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Draft 1.1 -- Not for Distribution or Circulation Local Living Economies The conventional paradigm of contemporary economic development is that a locale should attract and retain globe- trotting companies, and do so by doling out huge sums of public money. The best estimate of the annual cost of these "incentives" by state and local governments is $50 billion per year, with federal agencies contributing at least as much (and significantly more over the past two years in the name of "stimulus "). A growing body of evidence suggests, however, that this model is ineffectual at best and a waste of local resources and opportunities at worst. Moreover, many of the most popular concepts in economic development today — industrial parks, high -tech clusters, tax - increment financing (TIFs), business incubators, even green jobs — turn out ultimately rely on the flawed paradigm of attraction and retention. My two books, Going Local and The Small -Mart Revolution, argue that economic development performs best when it is focused, laser -like, on businesses that are LOIS — that is locally owned and import- substituting. Local ownership means that working control of a company is held within a small geographic area. Import- substituting means that the company is focused first and foremost (though not exclusively) on cost - effective production for local markets. Numerous studies in recent years suggest that locally owned businesses contribute more to economic development than do global businesses attracted. Local ownership matters in at least five ways: • Higher Multipliers — Locally owned businesses generally contribute more to the "economic multiplier " — typically two to four times the income, wealth, jobs, and tax payments per dollar of output. The reason is simple: local businesses spend more money locally, particularly on management, business services, and advertising, and local businesses recycle profits locally. • More Reliable — While absentee -owned businesses increasingly consider moving to Mexico, China, or low -wage U.S. state, with little concern for throwing the community into an economic tailspin, businesses anchored locally produce wealth more reliably for many years, often many generations. • Higher Standards — Because local businesses tend to stay put, a community with primarily local businesses can raise labor and environmental standards with confidence that its businesses will adapt rather than flee. • More Dynamic — A community made up of smaller, locally owned businesses is better equipped to promote smart growth and walkable communities, draw tourists through unique stores and attractions, retain talented young people who seek entrepreneurial opportunities and a distinct sense of place, and reduce the noise, fumes, and risks of traffic. 3 Extensive documentation of these points can be found in The Small-Mart Revolution, Chapter 2. 12 Attachment number 1 1 -4 Page 314