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You can crisscross North Dakota from Fargo to Bismarck to Minot and never see a Walgreens, Rite-Aid or Walmart pharmacy. With narrow exceptions, a 1963 state law prohibits drugstores that aren’t majority-owned by a pharmacist. (CVS Health, whose predecessor company was already in the state in 1963, is grandfathered in.)
To “buy local” people, this is very heaven. Stacy Mitchell, a co-director of the Institute for Local Self-Reliance in Portland, Maine, wrote to me that North Dakota is “the state with the most pharmacies per capita, the largest share of rural Census tracts served by a pharmacy, and, in its cities, the largest number of competing pharmacies.”
There are conflicting claims about whether the law has made prices higher or lower. What’s not in dispute is that the law is durable. It has withstood multiple challenges in court, repeal efforts in the stage Legislative Assembly, and even a statewide ballot initiative.
North Dakota, by the way, also has a public bank and a state-owned flour mill, both founded shortly after World War I, so it’s kind of different. Do North Dakotans know something about self-reliance that the rest of us don’t?
I’m about half persuaded. I’m also feeling a lot of overlap between this newsletter and the Friday one about airlines, which talked about major carriers pulling out of smaller cities, leaving them isolated.
The argument against “buy local” is that there are gains from trade. The theory is that prosperity is greatest when people, and countries, focus their efforts on what they’re best at and buy everything else from other people who also specialize. Taylor Swift should not try to play football for a living and Travis Kelce shouldn’t try to sing. (Begging you, Travis.)
For the rest of this newsletter I’m going to pit Stacy Mitchell, the apostle of self-reliance, against two University of Chicago economists, Chang-Tai Hsieh and Esteban Rossi-Hansberg, who wrote “The Industrial Revolution in Services,” a paper published digitally last year in The Journal of Political Economy Macroeconomics.
The Chicago economists presented evidence that customers benefit when a national chain in a service industry enters a market that has been served only by small, local operators. “The entry of top service firms into new local markets has led to substantial unmeasured productivity growth, particularly in small markets,” they wrote.
What about the claim that the national chains put the locals out of business, allowing them to monopolize the market? That’s not what typically happens, Hsieh told me in an interview. The locals do lose market share, but they don’t usually go out of business. The market share that the national chain obtains is usually smaller than the market share that the local operators had before it entered, he said.
According to Hsieh, McCaffrey’s Food Market was the only supermarket in Princeton, N.J., when he took a job at the university in 1998. Then Wegmans, a Rochester, N.Y.-based chain, came to town. “On the opening day there was a line of people,” Hsieh said, resorting to anecdote rather than data to get his point across. “They wanted to be the first ones to get into the store.” Since then Whole Foods has also opened a store in Princeton, and McCaffrey’s is still in business. Consumers, Hsieh said, are better off.
“When chains come to town, first of all they bring the productivity that made them a successful chain in the first place,” Rossi-Hansberg said. They also bring variety, he said. “Now you can go to every town in America and have a macchiato.”
We also talked about hospital mergers, which have alarmed antitrust authorities. In big cities, big nonprofit hospital chains have been scooping up smaller independents. “What’s not mentioned frequently is that whenever they do this, what they also do is build networks of outpatient clinics that never existed,” Hsieh said.
Mitchell told me how much she likes to shop at locally owned establishments and small chains in Portland. She loves Main Hardware, which calls itself “Proudly Local, Fiercely Independent, Wicked Helpful.” The store is connected with Ace Hardware Corp., a buying cooperative that’s entirely owned by local retailers.
“The theory that when national companies spread to smaller cities and towns, they provide more competition in those local markets sounds good,” she wrote in a follow-up email. “But one can point to many past examples where the opposite was the case — ultimately leading to much less competition and community harms. The proliferation of national supermarket chains like Walmart and Kroger has left local grocery markets far more consolidated and less competitive, for example.”
Mitchell added: “Independent businesses can hold their own against national competitors — if there’s a level playing field. Meaning robust antitrust enforcement, an end to tax loopholes and subsidies that favor big business, access to capital, and so on.”
Local ownership is also better for democracy, Mitchell said. She pointed me to the legislative history of the Celler-Kefauver Antimerger Act of 1950, which changed the test of illegality to outlaw a wider range of mergers. Estes Kefauver, a Democratic senator from Tennessee who cosponsored the law, warned that “central managers decide the policies and the fate of the far-flung enterprises they control. Millions of people depend helplessly on their judgment.”
Hsieh and Rossi-Hansberg also invoked democracy, but from a different perspective. “I think we should let people choose what they want,” Hsieh said. “If things are really better, I think it would be really dangerous for someone to say, ‘You cannot make that choice.’”
Hard to argue with that. As with the question of what to do about airlines, there are trade-offs. Self-reliance, price and variety are all relevant concerns; different people will weigh them differently. The challenge comes when one decision must be made for many, as in North Dakota. There may be cases where banning or limiting competition from outside is the right choice, but the hurdle should be set high.
Outlook: David Berson
There is a 42 percent chance of a modest recession in the U.S. economy this year, a 38 percent chance of a soft landing, a 12 percent chance of sticky inflation, and an 8 percent chance of something else, good or bad, David Berson, the chief U.S. economist for Cumberland Advisors, wrote in a client note on Friday. “The good news is that, unlike in 2007, major sectors of the economy are not in severe disequilibrium,” he wrote. “So, a deep recession appears unlikely for now (which is not to say that certain sectors of the economy — perhaps office buildings — won’t be hit hard).”
Quote of the Day
“The evil was not in bread and circuses, per se, but in the willingness of the people to sell their rights as free men for full bellies and the excitement of the games which would serve to distract them from the other human hungers which bread and circuses can never appease.”
— Ben Moreell, the board chairman of Jones & Laughlin Steel Corp., “Of Bread and Circuses” in The Freeman (Jan. 1, 1956)
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