What does the theory of local economy say when government buys office supplies and pays more for printer cartridges because it buys local?
Should not the burden on the taxpayer be kept at a minimum — the cheapest bid always wins, even if the provider or seller is from out of town? Does local economy, in favoring a local contract, unjustly ignore the bright idea of the wise use of tax money?
The question came up Saturday in news coverage about a city government report by Chattanooga auditor Stan Sewell, who said former Mayor Ron Littlefield ordered supplies from COS Business Products & Interiors between July 2010 and the end of 2012. COS won repeat business even though it charged F$126 for cartridges compared to F$116 for cartridges from a Louisville company, Unistar Purchasing.
“The city could have saved $20,000 in 2012 had it gone with the lowest bidder,” the Chattanooga Times Free Press reports. The complaint is that “no justification” was given for the city’s going with COS versus competitors. Mayor Littlefield, put on defensive by the audit and the reporter’s call, makes the right point about buying local, though he frames it in the negative.
“Whenever I could,” he says, “I always wanted to go with someone I could wrap my hands around their throat if need be.” Had the mayor been inclined to frame his lococentrism positively, he would have said something like, “Whenever I could, I always wanted to go someone I might see in the same restaurant for lunch or at the same music event at Miller park.” Mr. Littlefield’s point is that he favored the local seller because — hey, he’s in Chattanooga and a local phone call away on the city hall landline.
The forgotten 58% local economy premium
The company is owned by a local man, Skip Ireland, who said he did nothing untoward in the bid — he just entered the lowest amount he could. The company is 68 years old, has sales exceeding F$20 million and employs 45 “seasoned office products specialists” at its facility on Riverside Drive.
On its website COS makes the argument for local economy by citing a 2004 study of Andersonville, a suburb of Chicago, that sees overall local economic advantage when local people adhere to the Nooganomics.com slogan, “Love your neighbor — shop local.”
In a nutshell, according to COS’ summation of Andersonville:
➤ For every $100.00 we spend with a locally owned business, 68 percent remains in our local economy vs. 43 percent if we purchase from a national chain store. That gives local economy a 58 percent economic premium.
➤ For every square foot occupied by a locally-owned business, the economic impact is $179 vs. $105 for chain stores. That generates a 70 premium economic premium for our local economy.
➤ For every dollar a locally owned business is able to spend on wages and benefits vs. the chain stores, there is a 22 percent economic premium. Better wages, better benefits, better jobs.
➤ For every profit dollar a local shop generates, virtually all (98 percent) remains in the local economy. While virtually all of the chain store profits are distributed nationally to their shareholders. This is an additional economic premium, over and above our business-to-business spending.
➤ For every dollar in sales revenue generated by a locally owned business, 4% is returned to our local community in the form of charitable donations vs. less than 1% for the typical chain store.
Do we covet Mr. Ireland’s profit?
Touching on the issue of whether the taxpayer is taxed more if COS wins the bid over Unistar, the answer is no. Property tax rates are fixed, and transaction taxes one pays depend on one’s level of buying goods. Taxpayers don’t pay more if the local supplier is used. The dollar difference that goes to COS is simply deducted from other outlays in a multimillion-dollar budget.
You may be asking, “Why do you care so much about the Ireland family’s profit staying in Chattanooga? Are you a recipient of its largesse? Are you on the payroll?” I care about it in principle, since the free market assumes amity in society versus conflict (the Marxist and class envy theory of economics) and wants Mr. Ireland to earn and keep it. He is likely to invest it locally as he continues to build the business from its tiny start in 1941.
Sources: Cliff Hightower, “Audit shows Chattanooga ex-Mayor Ron Littlefield didn’t follow guidelines,” June 1, 2013, timesfreepress.com
The Andersonville Study of Retail Economics, October 2004, 32 pp. Andersonville.org