At least it saves thinky time.
I’ve seen this image appear in my facebook feed at least a few times every week. The idea is that it’s best (according to some) to spend our money on local businesses because the business owners will extract more practical or “moral” utility, where the CEO will just squander it. The only problem is that in the situation the image describes, where you spend your money is irrelevant.
If the CEO does squander his salary foolishly, people benefit in the same way the small business would—he would be injecting it back into the economy by buying the expensive car or by building another house. That’s more factories and more construction work for the providers of working class* families, and more business for smaller companies he patronizes. In some situations, more people would be better off if more business went to the CEO’s corporation than the small family business.
But let’s assume you spend your money patronizing the small business, and that somehow you know they will use the revenue in ways the image proposes. The catch-22 comes because the small business pays taxes (sooner or later—the government has a way of getting money from you). These taxes paid can be used by the government at all levels to benefit the small business’ larger, corporate competitors. Essentially, you would help funding small- and mid-sized businesses pay the government to keep their business from growing.
It’s not your fault, though, nor is it the business’. A company can only get so big the “right” way, by filling consumer demand and creating wealth, before it has to cajole non-market forces into working in their favor. This non-market force is the state, which is able to build walls against the competition coming from smaller companies through legislation and taxation. Thus, CEOs can afford themselves things like exhorbitant bonuses instead of growing their business (creating jobs) because there’s more incentive to rent-seek, which benefits a corporation’s owners primarily and the business secondarily, and less incentive to fill demand, which benefits consumers and the corporation as a whole, from the CEO down to factory janitors.
The best solution, naturally, is to remove the state from the market process by extracting its coercive power and expansive tax levying, and let consumers decide how big or small business will get, through consumption and investment. That way the economic climate reflects demand more accurately and resources are aligned with less recklessness. That’s a tough cookie to bite because the politicians have no incentive to shrink the power of the organization they work for.
*I normally don’t use Marx-inspired class warfare language like this but it fits given the context.
2 Comments
The problem is that the example you gave is not in any way, shape or form the best argument for supporting small businesses. The argument needs to be framed differently. When you’re talking about supporting “local businesses” (no real difference in the kind of business we’re talking about, but different considerations and emphases based on the framing of the argument), then there are serious advantages for people to go to a small, local business as opposed to a larger, national chain.
Local business more often than not circulate money they make back into a local economy. There have been multiple studies that have shown the serious economic benefits for local economies when dollars are given to smaller businesses headquartered in the same city/region as the customers. Those dollars are circulated back into other local businesses many times over, which strengthens the local/regional economy. When dollars are given to businesses national chains, the majority of the dollars are funneled back to the headquarters of the chain, and the local economy where they were spent sees no re-circulation of the money. It’s a demonstrable fact.
Sure, national chains employ locals in their stores, but labor costs are a very small piece of the pie. The majority of the money collected from customers still leaves the local economy. However, local businesses employ locals, which means they give a much larger portion of their money to your neighbors both directly (as paychecks) and also indirectly (through business costs or simply by spending profits locally).
And yes, you could also make the argument that the money will be spent somewhere no matter what, but if you have any pride about where you live or any concern about the well-being of your immediate neighbors, then you should be obliged (or at least compelled) to spend money at local businesses instead of national chains. If the health of your local economy isn’t a chief concern, then it doesn’t matter what business you spend your money on. However, if it is a chief concern, then it definitely does matter.
Thanks for the reply. I was replying to the main idea proposed by the image, that spending money on small businesses always helps them (it doesn’t, since they pay taxes that help competitors), and that a CEO who is reckless with his money isn’t always to the detriment of small businesses.
But, I don’t agree with the claims of buy-local supporters, but that isn’t to say I don’t think it should be done if that’s what your preferences are. My wife and I buy from a local turkey farm because they have great stuff we can’t get anywhere else.
But, keeping money locally (why not take it a step further and do only “same-street” buying?) is nearly impossible without the use of force (laws), like what mercantilist France and Britain experimented with. Since local economies aren’t, and probably cannot be, diverse enough to fill the demand of modern consumers they would need to trade in order to do that. Keeping money local, if it were possible, only ensures a maximum level of prosperity can be reached. Trade makes it possible to break that barrier.