Recently the following meme has been circulating on social media:
If “each of us” spent £100 a year more on local businesses it would put an extra £3 million into “our economy”.  Fantastic, let’s stick it to the big boys, repost it, the supermarkets are ripping you off!!!  But hang on, what do these figures mean? If “each of us” is everyone in Britain there are 63 million people:

£100 x 63,000,000 = 6,300,000,000 ≠ £3,000,000

So perhaps it puts some extra cash into the economy:

£3,000,000 ÷ £6,300,000,000 ≈ 0.05%

Not very much when you put it like that. Surely spending locally is better than that for the economy.

Now here’s a spanner in the works:

This is in dollars, so the same applies there too…  but their population is 318 million.  So it doesn’t make much of a difference does it:

$3,000,000 ÷ (318,000,000 x $100) ≈ 0.01%

A hundred bucks does not have much of an effect does it?  So this can’t be right, can it, or else it is not so wonderful?

But we sense the spirit of the claim is correct, after all Tesco and Walmart are going to send the profits to their shareholders who are not local and often not national…  A local business are going to pay their staff, and hopefully local suppliers and the owner is going to keep the profits and spend some of them locally too…  This is backed up by Friends of The Earth who state:

So now we have a new figure provided by those Einsteins at the New Economics Foundation.  They explain it in the report like so:

 In addition to the initial contracts, local suppliers in Northumberland re-spent on average 76 per cent of their income from contracts with local people and businesses, while suppliers from outside Northumberland spent only 36 per cent in the area… This means that every £1 spent with a local supplier is worth £1.76 to the local economy, and only 36 pence if it is spent out of the area. That makes £1 spent locally worth almost 400 per cent more.

They determine this by the initial spend and how it is re-spent twice, what they call LM3 Methodology.  So we now can calculate how those £100s and $100s translate into real figures.  The additional amount in the economy will be the difference between that spent locally and that spent outside the area:

£100 x ((176-36)/100) x 63,000,000 ≈ £9 billion

$100 x ((176-36)/100) x 318,000,000 ≈ $45 billion

These are much better results!  But perhaps there is an error here, the money spent outside of the local area will be spent in other local areas so we probably should treat the money spent elsewhere as being close to 100 across the whole country (some money would go overseas and some income can be expected to come from abroad too).  Even so these are much more impressive figures:

£100 x ((176-100)/100) x 63,000,000 ≈ £4.8 billion

$100 x ((176-100)/100) x 318,000,000 ≈ $24 billion

Still impressive for £2 or $2 a week!   If you want to express it as “£100 per family” that is an extra £1.3 billion a year in the British economy and out of the hands of corporate shareholders.

Supposedly the original claim came from a 2003 study in Texas by the American Independent Business Alliance though that study has been superseded on their website by new studies discussed on this webpage on the Local Multiplier Effect http://www.amiba.net/resources/multiplier-effect#recent-studies

The conclusion here being that spending locally is good for the local economy, just not in the way the meme suggests!