You're right @skydriller most people don't get it and there's no excuse. Almost 20 years ago this was written by
Justin Sacks at the NEF as a simple explainer for a local pound re-spend analysis tool called LM3. Even now few people understand it, fewer public servants use it, and even fewer politicians implement it, which is a bit of a shame. NB, major cities are
local economies too.
How local money flows – or doesn’tImagine your local economy as a bucket. Nothing fancy or complicated, just an
ordinary bucket like the one under the kitchen sink. Your local economy could be
any size – your neighbourhood, town, county, and so on. Swirling around in that
bucket are all the people and organisations that make up a local economy, such as
schools, banks and stores.
Let’s say you’re a local business in this bucket. You spend £100 on a window cleaner
from the town, so the £100 stays in the bucket. But when you shell out £100 on an
outside caterer from the town nearby, that money doesn’t stay in the bucket.
Spending on the caterer is like a leak in the bucket (you can see now how practical
demonstrations of this have provided hours of fun for us). The £100 leaks out as the
supplier business is outside the local area.
There are usually ways of stopping some or all of this £100 from leaking out. We
could use a local caterer instead, or, if they can’t handle the bigger events, maybe
give them the business for the smaller events, or maybe even use several small
caterers together.
A full bucket means that local people have enough money to buy what they need for
a good quality of life. If your bucket is leaky, though, you will need to pour money in
as fast as it is pouring out in order to keep it full. There are two ways to keep the
bucket full: you can pour the money in faster, or you can keep it in longer by plugging
the leaks.
Some well-to-do communities have huge inflows of money and don’t need to worry
much about how they spend the money or how it leaks out. However, if you’ve read
this far, it’s more likely that you see some room for improvement. In that case, an
important way to improve your local economy is to find ways to stop money from
leaking out as fast as it currently does.
As you become more interested in plugging the leaks in your community’s economy,
and want to get others involved too, you may want to get hold of NEF’s companion
book, Plugging the Leaks: Making the most of every pound that enters your
local economy. You’ll find a more detailed explanation of these concepts (plus a lot
more fun graphics involving buckets) as well as steps for communities to take action.
Blue fingerprints: who touches local money?Suppose you painted a pound coin blue and watched where it went. Every time it
changed hands within a community, it meant income for a local person. If the blue
paint were to come off onto people’s fingertips, how many people would have blue
fingers before the money finally left the community? The more times it changes hands,
the better for that community. In fact, money that is re-spent in a local area is the
same as attracting new money into that area. Either way, it is new money into the
hands of the person who receives it. What you want to know is: what happened to
that blue pound coin and the fingers it touched? And that’s what our tool does – it
follows the trail of the blue pound coin so you know where your money is going in
your local economy.
Let’s look at a practical example. Leaders in Tayside wanted to evaluate their tourism
industry. Tourism is a very common sector to measure because it is a clear case of
money from outside (in the form of tourists) being spent in the local area. So regions
that depend on tourism often work hard to make the most of that outside investment.
Tayside chose to measure the local economic impact of hotels versus B&Bs, the two
principal types of accommodation in the area. Their study showed that although
tourists staying in hotels spent 70% more than those staying in B&Bs, the total income
generated locally was in fact higher for B&Bs. This was because most of the money
spent in hotels leaked immediately out of the local economy: non-local staff and
owners, legal services provided by London firms, and so on.
So the local economy is the sum of many parts. Where you spend your money matters.
But it also matters where the people you give money to then spend their money.
Middle East Peace Expert. Military strategist. Former economist and epidemiologist.
Not always entirely serious.
-Still learning -
FLYER Club Member
