To buy local is loco
Roberts is a far better economist than I am, and I have no doubt that he has a better understanding of the value of trade, but I am left feeling that somehow his article fails to get to the root of the issue.
At its core, buy local is an anti-trade doctrine. Anything that seeks to limit the range of people with whom one deals is inherently inefficient and destroys (or at least limits) welfare, for numerous reasons. Firstly, it relies on the hope that the best and most efficient producer is ‘inside’ (be it within my local community, my country, my racial group or whatever other arbitrary barrier I have raised to trade). Yet, as Roberts himself notes, if somebody ‘outside’ is able to make a better or cheaper car, trading with somebody locally simply reduces the buyer’s purchasing power and so benefits the seller at the expense of the buyer: ‘If I serve you poorly either by making a lousy product or one that is more expensive than the alternatives, but ask you to buy from me anyway, that is charity. That may be a nice thing to do… But don’t pretend that it creates wealth…’
But what if my neighbour is the best and cheapest producer? After all, buying local food in a market town in Normandy, or cars in Woking, might make sense. However, this ignores two other key features of trade. The first is specialisation: the more people within an economy, the more specialised each person’s contribution can be, and so the more efficient overall production. Adam Smith’s pin factory could only operate because it was able to sell pins beyond its immediate locale; but more importantly, the only reason that a man could dedicate his productive endeavours to drawing out, straightening, cutting or pointing a wire is because he is able to buy everything else he needs from elsewhere. If once considers the areas that have adopted the ‘buy local’ mantra, it should become immediately clear that not one of them could support anything like their current standards of living if they really did buy locally. It is not just that they would not have access to goods that cannot be made in the Shropshire Hills or Eastborne; they would not be able to specialise enough to make many of the goods that currently are produced there.
Specialisation is essential to the story, but not sufficient. Alongside specialisation comes the most beautiful and yet counter-intuitive fact of economics: that it is worth trading with people even if they are less efficient at producing any conceivable good. This is the Theory of Comparative Advantage popularised by David Ricardo. A simple example will suffice. Let’s say that David Beckham is a hundred times better at painting houses than me. Should he paint his own house, or pay me to paint it? The obvious answer is that he should pay me because, though he is a hundred times better than me at painting houses, he is thousands of times better at football, and can therefore earn the money to pay me to inefficiently paint his house far more quickly than he can paint it himself. In the same way, a poor worker in the least developed country in the world will benefit not only herself but also a rich worker in a developed country if she concentrates on what she is good at and sells what she does not consume so as to buy other goods from others elsewhere.
Russ Roberts acidly observes ‘We have tried buy local before. It is called the Middle Ages’. His criticism of the middle ages is unfair: they witnessed significant trade, as demonstrated by the fact that Italian city-states such as Venice grew rich, England sold wool and imported wine, and Iberian adventurers set sail towards the end of the world in the hope of reaching the Indies. His criticism of the buy local fallacy is justified, however. Buy local is not a sign of confidence in a local economy (if it was, there’d be a Buy London campaign!). Rather, it is evidence that a local community lacks confidence in its ability to trade with the rest of the world for mutual advantage. This pessimism is misplaced, and those who wish to better their own lives and that of their neighbours would be best placed trading openly with the world.
Tom Papworth is a Fellow of the Adam Smith Institute and the Director of Policy at Liberal Vision.