Local Money

An introduction to local economicsBased on the work of the New Economics Foundation (nef –

www.nef.org.uk)

Kick off

• Expectations

• Ice-breaker – the round dollar

Our economy & the round $

• Define your economy – geography, community etc• Choose someone to be IT (we’ll call him/her Percy)• Everyone else, decide what you are selling, write it on a piece of paper and

place it in front of you e.g.:– Groceries– Entertainment– Beer– Clothes– Shoes– Accommodation – Hairdressing– Building– Teaching– Medical

• Percy spends the money (i.e. gives it out to the group based on the goods and services they are selling)

The leaky bucket

The local multiplier effect

80% stays local 20% stays local

spend remaining spend remaining

100 80 100 20

80 64 20 4

64 51 4 1

51 41 1 -

41 33

33 *…+

Total $500 Total $125

• If 80% of spending stays in the local economy then $100 will generate about $500 of spending – a multiplier of 5

• If only 20% stays local the total spending is only $125 – a multiplier of 1.25

LM3 – the Local Multiplier 3

• LM3 (the Local Multiplier 3) is a methodology that can be used by community organisations, business leaders, or government officials - to measure how much organisation, initiatives or spending impacts on the local economy.

• More importantly, LM3 enables people to identify where changes need to be made to improve that impact.

• LM3 takes its name from the Keynesian multiplier, which has been used since the early 20th century to measure how income entering an economy then circulates within it.

• nef has adapted it for use at the local level, and measures only three 'rounds' of spending: hence Local Multiplier 3.

• In the previous example, you know $1 spent is actually worth $2.50 to the local economy so the LM3 score is 2.5

• If you are trying to choose a supplier that is a good contributor to the local economy, you can look at this example and know that paying a $1,500 bill will actually have a $3,750 impact on the local economy!

LM3 – Local Multiplier 3

Spending Round

• Round 1

• Round 2

• Round 3

• Total Spend

• LM3 Index

Project 1

• $72,000

• $57,600

• $24,987

• $154,587

• 2.15

Project 2

• $120,000

• $20,400

• $6,768

• $147,168

• 1.23

A tool developed by the New Economics Foundation for quantifying the value of local spending.

A real-life case study of two construction projects:

Round 1 represents the payment to the prime contractor. Rounds 2 and 3 represent the re-spending of that money to other local business.

The cheaper project actually generated more wealth for the local economy.

But I can get it cheaper elsewhere

• You can often buy goods and services for less money if you shop around beyond the local area

• You need to decide how much contributing to the local economy is worth to you.– Do you have a partner who needs to be able to get a job?– Do you have aging parents who need healthcare?– Do you have children who need good schools and a safe environment to grow

up in?– Do want to have local customers who can afford to pay you?

• In some cases the low price will still outweigh all this but that’s not the end if it…– There may be an opportunity to set up a local business to provide this if there

isn’t one already– Discussing the situation creatively with local suppliers may result in ideas for a

win-win where they can afford to sell to you at a price you can accept

• Some things will still be imported from elsewhere e.g. pineapples, cars

How to work out the LM3 for yourself and your own business

• The initial amount you need to start is your income for a given period (a year provides much more accurate data than a month but is a lot more work)

• Then you identify where that money goes and if each outgoing amount is spent in the local area or not

• Next you contact each of the people or businesses in the local area that you have paid and ask them to complete a short survey on their own spending (either actual $ amount or %). This can be done by mail or face to face.

• Add all the local spending info together and work out our LM3.

LM3 in Queenstown Lakes District• Currently lots of money comes in from elsewhere but a lot probably leaks

straight back out again – right now we don’t really know how much(figs in brackets are amounts spent locally in UK research)

– Banking and insurance (1%)– Fuel (2%)– Supermarkets (10%)– DIY / Household goods (12%)– Pubs and restaurants (20%)– Bus company (33%)– Absentee landlords and business owners

• Opportunity for ‘fair trade’ tourism– using LM3 to help show tourists where they can spend their $ to best

contribute to the future of our place.

• Council spending– many Local Government bodies in the UK and US are adding a local economic

indicator weighting into their purchasing and tendering processes. – LM3 is simple, fast and low cost for businesses to calculate. – Using a figure such as LM3 might or might not have changed the recent waste

contract decision but would have given the council a significant additional justification for their decision

LM3

• Presentation

• Survey – personal perspective using % - one month

• Guessing at 2nd level of survey

• Discussion on what to help make this happen locally

Where do you live? Local Non-Local - Please state where(Please circle)

How do you spend your income?

You may use monthly or annual figures, but please be consistent for all items below.

If you do not wish to disclose £ figures, please use this survey to assist you in completing survey B.

For each row (e.g., 'Food'), the 'Total £' should be the total of '£ Local' and '£ Non-local'

ItemTotal £

(Local + Non) £ Local £ Non-local

Please name the main local business/es you use for each category.

Example - using £ figures £1,400 £560 £840 John's Shoes

Income tax

Food (excl. restaurants/take-away)

Entertainment (e.g. restaurants, video rental, betting, sport, pub)

Clothes

DIY/Garden/Household appliances and items

Transportation (e.g. taxis, car tax, bus fares, petrol)

Services (e.g. babysitting, window cleaners)

Rent/Mortgage

Council Tax

Home costs (fuel and water, phone, TV tax, etc.)

Loan Repayments

Savings

Other (please specify)

Total Spending = £

Survey option 1 - $ amounts

Where do you live? Local Non-Local - Please state where(Please circle)

How do you spend your income?

If you wish to submit % figures, we recommend you first use survey A to determine how you spend your income.

Then divide each item, such as 'Food,' by your 'Total Spending' to determine % spending on each item.

For each row (e.g., 'Food'), the 'Total %' should be the total of '% Local' and '% Non-local'

ItemTotal %

(Local + Non) % Local % Non

Please name the main local business/es you use for each category.

Example line 14.0% 5.6% 8.4% John's Shoes

Income tax

Food (excl. restaurants/take-away)

Entertainment (e.g. restaurants, video rental, betting, sport, pub)

Clothes

DIY/Garden/Household appliances and items

Transportation (e.g. taxis, car tax, bus fares, petrol)

Services (e.g. babysitting, window cleaners)

Rent/Mortgage

Council Tax

Home costs (fuel and water, phone, TV tax, etc.)

Loan Repayments

Savings

Other (please specify)

Your total should = 100%

Survey option 2 - % amounts

Round up

• Thoughts on LM3

• Next steps

• Expectations

• Close