The 3/50 Project and the Andersonville Study

Pingree's Potato Patch
Studying the Economics of Detroit

As I mentioned below, I'd tracked down the source of the 3/50 Project's claims that the local economic impact of locally-owned stores was $68 for every $100 in revenues, versus only $43 for chain stores, thus arguing that local ownership is better for the local economy. Those claims come from the Andersonville Study of Retail Economics by Civic Economics. I've finally had a chance to look through the paper, and while it's hardly the most rigorous study it's not bad for empirical work. More... In a nutshell they collected detailed financial information from 10 local businesses in the Andersonville neighborhood of Chicago, and found comparable data from public sources on 10 chain stores in the same market segments, ranging from restaurants to retail to services. They then dumped the expenditure data intothe IMPLAN modelling package to determine how much money recirculated within the local community per $100 in gross revenues and per square foot (to factor in the massive size advantage of the chain stores).

The $68 and $43 figures come from the summary calculations across all stores for gross revenue, but even the square footage calculations favor the local stores substantially. Overall it's a pretty good study, but a few things give me pause. They don't give much information on the multipliers used within IMPLAN, but my impression is that they are consistent across firms, with the expenditure data being the primary source of variation in results. In addition, the sample size is pretty small, so it isn't clear whether the local firms highlighted were atypical in either their profitability, level of expenditures, or any other characteristic; ideally there would have been multiple firms for each market sector. The main difficulty, though, is that the $68 per $100 figure they came up with was for a specific set of local businesses in a specific community in a specific metropolitan area; there are strong reasons to question whether the figure is really generalizable in the way the 3/50 people have been using it. However, there do seem to be compelling reasons to believe that all locally-owned firms differ from chains in in certain important ways (i.e. more local procurement, higher employment expenditures relative to total sales, etc.) which are likely to persist beyond the borders of Andersonville. Given that Civic Economics has gotten similar results in other areas, their work seems to provide some useful evidence of that the ownership structure of businesses in a community matters to the community's economy.

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