From Reliable Prosperity:
When local economies are dependent on only a few major sectors, they are vulnerable to changes in outside markets. When people do not meet their own needs locally, money immediately leaves a community. This stunts community development on all levels.
Jane Jacobs has proposed that the health of local economies be measured by the number of dollars of local economic activity they generate for every dollar of goods they import. diverse local economies are good at meeting local needs, and tend to add as much value as possible before exporting goods and services. They keep money circulating in the community, stimulating the economy and creating new economic niches. They pursue strategies of resource efficiency and use waste as resource. They are made up of mixed-use, economically diverse human-scale neighborhoods.
Local ownership tends to maintain local economic diversity because it builds on the loyalty between customers, owners, and their shared community. Community-based businesses offer connection to place through everyday transactions. Knowing the people that grow your food, press your clothes, fix your car, and sell you your computer provides a rich set of connections to place through everyday transactions. In Mondragon, Spain, a network of community cooperatives has operated for forty years, employing 21,000 people in hundreds of enterprises, with only three business failures in this period.
Self-reliant Local Economies with a strong degree of local ownership give communities a strong bargaining position. They can seek out stable, mutually-beneficial trade partnerships, insisting on fair trade for their goods and services. Strongly differentiated bioregional economies enrich the possibilities for cultural exchange and cross-fertilization. Trade is enhanced when local areas produce high value-added specialties which reflect their local skills, traditions, and landscapes — rather than simply exporting standard commodities at poor prices.
Agricultural diversity is particularly critical in order for a local region to retain its own options for development and self-reliance. Diversity of seeds and crops, uniquely suited to local soils and climate, ensure a diversity of local foods. Someone else's seeds imply someone else's needs. Monocultures of any kind are vulnerable to factors external to region.
Import replacement activities in which local manufacturers are linked to local suppliers save transport costs, delivery time, communications costs, inventory costs, and warehouse needs. Transactions like these that protect a community's financial, social, and ecological assets decrease the need to import products.
Local economies also benefit from local currencies and trading systems. Local currencies, by design, may only be earned and spent within a well-defined town or region. They are typically denominated in time (e.g. hour bills, half-hour bills, quarter-hour bills), with a well-defined equivalence value in U.S. dollars (e.g. one hour equals ten dollars). Transactions in local currencies are subject to the same laws and taxes that would apply for normal transactions, with hours simply accounted by their equivalence value.
Increase the diversity of local economies and the degree of local ownership. Meet local needs locally, and use the resulting stability and security to export only high value-added products at the most favorable terms. Promote local trading networks and currencies.