As I was breaking down boxes from our family’s annual Christmas gift exchange this year, I was again reminded of how many gifts came in Amazon or another internet vendor packaging. In a few short decades, we have gone from purchasing all of our gifts from area vendors to where, in 2024, two-thirds of buyers will purchase half or more of their gifts on the internet. Traditional local merchant shopping has given way to convenience, discounts and selection. This trend is projected to grow annually, with the end goal of merchants like Amazon, eBay, Costco, Walmart, and Target, that nearly all purchasing of retail hard-goods will be online. I don’t think anyone will argue with the fact that internet purchasing allows a far easier process with a much broader selection of goods. How could this not be optimal?
Dollars spent with locally owned vendors recirculate 2-4 times more than dollars spent on non-locally owned (big box / franchise) businesses. And dollars spent online, unless that vendor is local, do not circulate at all. So, with the continued online purchasing behavior, more and more of local community dollars will continue to leave. And those communities in which the online retailers reside will reap the benefit.
It is estimated that for our local Cedar Rapids community (roughly 250,000 population), residents will spend over $500 million online in 2024. That is over half a billion dollars that will leave the community for good, with that number continuing to grow every year. The faster money leaves a community, the more money a community must bring in to (a) balance it, or optimally (b) grow its overall vitality.
So how do you increase the local money supply? Local manufacturing operations, for example, that produce a product sold broadly will create jobs and payroll paid for by buyers from other communities. The more of these types of jobs, the greater the inflow of dollars. This model has been at the core of business recruitment economic development for decades. In our community think Nordstroms, Red Star Yeast, Sub Zero, etc. If you want to ratchet up the inflow to a much greater level, locate the home office of that manufacturing operation in your community. Then, besides the manufacturing jobs you will also get the higher paying senior management jobs, you will get retainment of local legal, accounting, marketing and recruiting services, you will get financial support of your local charities, you will get philanthropic engagement in local community needs, you will get local community leadership talent, and you will get generational wealth and family-based dedication to your community.
At the heart of strong growing communities are home-office based interstate-commerce businesses that attract money and talent on an ongoing basis and provide strong local community leadership. If you strip away the home offices and keep just the jobs, you keep some of the money but you lose the wealth, philanthropy, community leadership, and the retention of your local service providers. This is not a condemnation of recruitment economic development, but rather a challenge to make sure that the inflow of both talent and dollars exceeds the outflow. And with the increasing amount of dollars flowing out to a “Buy Now” button, jobs-only economic development is unlikely to keep up.
