The local economy is a web of interactions between people, businesses, and institutions within an area. Let’s find its unique pieces and how they work.
The local economy is a web of interactions between people, businesses, and institutions within a limited area. In a city, the local economy it might be a neighborhood. In a rural area, the local economy might include everything that’s within a two-hour drive from your home. Let’s pick apart the local economy for a bit, finding its unique pieces and how they work.
What makes a local economy strong?
A strong local economy means people buy from and sell to their neighbors. Through these economic exchanges, people get to know and trust one another better. That knowledge and trust, in turn, create more opportunities for local economic growth.
Strong local economies provide a place for small businesses to flourish. With their higher levels of customer service, small businesses anchor local economic activity. They can pull in customers from the surrounding areas, pulling more value into the community and keeping financial resources within the local economy. Plus, a small business often makes its name by providing services that big-box stores cannot.
Consumer decisions and choices
Successful small businesses should be located where they have a base of loyal customers. A business with a decent level of foot traffic or local contracts is building up an image and a reputation. Consumer choices drive that success, and these choices can change. A restaurant's reputation may sink, fueled by idle chat or negative online reviews, and cause a real downturn. At the same time, consumer praise will help a business grow.
Spending and banking decisions
Money circulates globally, but the more that money can be channeled into local economies, the better off everyone who lives there will be. Local banks and credit unions are important drivers that keep local economies active. From startup funding to loans for homes and small businesses, it’s important that smaller financial institutions take a leading role. Sustainable banking is necessary for a thriving local economy, but it is not enough on its own. It takes the involvement of the members of the community to maximize the opportunities that local banking creates.
Everyone wants a nicer neighborhood with a stronger economic base. All sides love small businesses and families. We may disagree on the ways to get there, but a thriving community has many ways for residents to get involved and many residents seeking volunteer opportunities. Civic engagement creates community buy-in.
Community banks and credit unions are involved in many local activities and improvement projects, from summer camps to bowling tournaments. This simply reflects the interests of their customers.
Want to find ways to bring more civic engagement to your community? Join a local small business network and develop programs that affect your local economy directly. Volunteers with the library board or local sports league see that their futures are tied to the community's future.
A local coffee shop can serve multiple social functions in a neighborhood. First, it can fuel workers with caffeine. Then, it can provide a work space and meeting space for people designing new companies. It can boost the local arts scene by providing gallery space. And a strong local arts scene draws in more people to fuel up with coffee first thing in the morning. Local businesses fuel ancillary development and activity just with their presence and involvement in the community, so supporting local businesses builds that link to the economy.
Of course, a pandemic could always sweep through, closing a number of small businesses. Or the price of gasoline may spike, making local goods more competitive without the shipping costs. Grants are issued. Housing stock goes in and out of trendy desirability. The exact outside change may be difficult to forecast, but you can count on change happening. Ultimately, a strong local economy lends itself to resiliency when those outside forces blow through town.
What are important sectors in a local economy?
Every location is different. In rural Florida, the orange groves may be at the heart of the local economy. In Boston, the local economy may be more diverse and feature a variety of small businesses, such as a specialty seafood delivery company. Every economy has shared parts with different impacts within the region or community.
Farms and farmers markets
Farmers markets have the localized branding mastered for food. They have developed (or rediscovered) concepts like seasonal eating.
Farm products provide the roots for food-based startups. Even with a world that is more online every day, bakers make bread somewhere. Chefs boil and can jelly at a location. The most affordable places to start a new food business are close to where the food grows. This saves money on transportation, compared to sending piles of fruit overseas to be packaged into jelly and then sent back. Beyond food resources, supporting those agrarian businesses provides additional local services that can benefit the entire community, including repairmen, supplies, and distribution locations. Plus, a locally made item has a custom or bespoke feeling that many people prefer to mass-produced goods.
Experts argue over the importance of local employment for economic development. After all, people must work somewhere. But the 'Great Resignation' that has stemmed from the pandemic paints an extraordinary picture. People do not want to commute, so why not work closer to home?
New businesses start small and need strong roots in place to support future growth. Megabanks are not lending to fit the needs of new, family-run companies. Local knowledge, as well as innovative banking products for local entrepreneurs, create a unique role for smaller financial institutions. A new homeowner can sit down at their credit union and go over all the programs that can help them get into their first home, or discuss their small-business needs with an eye on expansion and growth.
What is an economic impact analysis?
Along with economic strength comes economic growth, and part of that growth is how a local economy expands to support its residents.
An economic impact analysis (EIA) is a report that helps project the economic effects of a new business or changes to a neighborhood. An EIA is a tool professionals and scholars use to track the effects of an event or change in an economic region. A typical EIA measures:
Often, this analysis focuses on a narrower question dealing with a local economic change. Here are some questions that an EIA can answer:
How will a change in taxes change the amount of money that circulates locally
If a local business closes (or expands), how will that affect the community
Where would investment money create the biggest change in the community
How is a national economic downturn likely to affect jobs locally
What are the benefits of building housing on a large tract of land, compared to the benefits of turning it into a park
For example, if a new performing arts center is being considered for a neighborhood, an economic impact analysis may answer these questions:
How many short-term (construction) and long-term (director, ushers) jobs would it create?
What might it purchase from local producers or vendors? Concessions, after-show traffic to restaurants and bars, art and decorations
How much revenue can we expect over each of the first five years
If we offer tax subsidies, how much will they be? What impact will they have
Will this new center take away business from existing organizations?
Now consider more distant and varied effects of an economic change. New projects can boost property values for homes in the area. You might monitor that to make sure gentrification doesn’t remove low-income housing from the area or make other undesirable changes.
How can you affect your local economy?
A simple place to start is buying locally. If you need a birthday present, stop at a small shop downtown rather than ordering from Amazon. Visit your nearest farmers market. Talk to people there about where they sell their goods. Stores that carry local items often carry items from local producers.
Start an economic venture, if you can. Most artists and creatives start as a one-person micro business. As they get greater exposure and generate more sales, their business needs grow. Then they need a printmaker to print expanded runs, postcards, and tote bags. Perhaps an entrepreneur builds a community kiln to fire ceramics for artists who are getting their start in farmers' markets and café windows. Even the smallest businesses can boost the local economy.
Advocate for local economic projects. Adding community members to local exploratory committees and task forces creates more opportunities to bring more people aboard. More buy-in leads to greater chances of success.
What does the future hold for community banking?
Local banking is necessary in a future where communities count. A strong community must be continually built by its residents, small action by small action. A purchase here, a recommendation there, getting a local credit card, stopping by the bank to ask about investments — we see small actions add up together.
Many current practices formed around the boomers, who prefer personal relationships and like to bank and shop in person. This creates a local economy with many sales and service jobs. Generation X, following the baby boomers, also prefers personal transactions. However, this generation’s level of wealth is lower because of its high debt loads, and many members need to take care of aging parents and children.
This in-person economy is fading because of a preference for convenience among the younger generations (millennials, Generation Z, and Generation Alpha), which are happier to bank, shop, and live online — especially on their phones. These online habits may further erode neighborhood economies unless businesses find new ways to reinvent themselves. The spending power of these younger groups is increasing.
This opens more on-the-ground opportunities for local banks and credit unions. By working with businesses and arts groups, local banks can help build in-person destinations — where people will want to be. By establishing roots in a solid community, new businesses can slowly expand into the digital world. Doing business is a way to build a community as well. The top ways to grow a business today center on getting people involved and taking ownership of new plans for their neighborhoods. Local finance is important for creating economic stability and sustainability.