be slightly more efficient at producing computers, but still have a comparative advantage in producing wine. So my comment above that "all countries (or rather individuals and firms) need to do is focus on produced whatever they are best at" may be slightly simplistic. They need to establish where their comparative advantage lies.

Submitted by Philip on Mon, 14/03/2011 - 11:51.

A semantic point - "discover" rather than "establish". That discovery comes through the market process that reveals costs, preferences, values and prices. "Establish" sounds like somebody is consciously trying to find out where the comparative advantage lies.

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