Tuesday, October 20, 2009

Good Money, Bad Money, Neutral Money

Every day each one of us buys goods or services from a business. Whether it is electricity, water, groceries, gasoline, meals, or cell phone we have made arrangements for a transfer of our assets to someone else. We all make decisions on the spending of our money, whom do we buy from and is it a want or a need. That decision on where to spend our money may or may not be based on a conscious process but we do need to learn how to think strategically in that decision.

Sometimes it is a decision based on convenience (I don’t have time so I’ll just get something to go from a fast food restaurant), on monopoly (There is only one municipal water provider), on social conscience (As much as possible, I’ll buy from the local farmers’ market), sometimes it is habit (I have always owned Fords), and sometimes its price (It is less expensive for me to get the product from Home Depot).

We can buy from a locally located Fortune 500 company, from a locally owned franchise, from an outside large corporation but with local factories. We can buy from a locally owned retail store that buys locally manufactured goods, we can buy from a locally owned business that imports all of its merchandise. We can buy locally grown or manufactured goods or we can buy goods that are shipped in from miles or continents away. We also can limit the amount of goods we buy to meet our wants. We can change our behaviors so as to reduce our needs.

However we do need to think about what happens to the money we spend. Most of the time there are local employees who receive pay and spend the money on their own needs. The profits are something else. That depends on whether or not the business is owned locally. A large Fortune 500 business may be local but the profits while going to the headquarters here, there is a distribution of money outside the community. Some large businesses distribute monies supporting activities in each community in which they have a presence so as to give back something to those that support them.

There are local businesses which while making money locally, are also involved in businesses outside of the community in which they use the profits from the local activities. Sometimes your own community is the beneficiary of investment by entities from outside of the region. Often there are businesses in your community which sell to people from outside of your region.

Money which comes from outside of your community and is reinvested and spent in your region is good for your region. Money which comes from your community and is spent outside of your region is not good for your region. Money which is earned and spent within the region is somewhat neutral.

Our goal in Economic Development is to increase the good money (money flowing in), decrease the bad money (money flowing out), and increase the speed of the neutral money (money earned and spent locally). This applies whether the region you are talking about is your own family, neighborhood, region, state, or country. The concept is not new but many do not think in these simple terms (simple but not easy).

Where did you spend your money this week?