Import substitution: An other important dimension
Most economic developers – at least the ones I know – are free traders as well. They understand the importance of the free flow of investment and labour to efficient economies but they also predicate their support for free trade on the notion that it can be mutually beneficial. For example, if free trade between two nations leads one to become very rich and the other poor, then free trade has failed. Implied, therefore, is that each region in a free trade zone will have its comparative advantages and have exportable products and services to offset its imports (on which there is little local value added). These comparative advantages can be natural – i.e. geography, natural resources, etc. or man-made – universities, research institutes, favourable tax environment, highly livable communities, etc.
Having set that as a baseline, import substitution is also an important dimension of economic development. Import substitution occurs when an imported product (with little value added here) is replaced by a local producer (with high value added here). The local jurisdiction gets the goods and the value added.
However, it is questionable whether we should pay a lot more for locally produced goods or sacrifice quality. I think the Costco example is a clear reminder that the public puts price and quality ahead of any romantic notions of local retail.
Economic developers should be snooping around looking for opportunities to promote import substitution – on a province or even national basis. For example, I struggle to understand how Maple Leaf can make hotdogs in Brampton and ship and distribute them across Atlantic Canada more cheaply than doing it from a Moncton facility. My hunch is that they didn’t want to be bothered with the hassle of running multiple manufacturing sites and didn’t really worry about pennies per hot dog in the difference. It’s convenient to have a mega manufacturing facility in a central location but it might not be more cost effective.
However, that might create an opportunity for another hot dog manufacturer to zoom in an capture the Atlantic Canada market from a Moncton facility.
Obviously I don’ t know the economics of the hot dog business but you get my point, in theory at least.
This is just another dimension of economic development. I am encouraging folks to think more broadly about how economies grow and about the role of both public and private sector players in fostering more development.
Some of us have boiled down economic development to handing out grants and loans. That has never been economic development.