Tuesday, June 27, 2006

Supermarkets and symbolism

Richard Huzzey reminds me of the discussion at Stephen Tall's blog on the subject of supermarkets.

Stephen and Richard are both right, although they seem to disagree with each other. We shop at supermarkets. We find them convenient. Their prices are sometimes lower than small shops and sometimes higher, which is unremarkable.

But we are wary of the power that they have, we fear encroaching monopolies. I worry that they have worked out, using my loyalty card, exactly what sort of 2 for 1 deals I am a sucker for, and how best to distract me from paying attention to the price of something.

By all accounts suppliers get a rawer deal than we customers. This is called "driving down prices for the benefit of customers", which is true up to a point. But sellers as well as buyers have to be able to go somewhere else for competition to work properly.

Green councillor Matt Sellwood calls supermarkets an ethical and environmental disaster zone.

A rare admission perhaps from a green that competition is ethical, since excessive power in the marketplace is a problem. And of course, environmentally, their impact is enormous, as is their throughput of goods.

What I'm not so clear about is if the same amount of goods were sold through smaller shops, whether that would be any better for the environment. Smaller shops would, presumably, need more deliveries. And to visit the number of shops needed to carry the range of a supermarket would presumably require more transport of the customer. Or perhaps some of our small shops could expand, becoming, er, supershops?

What I'm hoping to illustrate here is that it is a mistake to think along the lines "X is doing something we don't like - we should fight against X" as Matt is doing. This is treating supermarkets as a symbol of all that is wrong with the world. And yet that I can fill the fridge without even having to leave the house is something that is right with the world. If X, supermarkets, were stopped from doing this thing we don't like, others may still do it, and we may find that they have also been prevented from doing things we do like - letting us get groceries after a late council meeting for example.

Rather than attacking the symbol, we should focus on the behaviour. A supermarket using a million carrier bags is no different from a thousand small shops using a million carrier bags. (Although my last Tesco online came in 25 bags for fewer than 75 items. They offered to take them back after I complained but who knows if they will get used again.) Overpackaged junk food is the same wherever it is sold. Driving to the shops is the same whatever kind of shop it is. Corner shops are not exactly trade union fiefdoms either.

Monopolistic and monopsonistic power is tackled through competition authorities. Such authorities need to weigh up carefully the costs and benefits of intervention. This is economic rocket science. I see no way for a little blog to give a convincing argument either way on whether more intervention is necessary. I hope the authorities are getting it right, and I am powerless to help them.

Although supermarkets are often more expensive than small shops, particularly when we ignore special offers and Known Value Items, this does not mean that they are not exerting a general downward pressure on prices. If there were no supermarkets, other shops would charge more. And let me be clear: low prices for food and goods in general is a good thing. If you think JSA of £57.45 a week is hard to live on now, think what a price hike would do. If you want to put benefits up because prices have gone up, you will be worsening the poverty trap. And also for the rest of us, having lower prices is like being richer. (Richer is better - if you don't agree, send me a cheque.)


Friday, June 09, 2006

If Green Taxes work

...won't they raise less over time?

This question is on many lips. Those of Nick Robinson for example.

Here's my answer: No they won't.

Demand for energy is fairly inelastic. Most users do not think much about the cost when switching on a light or driving to the shops. This means that we are a long way from the peak of the Laffer Curve in the eco-tax rates we're proposing to apply.

Prosperity is increasing, demand for energy is increasing, so the potential for eco-tax revenues is increasing and will go on increasing. The threat to prosperity is minimal or negative because we are reducing other taxes at the same time. So society will be richer in future and therefore willing to pay even more for energy.

This does not mean that eco-taxes fail. They succeed in reducing demand a little from what it would have been otherwise, and they succeed in raising revenue, allowing other taxes to be cut. These are both big positives.

Now perhaps there is a case for i) much bigger eco-taxes, that cause significant reductions in consumption, and ii) bigger still that lead to reductions in eco-tax revenues. And then we could have a lot more than 2p off income tax. Or perhaps that policy would be disproprotionate to the problem. But it is laughable to consider the hypothetical spectres of that policy to apply to this policy of only £8bn in eco taxes.

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