Automobiles, Import Substitution and Regional Development

Pedestrians — locally produced transport?

The theory of economic development known as “import substitution” argues that substituting locally produced goods and services for those purchased from the outside (whether outside the country, outside the state or outside the metropolitan region) stimulates growth of the local economy. For example, burning American-produced natural gas in buses instead of diesel fuel refined from imported oil creates income in the United States for gas drillers, pipeline operators, manufacturers serving the gas industry and owners of mineral rights.

Another example closer to home: Consuming fruits, vegetables and other locally raised farm products creates jobs for farmers, who spend their money locally, rather than jobs for farmers in, say, California or Mexico, who don’t.

Carry that thinking one step further. In the Strong Towns blog, a reader from Maine recently wrote blogger Charles Marohn, wondering why economists tout new car sales as a sign of a strong economy. There are no auto assembly plants, and very few auto parts plants in Maine. The Pine State has an estimated one million registered motor vehicles, which cost $9,000 per year to operate on average — a $9 billion industry. But…

As I see it, every new car sold in Maine is, in effect, an imported car, and probably 85% of the sale price for each new car is almost immediately drained out [of] Maine’s economy. How can this be good for the local economy?

Maine also has no oil wells, no oil refineries, no tire manufacturing plants, no battery manufacturing plants, etc. Therefore,  most of the money spent on these products also leaves the state in a matter of days. How can this be good for the local economy?

The same logic applies to Virginia. Although the Old Dominion does have a Volvo truck-assembly facility in Pulaski County, a number of auto parts manufacturers and a major automobile insurer (GEICO), the vast majority of money spent on the purchase, operation and maintenance of automobiles flows out of the state.

In a free country, that is as it should be. The last thing that state legislatures need to do is restrict free trade. But there are ways to promote the local alternative without imposing restrictions. Just as the local food movement champions consumption of locally grown foodstuffs, a local move movement could champion alternatives to the automobile — walking, cycling and mass transit foremost among them. Arlington County touts the “car free” lifestyle. More realistically, households might aspire to a “single car” lifestyle. In either case, spending less money on automobiles allows more spending on housing, restaurants, entertainment and other goods and services with more local value-added.

Is that a viable argument for creating walkable, bikable, transit-friendly communities? Maybe it’s a stretch. According to the economic law of “comparative advantage,” every country (state, region) should produce and export those goods and services in which it holds a comparative advantage and import the rest. Does that logic apply to transportation infrastructure as well? I’m just thinking out loud. I’m open to countervailing arguments.


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4 responses to “Automobiles, Import Substitution and Regional Development”

  1. larryg Avatar

    You could take the Maine example to further extremes – like many parts of Canada or for that matter many island nations that have nothing of value worth exporting and every dollar earned locally – spent on something imported just further damages the local economy – and that would include importing coal and diesel to produce electricity.

    but I appreciate your thinking out of the box – when it comes to “borders” because while national borders do matter a lot on trade issues – how much does a state border really matter?

    you could take the entire northeast above New York and probably make a similar argument… or Puerto Rico.. or the US Virgin Islands, etc.

  2. DJRippert Avatar

    Increasing new car sales are considered a bullish economic indicator because they demonstrate disposable income and consumer demand. It has little to do with generating jobs making cars.

    Buying local is great. However, Virginia orange juice is missing something – namely oranges. They just don’t grow here.

    Since I like to cook I have been going to farmer’s markets for years. The food is great but … supplies are often limited and the food is expensive. I think the flavor and freshness is worth the price but factory farms make cheaper food.

    But there is one area where I’ll go local almost every time – booze. Nothing better than a beer from the Port City Brewing Company of Alexandria, VA or a glass of rye whiskey from Mount Vernon or a glass of bourbon from Virginia Gentleman (Fredricksburg, VA). But avoid Old Dominion beer and ale – they are brewed in Dover, DE.

  3. accurate Avatar

    I agree with DJ –
    Yeah, it’s nice to support local, but my pocketbook has a HUGE stake in my purchasing decisions. While I’d like to buy lettuce locally, a head at the farmers market cost me $2.00, while I can buy one at WalMart for $1.00; guess which vendor I choose?

    As for alcohol – the price both foreign and domestic have made it so that I don’t imbibe hardly at all. Plus that as I’ve gotten older, alcohol isn’t my friend (to my body) the way it use to be when I was young. I do notice what is being produced locally though.

  4. The best program similar to your “move local” are the TravelSmart projects from Australia (with one in Bellingham WA). Aggressively seeking drivers who might change driving behavior on any trip from car to X, Travelsmart than passively acts to help them make the change as many times as possible.

    Costing about $75 per household and annually credited with decreasing vehicle kilometers traveled 13 to 15 percent, Australia’s oldest program in/around Perth is adding 4.2 million butts in transit seats annually, producing 7 million additional hours of exercise, and allowing Australian families to spend $25 million elsewhere. Every major community, with the exception of Sydney, now has a TravelSmart project. Sydney is worried about creating demand for transit that it can’t supply.

    TravelSmart has been so successful that several small communities have sworn-off road building and, beginning in 2010, Infrastructure Australia was able to dedicate 55 percent of all transportation dollars to transit and began refusing to supply any federal dollars for road-building unless the road solved a significant freight need.

    Still today in the U.S., 80 percent of our transportation dollars go to roads and we have an allegedly “green” president on the verge of approving a 1,700-mile pipeline to bring oil which creates at least 30 percent more greenhouse emissions after being strip-mined (and removing millions of trees) in Canada. Why? Because of the illusion that gasoline — which in America costs, against average income, almost exactly what it cost our great, great grandparents in the 1920s — is a terrible financial hardship to we drivers.

    Today, we have the second-lowest average gasoline price in the OECD and the lowest gasoline tax.

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