Defining Local Economies: Implications For Community Development And Social Capital


Definition of Local Economy

The term local economy refers to a market and networking system that is part of a specific community. For example, a typical local economy may have residents within the community who purchase their meat from the local butcher who in turn buys his meat from the local slaughterhouse. A circular economy prevails which benefits residents, local businesses and the environment.

In this short article guest blogger Charles El-Zeind discusses the role and benefits of local economies in terms of community and social capital development.

The Benefits of Local Economies

In a local economy, shops are often independent, owned by a person, family, friends or small groups of people. The unique characteristic though is that these people are also part of the community. They are people that you might see one day walking down the road or someone you are going to have a chat with at the pub.

The interactions and interrelationships of shop owners and residents create a cherished relationship between the customer or resident and the shop owner or seller. This generates a better understanding of the needs and demands of the community and leads to a higher level of social capital.

In building social capital local economies help create and support local networks. For example, a local grocer is more likely to buy their vegetable and fruit stock from a nearby farm, than a huge multinational supermarket. This benefits the seller as transportation costs are minimised, and in turn, can reduce the costs for the consumer. The challenge, of course, is in reaching economies of scale! Nonetheless, reduced transportation has added benefits to the local environment.

Local economies also benefit employment. In a TED presentation Joe Grafton compared large scale fisheries with small ones. He showed that for the same amount of fish, large fisheries employ far fewer people than small ones, but generate five times more money. He eloquently concludes that in terms of equity and increased employment, local economies often perform better and are more sustainable than diversified economies.

Finally, a particularly strong benefit of local economies is that money stays within the community. In effect, a circular flow of money is generated – money spent with the local grocer or the farmhouse circulates and often returns to the local community in exchange for other services. In fact, research shows that approx. 73% of money circulates within a community when an effective local economy is functioning.

To Conclude

Modern communities are highly diverse and interrelated with the global economy. The effect of globalization on local economies has in many instances been positive with increased access to new and improved products and services. However, it is also evident that globalizing forces have led to the decimation of the small shop owner and the deterioration of social capital as people feel disconnected from their local community.

If we are to achieve truly sustainable communities we should be balancing the influence of globalization through investing in local economies which encourage community and social capital development. In short, we should be pursuing development strategies that are Glocal in nature – both local and global.

Recommended Reading

Passionate, fun, and inspirational, Good Morning, Beautiful Business explores the way women, and men, can follow both mind and heart, do what’s right, and do well by doing good. Good Morning, Beautiful Business: The Unexpected Journey of an Activist Entrepreneur and Local-Economy Pioneer

About the Author Charles El-Zeind

Charles El-Zeind is passionate about communicating environmental issues such as climate change and sustainability. Charles is currently involved in a grassroots community project with the Fiveways and Hollingdean Transition Network and writes regularly for the Sustainable Business Toolkit. He holds a bachelor degree from the University of Brighton in Environment and Media Studies.

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