What is a local economy?

The word “local” is an odd one. We all think we know what it means, yet when we try to define it it becomes clear that the term’s a little more slippery than it first appears. It conjures up the idea of something - or someone - that is tied to a particular area, but it is often also used as a shorthand for deep-rooted connections to a place that go beyond mere location. 

Imagine a pub in a typical British town. People who live down the road refer to it as their “local”, and yet it is also an outlet of a big corporate company that is headquartered abroad. Next to it is a polish supermarket, which is independently run by a family who live in the area. They and many of their customers were born abroad, and the majority of the produce they sell is imported in from another country. How well does the term “local” fit these two businesses? Ask different people, and you’d get different answers. 

Some of the confusion may be linked to the fact that when we look at our collective economic history there is a clear trend towards everything becoming less and less local. Five hundred years ago most of us would have spent almost all of our lives within a radius of a few miles, and almost everything we ate, everything we owned and everyone we met would have come from that same area. Now, we live in a world that is highly globalised. Think of the ingredients in your last meal, the stuff in your home or the people in your life - chances are many of them originated from different towns, regions and countries. You yourself have probably lived in - or have heritage from - multiple different places. 

The end result is that it’s far more common to hear politicians and newspapers talk about economics on an international scale (“international trade deals”, “the world economy”, “the global recession”), a national scale (“the UK’s GDP”, “Made in Britain”, “national prosperity”) or even a regional scale (“the Northern powerhouse”, “the Midlands engine”) rather than a local one. And this trend has been exacerbated by the net loss of 245 local newspapers in the UK since 2005. (“net loss” means more newspapers have closed than been set up). 

But this may be changing. People seem to be becoming increasingly interested in moving away from a focus on globalisation and towards an emphasis on “localised” economies. “Buy local” campaigns, for example, encourage people to purchase stuff that was either made nearby or is sold by a business that only operates in that area. The reasoning is that buying local helps the environment (because transporting stuff from far away emits greenhouse gases), makes you and your neighbours better off (because money stays in the area and is invested in nearby things that you’re all likely to use) or provides more jobs to locals (which some people think it’s important to prioritise).

Another “localising” idea that is becoming more popular in countries like the UK is devolution, and specifically the devolving of fiscal powers. Devolution is where a national government gives up some of its decision-making authority to a local authority like a council. Fiscal is the term used to refer to money that belongs to a government, such as taxes. Devolving fiscal powers means giving local authorities the ability to do things like set their own tax rates, or decide how much of their budget to spend on things like policing, healthcare or education. 

Fans of devolution think that it’s easier for a government to improve an economy when they’re just focused on a small, “local” area, because they’re more likely to be able to come up with specific, tailored solutions. For example, areas with different demographics will have different levels of need for public goods and services. So places with lots of kids might spend more of their budget on schools, while places with lots of retirees might instead splash the cash on care homes. 

There’s also a theory that if you as a citizen and taxpayer see the people and places you know personally benefiting from local government decisions, you’re more likely to feel democratically empowered and engaged in your local economy. That’s the same logic behind giving ownership of a local service or business to residents, in the form of something like a cooperative or community-owned bank. 

But not everyone is convinced of the virtues of localism. A belief that locals should be prioritised for things like jobs can sometimes be tied up with xenophobic or racist opinions. Devolving government authority can sometimes reduce wealth distribution because richer areas no longer have to raise taxes or spend money on services and support for poorer people and areas. And because international supply chains have been credited with making everything from food to smartphones better and cheaper (by upping business competition and taking advantage of things like cheaper labour abroad), localism might raise prices. That would hit the poorest hardest.