Promoting a Flourishing Society

Going Local: Recalculating the Cost-Benefit of Indigenous Industry

From the Archived "Cardus Policy in Public" Series

October 27, 2011

A conversation that pits local business against multi-national corporations gets at only half the truth. The problem is not the scale of the economic association, it’s the context and telos—the perceived end of that economic activity.

Business metaphors have flooded the corporate conversation in the last decade. Most of us are sick of them by now. Corporations are families, networks, clusters, communities, and more. At the heart of this colourful potpourri is a recovery of a model of doing business, of corporate and economic management, that recognizes the nature of our corporations as both essentially social—that is human—and essentially service-based. We're sick of the metaphors because the reality rarely matches the experience. And so in the wake of faceless corporate power that seems to dehumanize, mystify and—at times—dominate, "going local" has become a rallying standard for an increasing spectrum of thinkers and activists.

But a conversation that pits local business against multi-national corporations gets at only half the truth. The problem is not the scale of the economic association, it's the context and telos—the perceived end of that economic activity. Scale and structure sometimes obscure but are rarely the fatalistic determinant. Jonathan Wellum calls this a culture of "short-termism." I believe this is a function of more than financial markets, but that it is inscribed in our economic and political policy, that encourages corporations, large and small, to privilege short-term cost analysis over longer term sustainability.

First, despite having fallen out of fashion at almost every level, GDP continues to be the driving indicator of the vitality of an economy, what economist Bob Goudzwaard calls the "ideology" of unlimited growth. Annual GDP as a health measure of the national economy is only slightly better than quarterly corporate statements for the success of a business model. It is not that growth is not important, it is that it is not decisively important for measuring the strength and sustainability of Canada's corporate culture.

Michael Porter's cluster model, for example, helped explain the importance of a local concentration of innovation years ago. Clusters are the proximity of relevant complementary businesses to one another which cannot be easily replicated in just any geography. The university was founded on a similar concept, that having biologists and chemists in the same building might forestall the otherwise unnatural stagnation of sequestered expertise. Corporate innovation is no different and location is therefore not incidental. It is not simply the physical and economic environment that conditions sustainability, but also the specialized social and political environment. Interactivity and collaboration are the foundation of a sustainable and innovative economy. In other words, local community.

Consider some of the intangibles that this short-term growth model fails to capture. It is unable, for example, to distinguish between a single resource dependent economy, and a diversified innovation rich economy. A rural town in northern British Columbia dependent on forestry may run a booming business equal to a technology suburb outside Calgary, but one industry—and one set of skills—is far more vulnerable than the other. This is not new economic news, but its translation into policy has been sluggish and schizophrenic.

Think about how we recognize the importance of this indigenous industry in Canada through a wide variety of tax incentives to bring corporate activity within our borders. The tax revenues that corporations bring are widely recognized. Less well-recognized is the spinoff capacity created within the community that corporations live in, municipally and provincially. That community recognition is boasted from political microphones but rarely legislated in coherent policy.

When, for example, public purchasing priorities are examined in many of our provinces or municipalities, the cost calculus is always the absolute project cost. So, if a Calgary job is underbid in absolute terms by a Japanese corporation, the Japanese corporation will get it. But, wait. Doesn't that Calgary company pay Calgary taxes? And aren't its employees the same ones who offer their volunteer hours and charitable donations in the city? Don't they sit on volunteer boards, cheer for the Calgary Flames and send their children through Calgary schools? Can the Japanese company make the same claim?

It gets more complicated still. Imagine that two Canadian, Calgary-based corporations are bidding for the same job. One uses materials and supplies which are produced indigenously, the other uses foreign subsidiaries for the same material. Both are technically Canadian, but the spinoff effect for that purchase for the local economy is markedly lower in one case. Take it a step further and imagine a municipal purchase that unapologetically privileges corporations within their municipal bounds, using local materials.

Let me be clear that this is not protectionism. It is intelligent public spending, consistent with the tax incentives we use to bring these companies here in the first place. Protectionism that denies freedom of trade and legitimate competition stagnates growth. My argument is not for protectionism, but for a fuller cost accounting of public spending, in particular. Private corporations may still prefer a wider short-term profit margin by deferring to foreign companies, though I would still argue a fuller long-view calculation should also be done here. But if our governments at every level do not account for the spinoff wealth as part of their tender process for public spending, then our tax incentives are only a short-term deal sweetener to get them in the door. It is a scandal to tempt companies into our boundaries, municipal or otherwise, and then ignore any contributions they make to the community other than their tax base. We, the political community, are then at fault, not the corporations, for imagining economic life as nothing but short-term quarterly statements.

Imagine if the city of Calgary, for example, made its tender obligation that a certain high percentage of a corporation's materials and work force be North American, another lower percentage Canadian, another percentage Albertan and finally a last percentage Calgarian? Wouldn't such a calculation, based on real projection of its spinoff wealth, make economic sense for public purchases?

The real problem is that the concept of spinoff wealth itself is just too woolly. More work on this must be done at the policy level to understand, calculate, and provide intelligent assessments to our political leaders so better decisions can be made on public and private purchasing. Generally, we have no idea where the products we buy are made or where they come from. In some ways, the scale of our economy obscures this, which is itself no sin, but it does tempt us into inaction and indecision. Some citizens have taken this as an excuse to retreat from corporate economic life altogether. But the answer to economic obscurity is not retreat, it is economic wisdom—a fuller calculus that helps us understand the purchases we make, how they either do or do not contribute to indigenous and innovative industry and, ultimately, to a strong corporate culture in Canada, North America, and across the globe.

Contra short-term thinking looking for today's bottom price, our corporate policy should take the long view of where dollars go after we spend, how they either contribute to or detract from a strong corporate culture, and in what sense this is consistent with our stated priorities of attracting and retaining business. Then some of our corporate metaphors might finally come home to roost.