Homegrown Businesses, Not Global Chains, Build Community Prosperity

I’ll say this for the featured speakers on the opening day of the recent Montana Economic Development Summit: they were consistent. Speaker after speaker noted Montana must “compete in the global economy” to thrive and how the internet was key to doing so. The clichés quickly grew old, but ideas only become clichés if they present some truth.

Technology and international trade undoubtedly serve an important role in Montana’s economy. Yet the cheerleading for corporate globalization only elevated my skepticism of the keynote speakers’ motives (all out-of-state, white, male millionaires or billionaires). After all, if something really improves people’s lives, you don’t need to tell them repeatedly how great it is.

More concerning was the invisibility of community-serving businesses—hardware stores, grocers, farmers and countless other businesses that serve the everyday needs of Montanans. These businesses may lack the sex-appeal of global exporters, but they are the bedrock of local economic vitality. Moreover, their importance only will grow as transportation costs rise and diminish the advantage wielded by global corporations dependent on cheap fuel and weak regulations abroad.

Unfortunately, Target and Wal-Mart—the only two retailers with tables in the Summit’s exhibition hall—represent the opposite of sustainable economic development. Global chains’ displacement of local businesses ensures more dollars will leave the local economy and fosters dependence on corporations with no real commitment to our communities. The history of Butte, MT, where the summit was held, provides a prime example of how such dependence ultimately can ravage a local economy and environment.

But while these mega-corporations and their entourage of think tanks and public relations firms persuade us of their benefits, the benefits of doing business locally often go unappreciated or ignored.

We have much to gain personally from the knowledge, personal service, and quality offered by independent businesses, but the economic benefits are less obvious. Independent local businesses typically hire local designers, sign makers and attorneys to get started. Whether employing people in-house or hiring other local firms, they create opportunities for insurance brokers, computer consultants, advertising agencies and others.

In contrast, global chains typically open a clone of their other units. Locally, they employ many clerks and cashiers, but provide few higher paid jobs and use minimal local goods and services. Meanwhile, profits exit town to corporate headquarters. Thus, local independent merchants recirculate three or more times as much of each dollar in the local economy as chain stores—a multiplier effect that drives economic growth far more than attracting outside entities.

Small manufacturers and service industries also have a stake in the health of these entrepreneurs, who are more willing give their new products and services a chance. Independent businesses, in many realms, are interdependent; their fortunes rise and fall together.

Further, local businesses also return a greater percentage of sales to civic events and community causes, though you don’t often see them photographed with table-sized checks to call attention themselves.

Despite “globalization” hype, understanding the multiplier effect and the benefits of a local ownership is crucial to intelligent, sustainable development in our communities.

Retail chains boast how their stores create hundreds of jobs, but “create” is simply a euphemism for “relocate.” We don’t suddenly need more toasters or toilet paper when a big box store opens. As a result, nearly 85% of sales at new big box discount stores come directly from existing local businesses. Combine this impact with the efficiency of consolidating most well-paying jobs at headquarters, and most chains become net disemployers.

Chain proliferation hasn’t just resulted from market competition; it’s had plenty of help from what Stacy Mitchell, author of the outstanding book Big Box Swindle , calls “the invisible hand of Uncle Sam.” For local officials luring a new national chain is politically seductive and much easier than actual job creation. As a result many chains receive millions of dollars in local and state subsidies—creating a decidedly uneven playing field for independent competitors (whether or not such subsidies are offered locally).

The real giants like Wal-Mart are masters of extracting public subsidies, but they’re not alone. For example, Cabela’s is seeking to move into Montana, starting with Billings, but prefers not to compete in a “free market.” The corporation is seeking municipal subsidies that few (if any) Montana outfitters enjoy.

Tax evasion schemes also unfairly handicap entrepreneurs who pay their fair share of taxes—and raise them for the rest of us. Incredibly, when State Senator Jim Elliot investigated corporate income taxes in Montana, he discovered 40 percent of the largest 500 corporations doing businesses in Montana paid less than $500 in state income taxes in 2002. Such perverse practices must change to create a level (or better) playing field for homegrown businesses; chains already have enough laws rigged in their favor nationally.

For long-term progress, a conceptual change also is necessary. As citizens, we should consciously plan our future with rules that will encourage the values we want reflected in our communities. And as consumers, each time we spend money, we should weigh the full value of our choices, not just for ourselves short-term, but for the future we want in our own hometowns.

By Jeff Milchen, co-founder of the American Independent Business Alliance, which helps communities around the country form coalitions that help independent business compete effectively and prevent chains from displacing local entrepreneurs.