With Small Business Saturday on the horizon, it’s a time for quiet contemplation of just how this complex system we call the global economy impacts our daily lives. We would like to think that concepts like “shortages”, “backordering”, and “rationing” belong in the distant past when wartime required us to stretch our resources for the common good. However, the past year and a half have made us all too aware that this isn’t the case. To put these issues into clearer focus, today we will briefly highlight some of the key challenges that have been occurring lately and how they play a part in your everyday economic life.

1) Regional Crises

The most obvious impact of the global economy is felt when a region is hit by a crisis. For example, a crop failure in a certain country can cause food shortages and hike prices worldwide. This problem has been exacerbated by the increase in globalization, which means that our world is more interconnected than ever before. If one area suffers, it affects the entire planet. A perfect modern example is the recent closure of clothing manufacturers in Vietnam due to COVID-19 outbreaks. Thanks to centralization of a large portion of this kind of manufacturing into one nation, their shutdowns have led to clothing shortages worldwide. Of course, this has been less of an issue for brands who source both materials and labor domestically, which is yet another reminder that supporting your own region means less reliance on the fortunes of others.

2) Inflation

Inflation occurs in many ways, though the two primary ways are: 1) when the value of a country’s currency drops as a result of increased demand for a good, 2) when overprinting of currency which leads to a larger volume of money chasing after a fixed amount of goods. Back in 2008, oil prices surged and many commodity prices followed along with it. While this made exporting countries very happy, it sent shockwaves through the global economy. When supply can’t keep up with demand, prices for those commodities rise and others follow along with them as a result. A more recent example has been a combined series of events that have taken place as the COVID-19 crisis has unfolded: sudden decreases in production due to layoffs brought about by perceived decreases in demand and safety concerns at manufacturing sites, government financial stimulus, easy availability of credit as a consequence of low interest rates, and finally a significant uptick in buying activity prior to the full resumption of global manufacturing. This has hit all of us lately every time we reach the cash register or look at prices online, and it has yet to show any signs of slowing down as manufacturing (at least on the global scale) has been unable to reach previous levels of production.

3) Labor and Product Shortages

With the sudden recent increase in demand for products and services, it was only a matter of time before stocks became depleted and delays began. This is a classic case of supply and demand. While high demand can be a boon for producers, it's not so good for customers. Wait times for restaurants and retail establishments have gone up as a result of staffing issues, with some stores reducing hours and cutting certain offerings as a means of doing the best they can with the personnel they have. Thanks in part to the previously mentioned inflation, many workers feel undercompensated for their efforts and so are leaving the workforce in droves or seeking more profitable employment, leaving huge numbers of positions open in their wake. This lack of labor in the manufacturing sector has led to supply gaps for many of our favorite goods, which not only increases backordering and frustrated customers but also allows the return of an old economic specter that often shows itself in times of shortages: black marketeering and scalping of goods. When shortages cause the resale market to be strong, some individuals intentionally buy certain high-demand goods with the intention of reselling them at a profit, which in turn worsens the underlying shortage.

4) Quality of Service Degradation

It stands to reason that when labor shortages abound, businesses have less and less choice about who they are able to hire or fire. When things are slow and/or unemployment is high, it’s easy to replace underperforming workers with more exceptional employees, which raises the overall quality of service provided to customers. However, the opposite is true when unemployment is at record lows and demand grows stronger by the day. With the increased overhead created by higher material costs and rents, businesses are pressured to try to maintain profitability anywhere they can, which serves as a further incentive to trim staff, creating a vicious circle as quality of service drops even further. Smaller markets are somewhat more immune to these pressures as their workforce tends not to change to the same degree as larger markets, which is why producing in smaller local markets tends to remain viable even in turbulent times.

5) Market Instability and Global Flux

Market changes can lead to opportunities for new businesses, though it also can harm customers and existing businesses who struggle to find ways to adapt to the changing environment. Regions who were previously major production centers may find their control over their particular sector eroded by unpredictable "black swan" crises like COVID. This has also been the case for financial markets, where massive change can lead to spiraling growth or perilously close to ruin as investors react to a never-ending stream of "crisis news", striking fear into those who rely on pension funds or investments for their retirement. While there are bound to be winners and losers in any major change, productivity is almost always negatively impacted by the time and effort spent pivoting instead of producing. The biggest winner of this past year’s tribulations has been digital as consumers flocked to online outlets while brick and mortar stores remained closed for extended periods of time. Whether the ebbing of the virus will lead to a renaissance for in-person experiences or find a permanently world wide web-bound populace, only time will tell.

A common theme you might have noticed from several of the above factors is that many of them could be diminished (or even eliminated) through greater reliance on locally-sourced goods and services. After all, if the production materials, labor, and shipping all take place close to you, they can’t be significantly hindered by challenges abroad. Accordingly, on this upcoming Small Business Saturday, we will remember that shopping local is not only good for supporting your community, it’s also a great way to ensure that when hard times come, your friendly local store (or Studio) will have exactly what you need when you need it!