The Multiplier Effect of Local Investing

When I started talking about LION with friends and potential member-investors in Madison, Neil Heinen suggested that I needed to figure out the local investing multiplier effect.

In other words, when a LION member invests in a local business, what “community good” comes from it?

This is a great question. Many would-be investors might be willing to accept smaller personal financial returns if they knew that they were producing a community return. So, I did some digging, and here’s what I’ve found:

Michael Shuman of BALLE, writing for the Federal Reserve Bank of San Francisco’s Community Development Investment Review writes:

Growing evidence suggests that every dollar spent at a locally owned business generates two to four times more economic benefit—measured in income, wealth, jobs, and tax revenue—than a dollar spent at a globally owned business. That is because locally owned businesses spend much more of their money locally and thereby pump up the so-called economic multiplier. Other studies suggest that local businesses are critical to tourism, walkable communities, entrepreneurship, social equality, civil society, charitable giving, revitalized downtowns, and even political participation.

[Read Mr. Shuman's full article here.]

Seems like a win-win-win. Investors get their agreed-upon return. Businesses get competitive loans from supporters. And the economy gets a good in jobs, income, wealth and tax revenues.