Economic development usually means chasing after a business, hoping to get it to move some of its jobs to your state, city or town.

But a recent study suggests that local governments would be much better off chasing the businesses that they already have.

Or, instead of thinking about economic development as filling the bathtub, the authors of the report say it is also worth some effort to plug the drain.

The report, “Going Local: Quantifying the Economic Impacts of Buying from Locally Owned Businesses in Portland, Maine,” was funded by the Maine Center for Economic Policy. It finds that money spent in a locally owned business has more impact on the local economy than money spent at a national chain, even if both businesses are in the same town.

The differences derive from how the companies spend the money that customers bring to them.

Wages paid and taxes collected, for the most part, stay in the local economy no matter who owns the company. However, locally owned businesses are much more likely to spend on professional services (accounting and legal advice, for example) in their home community, keeping the dollars local.

Locally owned businesses also are more likely to spend in their own communities for car repairs, advertising, supplies and other business expenses and to give more to local charities.

As a result, a dollar spent in a local store generates an additional 58 cents of economic impact in the local economy, as opposed to the extra 33 cents from a chain store. In this way, a community with thriving locally owned businesses will benefit in ways that go beyond just the initial purchase.

And, according to Portland Mayor Michael Brennan, it is also less expensive to help local businesses grow than it is to entice a business from away to open up shop here.

Considering those figures, a city like Portland would be better off using its economic development influence to help local businesses grow, rather than encouraging others to move in, especially if the company headquarters are not part of the deal.

During this holiday season, shoppers have a great incentive to patronize local businesses, where their spending will have the most impact on their community of neighbors.


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