The economic DNA of communities
What separates a thriving community from one merely surviving? The answer lies in understanding what economists call the “local multiplier effect”—a powerful force that determines whether your town’s economic vitality flourishes or fades.
Think of your community’s economy as a circulatory system. Every dollar spent locally acts like healthy blood flow, nourishing businesses, creating jobs, and generating tax revenue that funds essential services. But when those dollars leak out to distant corporate headquarters, it’s like suffering from economic anemia—your community slowly weakens as its financial lifeblood drains away.
The numbers tell a compelling story. According to an economic impact analysis by the American Independent Business Alliance, 48% of each purchase at local independent businesses was recirculated locally (a multiplier of 1.48), compared to less than 14% of purchases at chain stores (multiplier of 1.14). This means that for every $100 spent at a local business, $48 stays in the community to create additional economic activity. At a chain store, only $14 remains local.
Research consistently shows that every dollar spent at the local store contributed three times the jobs, income effects, and tax benefits to the local economy. This isn’t just theoretical—it’s the difference between communities that attract young professionals and those that watch them leave for opportunities elsewhere.
American communities face an unprecedented challenge. Since 1990, over 11,000 independent pharmacies have closed, replaced by chains or eliminated entirely. In 2017 alone, more than 12,000 physical stores closed, accelerating a trend that transforms vibrant downtown districts into vacant storefronts. This isn’t just about nostalgia for the “good old days.” It’s about economic survival. Locally owned businesses circulate three times more money back into the local economy than absentee-owned firms or corporate chains. When communities lose these businesses, they lose their economic engine.
Like individuals, communities must satisfy basic needs before achieving their full potential. Every town needs essential services—police, fire protection, decent roads, and affordable housing. These form the foundation of community life, much like food and shelter support individual well-being. But communities that stop at meeting basic needs remain economically stagnant. The real opportunity lies in what comes next: creating an ecosystem where local entrepreneurs can thrive, where young people see career opportunities, where unique dining and shopping experiences draw visitors from neighboring areas. Consider the difference between a community anchored by big-box stores versus one supported by a diverse network of local businesses. The first provides convenience and jobs, but the economic benefits flow elsewhere. The second creates a multiplier effect that generates lasting prosperity.
Local businesses possess something corporate chains cannot replicate: the ability to innovate quickly and respond to community needs. They sponsor little league teams, donate to local charities, and adapt their offerings based on customer feedback. This creates what economists call “social capital”—networks of relationships that make communities resilient. Moreover, local entrepreneurs often become local employers, creating pathways for community members to build careers without leaving town. This retention of talent strengthens the local tax base and creates a cycle of investment and growth.
Communities seeking a sustainable path forward must look at the long-term vitality when making strategic choices. While big-box stores and chains serve important functions, they cannot be the primary economic strategy. Instead, successful communities invest in: They must provide aggressive entrepreneurship support: Business incubators, affordable commercial space, and streamlined permitting processes that help local startups succeed.
Communities must create and provide distinctive experiences: Unique restaurants, specialty shops, and cultural venues that cannot be found elsewhere—creating reasons for both residents and visitors to choose local options. This might require adding to the Infrastructure Investment: High-quality public spaces, reliable internet, and efficient transportation that support both residents and businesses. Marketing campaigns that educate residents about the economic impact of their spending choices, making the invisible multiplier effect visible.
The Choice Is Yours! Every purchase represents a vote for the kind of community you want to live in. When you choose local, you’re not just buying a product or service—you’re investing in your community’s future. You’re supporting the creation of jobs for your neighbors, funding improvements to local schools through increased tax revenue, and maintaining the unique character that makes your town special. Communities that thrive in the coming decades will be those that recognize this fundamental truth: economic vitality isn’t built by attracting distant corporations, but by nurturing the businesses and entrepreneurs who call your community home. The question isn’t whether your community can afford to support local businesses. The question is whether it can afford not to.
John A. Newby is the author of the “Building Main Street, Not Wall Street” column dedicated to helping local communities, government and business combine synergies allowing them to thrive in a world where truly-local is being lost to Amazon and Wall Street chains. His email is john@truly-local.org