Income Supports and Local Economies

When the US gives money to another country, there’s often a string attached—it can only be used to buy from America. Similarly, federal contracts commonly include a “buy American” clause. This way, the money serves a double purpose of helping the recipient and supporting American industry.

A polar opposite story is the growth of Walmart in the 1980s and 1990s. Groups of local merchants would often organize to try and prevent Walmart from moving into a town and destroying them all. These discussions pitted the interests of consumers against workers at local businesses. Consumers won, and we live in the wreckage of Walmart’s triumph today. Small business is practically dead in plenty of small cities.

The losing side’s argument was that local consumers and employees of local shops are the same people. These residents would be better off paying higher prices for their shopping if it meant they could keep their jobs. Instead, they are trapped in a prisoner’s dilemma: what’s best for each person individually (shopping at Walmart) is worst for the local economy as a whole. Lacking was a central authority to force all the residents to make the cooperative choice of shopping locally.

Designers of local income support programs should think carefully about the tradeoff between helping consumers and supporting local businesses. Recipients may get the best value from spending their money in a big box store, but spending the money locally helps the local economy—possibly providing them a boost later in the form of a better job.

Different tactical approaches have been tried to ensure money is spent only at local retailers, from locally-issued currencies like the BerkShares used in parts of Massachusetts, to vouchers on a mobile payments app that are usable only inside a geofenced area.

Particularly relevant are Double Value Coupon Programs run by a US nonprofit called Wholesome Wave. The double goal is to promote healthy eating by consumers and incubate local farmer’s markets. Each local program is supported by private, local funding. For every dollar of SNAP or WIC benefits spent at a qualifying local farmers market, Wholesome Wave adds a supplemental dollar of private philanthropic money. The private funders succeed in three ways: supporting consumers, supporting local business, and co-opting federal dollars to help them do it.