The Economic Benefits of Localization

“Localization may describe production of goods nearer to end users to reduce environmental and other external costs of globalization.

Relocalization” is “…a strategy to build societies based on the local production of food, energy and goods, and the local development of currency, governance and culture. The main goals of Relocalization are to increase community energy security, to strengthen local economies, and to dramatically improve environmental conditions and social equity.”

Another way to consider localization is to see it as the shrinkage of distance between the point of production and the point of utilization or consumption. “It is the conversion of bits and bytes into material form as close as possible to where that form will be used. In contrast, globalization is the virtualization of experience, knowledge, and innovation so that intellectual property created can travel from anywhere to anywhere quickly, easily, at minimal cost.”

Steve Bosserman sees Localization occuring in four key domains:

1. affordable / green construction,
2. 100-mile agricultural production,
3. renewable / distributed energy generation
4. community governance / capacity building.

But an important question is: is such localization really more economically beneficial than the old model of centralized industrial production?

Kevin Carson tackles this issue in his most recent essay, Industrial Policy: New Wine in Old Bottles, from which we have been quoting liberally the last few days.

Today, we excerpt his discussion on the economic benefits of localization.

Kevin Carson:

Leopold Kohr, in the same vein, compared local economies to harbors in a storm in their insulation from the business cycle and its extreme fluctuations of price.

Along the same lines, economic decentralization would make communities less vulnerable to economic blackmail on the current pattern: large corporations using the prospect of a new store or factory to induce a corporate welfare bidding war between communities. If the typical manufacturing firm were a factory of a few dozen workers or fewer serving a local market, rather than a large oligopoly firm serving a national market and pushing a product marketed around national brand identification, it would be a lot less feasible to pick up and move. That’s especially true, given the effect the elimination of transportation subsidies would have on a business model based on long distance distribution At the same time, if there were many small and medium-sized employers in manufacturing, instead of one big corporation colonizing a locality, people would be a lot more prone to say “good riddance!”

Communities of locally owned small enterprises are much healthier economically than communities that are colonized by large, absentee-owned corporations. For example, a 1947 study compared two communities in California: one a community of small farms, and the other dominated by a few large agribusiness operations. The small farming community had higher living standards, more parks, more stores, and more civic, social and recreational organizations. (L. S. Stavrianos. The Promise of the Coming Dark Age (San Francisco: W. H. Freeman and Company, 1976), p. 41.)

Bill McKibben made the same point in Deep Economy. Most money that’s spent buying stuff from a national corporation is quickly sucked out of the local economy, while money that’s spent at local businesses circulates repeatedly in the local economy and leaks much more slowly to the outside. According to a study in Vermont, substituting local production for only ten percent of imported food would create $376 million in new economic output, including $69 million in wages at over 3600 new jobs. A similar study in Britain found the multiplier effect of ten pounds spent at a local business benefited the local economy to the tune of 25 pounds, compared to only 14 for the same amount spent at a chain store.

– The farmer buys a drink at the local pub; the pub owner gets a car tune-up at the local mechanic; the mechanic brings a shirt to the local tailor; the tailor buys some bread at the local bakery; the baker buys wheat for bread and fruit for muffins from the local farmer. When these businesses are not owned locally, money leaves the community at every transaction. (Bill McKibben, Deep Economy: The Wealth of Communities and the Durable Future (New York: Times Books, 2007), p. 165.)

Second, it would drastically increase the bargaining power of labor. Since the rise of the factory system and large-scale wage employment, capital has depended on the ability to externalize many of its reproduction functions on the non-monetized informal and household economies, and on organic social institutions like the family which were outside the cash nexus.

Historically, as Immanuel Wallerstein argued, capital has relied upon its superior bargaining power to set the boundary between the money and social economies to its own advantage. Its attitude toward the household and informal economies has been ambivalent. It is in the interest of the employer not to render the worker totally dependent on wage income, because without the ability to carry out some reproduction functions through the production of use value within the household subsistence economy, the worker will be “compelled to demand higher real wages….” (Immanuel Wallerstein and Joan Smith, “Households as an institution of the world-economy,” in Smith and Wallerstein, eds., Creating and Transforming Households: The constraints of the world-economy (Cambridge; New York; Oakleigh, Victoria; Paris: Cambridge University Press, 1992), p. 16. [3-23])

On the other hand, too large a household meant that “the level of work output required to ensure survival was too low,” and “diminished pressure to enter the wage-labor market.” (Immanuel Wallerstein, “Household Structures and Labor-Force Formation in the Capitalist World Economy,” in Joan Smith, Immanuel Wallerstein, Hans-Dieter Evers, eds., Households and the World Economy (Beverly Hills, London, New Delhi: Sage Publications, 1984), p. 20.)

The household economy has allowed to function to the extent that it bears reproduction costs that would otherwise have to be internalized in wages; but it has been suppressed (as in the Enclosures) when it threatens to increase in size and importance to the point of offering a basis for independence from wage labor.”

Kevin Carson concludes:

We are now experiencing a revolutionary shift in competitive advantage from wage labor to the informal economy, far beyond anything the propertied classes of two hundred years ago could have imagined in their worst nightmares. The rapid growth of technologies for home production in the twentieth century, based on small-scale electrically powered machinery and new forms of intensive cultivation, has radically altered the comparative efficiencies of large- and small-scale production. This was pointed out by Ralph Borsodi almost eighty years ago, but the potential of cheap desktop machine tools like the multi-machine shifts the balance even further.

So the balance of forces between the two economies will not be anywhere near as uneven as the distribution of property rights might indicate. As labor is withdrawn from the corporate economy and makes efficient use of the productive resources available to it, we will move increasingly toward a society where most of what the average person consumes is produced in a network of self-employed or worker-owned production, and the owning classes are left with large tracts of empty land and understaffed factories that are almost useless to them because it’s so hard to hire labor at a profitable wage. At that point, the correlation of forces will have shifted until the corporate capitalists are islands in a cooperative sea–and their land and factories will be the last thing to fall, just like the U.S. Embassy in Saigon.

We’re experiencing a singularity in which it is becoming impossible for capital to prevent a shift in the supply of an increasing proportion of the necessities of life from mass produced goods purchased with wages, to small-scale production in the informal and household sector. The upshot is likely to be something like Gupta’s “Unplugged” movement, in which the possibilities for low-cost, comfortable subsistence off the grid result in exactly the same situation, the fear of which motivated the propertied classes in carrying out the Enclosures: a situation in which the majority of people can take wage labor or leave it, if it takes it at all, the average person works only on his own terms when he needs supplemental income for luxury goods and the like, and (even if he considers supplemental income necessary in the long run for an optimal standard of living) can afford in the short run to quit work and live off his own resources for prolonged periods of time, while negotiating for employment on the most favorable terms. It will be a society in which workers, not employers, have the greater ability to walk away from the table. It will, in short, be the kind of society E. G. Wakefield lamented in the colonial world of cheap and abundant land: a society in which labor is hard to get on any terms, and almost impossible to hire at a low enough wage to produce significant profit.”

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