Measuring Money Flows: The Local Multiplier

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Measuring Money Flows The Local Multiplier

• Viki Sonntag, Research Director
• Sustainable Seattle
• Driving Change Conference, Bellevue, WA
• September 2005

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Hard Times for Community-Based Businesses

• Drivers
• Competition from giant retailers
• Pressure to off-shore production
• Intuitive Indicators
• Abandoned main streets
• No services within walking distance
• Loss of unique businesses cloning of business
  districts

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The Local Economies Headline

• A dollar spent in locally-owned stores
  re-circulates in the community for 2 to 3 times
  the local economic impact of dollars spent at
  national retailers.

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The Impact of Local Spending
Imagine we painted a pound (or dollar) blue and
followed its trail If 80 of money stays local
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Or
Now imagine we painted the pound/dollar red and
followed its trail If 20 of money stays local
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Measurement of Economic Impact of Spent Locally

• The LM measures the impact of a dollar spent
  locally on subsequent rounds of spending.

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How the LM is Calculated Basic Local Multiplier
Methodology
Money Staying in Local Economy
Money Leaving Local Economy
Round 1 Direct Income Income to Study Group
Out-of-Area Spend of Study Group
Round 2 Indirect Income Local spending by
Study Group (income to local recipients)
Out-of-Area Spend of Local Recipients
Round 3 Induced Income Local spending by
local recipients of Study Group spending
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Local Multiplier

• The local multiplier measures the benefits of
  local money circulation
• Standard method for economists whats new is
  measuring the impact of local versus non-local
  spending
• Significance for Economic Development Its not
  just about the quantity of money coming in but
  how the money is circulated once its in the
  economy

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A County Adopts the LM

• In January 2004, Northumberland County in the UK
  began using the LM to measure and improve the
  local economic impact of its procurement
  activities.
• Benchmarking found that local suppliers re-spent
  76 of contract monies in the county compared to
  the 36 respent by outside suppliers.
• Shifting 10 of contracts from non-local to local
  suppliers would result in additional 34 million
  pounds for local economy.

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Local Economic Linkages
If money coming in goes right out, then the
economy doesnt benefit. To keep money
circulating in the local economy, you must create
linkages that enable people to spend locally.
Source Plugging the Leaks,New Economics
Foundation
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Food Economy Linkages
Food Processor
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If Not Growth, Then What?

• The higher the multiplier ? the greater the
  local money circulation ? the greater the number
  of economic linkages ? the more diverse,
  resilient and sustainable the local economy is

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• Hospitals in Cornwall decide to tap into the
  local food economy. Within a year they are
  serving local ice cream, cheese and fresh fish.
• Discussion with local dairy suppliers led to
  customized product less air, so melted more
  slowly smaller portion for patients with smaller
  appetites no packaging.
• Results 47,000 more pounds into local economy
  higher customer satisfaction higher nutritional
  value

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The Sustainability Premium

• Developing local economic linkages produces other
  benefits
• What is it worth to have services within walking
  distance?
• What is it worth to buy healthy, safe food from
  local producers?
• What is it worth to have job opportunities that
  provide meaningful work and living wages?