Friday 30 July 2021

The Sin Of Cheapness.

Commodities, Commodities, Everywhere - And None Of Them Are Cheap! No less an authority than the Commerce Commission has determined that New Zealanders are paying too much for their food and groceries. An apparent aversion to aggressive competition has led the dominant players to match one another’s’ prices rather than better them. This is not the way a “healthy” market is supposed to work. Ergo, the whole industry needs a shake-up. 

IS THE EDITOR of The Daily Blog correct? Would New Zealanders benefit from the creation a state-owned supermarket chain? Unburdened by the obligation to return a healthy dividend to private shareholders, would “KiwiShop” really be free to supply the highest quality food and groceries to the public at the lowest possible prices?

Let’s see.

The rationale for this level of state intervention is, presumably, to break up the cosy duopoly of Woolworths and Foodstuffs. No less an authority than the Commerce Commission has determined that New Zealanders are paying too much for their food and groceries. An apparent aversion to aggressive competition has led the dominant players to match one another’s’ prices rather than better them. This is not the way a “healthy” market is supposed to work. Ergo, the whole industry needs a shake-up.

The first question, naturally, is whether or not the present government possesses the will to involve the state directly in the distribution of such crucial commodities. Given that the Minister in charge of the process is David Clark, the chances seem slim. This former Treasury boffin remains firmly wedded to the Neoliberal economic model. It is, therefore, difficult to see him pushing such a democratic-socialist project through Cabinet. Nor, if we’re being truthful, is it very likely that the Minister of Finance, Grant Robertson, would give such a project his blessing. Both Labour politicians still subscribe to David Lange’s famous taunt: “You can’t run a country like a Polish shipyard!” (Or, they would probably add, a Soviet supermarket.)

It would be easy to stop at this point, and simply close the argument with a terse: “It’s not going to happen.” But, let’s not do that. Let’s assume, instead, that the entire Cabinet, after a special screening of “Reds”, decides to embrace the “cheap food for the people” proposition with both arms. Let’s follow the idea through to some sort of conclusion.

The first point to make under this scenario is that Woolworths and Foodstuffs will continue to trade. KiwiShop is there to compete with all the New Worlds, Pak n Saves and Countdowns – not replace them.

Hmmmmm. Tricky.

Part of KiwiShop’s remit is to give the growers and suppliers of food products a fair price for their offerings. Presumably, this would be a higher price that the price offered by either Foodstuffs or Woolworths? But, if they’re paying their suppliers more, wouldn’t they be required to charge their customers more? That would not be a very good way to start: with the private supermarkets offering their customers cheaper fruit and vegetables than the state-owned store. People would laugh. Right-wingers would crow. Jacinda would not be impressed.

The situation would not be improved if the private supermarkets embarked on a policy of driving up the wholesale prices of everything the state supermarket needed to purchase in order to remain competitive. If successful, this strategy would also lead to KiwiShop’s prices displaying no appreciable advantage over those of the private distributors.

The pressure would be on KiwiShop’s management to undercut their competitors’ prices – even at a loss to its public owners. It’s easy to imagine the Opposition parties demanding to know the cost to the taxpayer of this expensive counter-strategy. The luckless Minister would soon be inundated with Official Information Act requests. Jacinda would be even less impressed.

One way out of this rapidly deteriorating situation would be to announce that staple items – bread, cereals, rice, milk, cheese, meat, fruit and vegetables – would be significantly subsidised in KiwiShop supermarkets. Subsidies not available in privately-owned supermarkets.

Problem solved? Well, no, not really. The private supermarket owners would immediately file a complaint with the Commerce Commission, quite rightly asserting that the Government was screwing the scrum.

Moreover, Woolworths and Foodstuffs would not be the only complainants. New Zealand has puts its signature to a host of international agreements outlawing the state subsidisation of commodities – especially subsidies intended to disadvantage private sector suppliers. The Commerce Commission wouldn’t be the only body telling the Government to cease and desist. By now, one suspects, Jacinda would be getting really pissed-off.

At this point the NZCTU might well suggest that an even better way to run Foodstuffs and Woolworths out of the market would be to start paying KiwiShop workers much higher wages. Failure to match the state’s wage-rates would spark a major worker push-back. On the other hand, conceding wage parity with KiwiShop employees would slash the supermarket owners’ profits.

You know, that strategy just might work.

Or, it might not. It is difficult to see the Opposition parties – let alone the employers’ representative bodies – sitting back and doing nothing in the face of such a blatant attack on the capitalist system. If the Labour Government was allowed to get away with rendering the privately-owned distribution sector unprofitable, then what was to stop it from doing the same to any other sector it fancied taking over? Faced with what they would undoubtedly interpret as an existential threat, the capitalist ruling-class would start gearing-up for a God Almighty fight.

It always ends up here. Deploy the full resources of the state against one profitable capitalist player, and very soon you’ll be faced with the necessity of deploying its resources against them all. The capitalist class has no objection to the state taking over businesses which cannot provide a return on their owners’ investment. (It’s called “socialising the losses”.) But the state attempting to muscle in on money-making enterprises, well, that’s a whole different ball-game. A ball-game called Socialism. A ball-game which capitalism cannot afford to let the state, or anybody else, play – let alone win!

Which means that even a project as benign and necessary as providing affordable food and groceries to the poorest New Zealanders will, in the end, require a full-scale revolution. Now, I’m confident that Comrade-Editor Martyn “Bomber” Bradbury is more than willing to mount the barricades for social and economic justice. But can anyone see Jacinda, Grant Robertson, the Cabinet, or the rest of the Labour caucus, joining him in the violent overthrow of New Zealand’s capitalist system? Why not? Because the bosses cannot be defeated with kindness.

The basic necessities of life are sold as expensively as possible, because the capitalists owe it to their shareholders not to commit the unpardonable sin of selling them cheap.

This essay was originally posted on The Daily Blog of Friday, 30 July 2021.


Colin54 said...

Capitalism is not perfect but generally it works and delivers.

bob said...

>> An apparent aversion to aggressive competition has led the dominant players to match one another’s’ prices rather than better them.

You not been in a supermarket recently or something? Because that statement is complete BS

To pick on item at random, Tararua Butter : Countdown 5.90, PaknSave 4.99 New World 6.69 (yes i know they have same parent). But this item is not unique. Also I reckon your local dairy would charge more

Tom Hunter said...

This is just such classic Leftism in more ways than one.

You and others of the Left may not have noticed but the NZ government did these supermarket chains a huge favour in 2020 when they intervened to shut down countless numbers of small grocery shops, butchers, vegetable stalls and so forth during the great Covid pandemic, as well as cafes and restaurants, but leaving the supermarkets working.

That left the huge supermarket chains as the only game in town for food.

How many of those small competitors have closed for good I don't know since NZ is useless with such stats but the same thing happened in the US and we now know that something like 50% of restaurants, cafes and diners have closed for good, as have some 30% of all small businesses.

So who made out over there? Why the likes of Amazon and company, which is why the billionaires like Bezos and company increased their wealth so much through 2020. Bezos went from something like $120 billion to $200 billion, and the likes of Zuckerberg with similar % gains because their world of sitting on Twitter, Facebook and Zoom while getting food delivered to the door from Amazon and supermarkets was tailor-made for their already huge corporations.

A world created by government control. An absolutely huge "intervention" in the marketplace of food - and now you have the gall to talk about how the market failed! It didn't "fail": it adapted to the new stupidity.

But now the answer is even more government. Of course. As usual.

Here's an alternative idea: change the damned marketplace in terms of rules, regulations, taxes and so forth to allow those smaller private competitors to have a fighting chance against the Big Boys.

You and much of the Left don't believe in that of course.

Tom Hunter said...

One more thing...
At this point the NZCTU might well suggest that an even better way to run Foodstuffs and Woolworths out of the market...

You write this as if that's a great idea in an of itself, and you make great hay out of this suggestion...
But the state attempting to muscle in on money-making enterprises, well, that’s a whole different ball-game. A ball-game called Socialism. A ball-game which capitalism cannot afford to let the state, or anybody else, play – let alone win!

Again the implication is that you think that would be a great solution. And it's not a matter that just Evil Capitalists "cannot afford" to let this happen. We the people can't afford to let it happen because we know it's failed before, every time it's been tried.

You have also written countless asides over the years about the failures of the Soviet and other communist economies when they tried stunts like this, which has naturally fitted in with your image as a moderate, old-fashioned socialist who'd like to see a return to the days of the First labour Government.

But when I see stuff like this I really do have to wonder if your heart still resides with the same "Reds" of John Reed's heart's desire, something far beyond the ideas of Micky Savage and company.

DS said...

Jumping to a state-owned supermarket strikes me as a rather strange idea, given the sheer expense (and time, and land) required to actually build the supermarkets. Surely the a more viable course of action is to forcibly break-up the duopoly into individual supermarket chains, thereby encouraging greater competition? Or straight-out price regulation?

Another possibility might be for the Government to basically Do a Food Pharmac. Setting itself up as a middle-man - a monopsonist buyer of basic commodities from suppliers, and a monopoly provider of those commodities to the private supermarkets.

Note that car-users in the Middle-east don't pay world price for petrol, and one would not consider the UAE to be a hotbed of Socialism.

Mark Simpson said...

You have elucidated the basic Catch 22 of neo-liberalism economics. Any socialist intervention (interference?) in the market brings howls of protest and foreboding from the right of centre fraternity who warn of an inexorable increase in prices (and wages), huge state subsidies for underperforming industries (NZ Railways), etc. Conversely, we have witnessed in the last 40 years the unfettered emergence of corporate monoliths (Amazon, Facebook). Our two supermarkets are a microcosm. Corporate greed reigns. The middle class is decimated and the "top" 1% become obscenely wealthy.
Has there ever been, could there ever be, a third way where the best of the two sides could realistically prevail? The answer would have to be no because economists from time immemorial would have preached it.

Jens Meder said...

Is not our super markets "duopoly" with the freedom to carry on trading beside it - still more democratic on the economic level than what state monopoly capitalism under Socialism would be ?
The statement that too much subsidized i.e. unprofitable housing and food production is unsustainable and self-destructive when too many people prefer poverty in order to qualify for the benefits financed out of the profits of others - has not been refuted yet.

Whatever measures there might be possible to promote more competitive food pricing, it should not be at the cost of selectively reducing or eliminating G.S.T., because GST enables the poorest to participate in wealth creative citizenship.

Don't forget that in the successfully poverty eliminating Social-Democratic Welfare State the needs and demands for welfare assistance should be diminishing, not widening.

mikesh said...

A state owned supermarket would effectively be tax free, which would be an advantage since it would enable it to aim at lower profits. This factor would be enhanced if the government were to introduce a land tax, given the large amounts of parking space that most supermarkets have.

mikesh said...

A state owned supermarket could operate, in effect, tax free, which would allow it to operate less profitably.

John Hurley said...

This situation is discussed in this podcast

Jonathan Haidt, a social psychologist at NYU’s Stern School of Business, joins the pod again for a conversation on how social media disrupts our democracy and the mental health of young people. We also learn about Jonathan’s forthcoming book, “Three Stories about Capitalism: The moral psychology of economic life.” [23:00]

"Kindness" isn't the answer. What matters is social contract ------ ooooooooh who knew!!!!!!!? You might call that the last word on Labour 4, 5, 6, 7?

Mike Grimshaw said...

So perhaps begin with the government removing gst from your list of core staples...

greywarbler said...

There is another sin committed by many supermarkets. That is pushing out the brands that have lines that are selling well, and replacing them with their own brands. Vertical integration I think it is called. Pam's is everywhere in New World, Select, Budget etc. also seen in big outlets. And of course importing products that could be made here easily.

Our local New World has a mix of Indian and Asian employees along with NZs, but the oldies that used to be tidying the shelves etc are not to be seen. I find it enjoyable to shop there, and it is a place where equalityu mixes; the blokes in their work boots and singlets getting some extras,feeling quite at home. But it lacks the interest in the customer that a smaller outfit might do. They have changed my favourite buns and a request to the bakery prompted an astonished look from a teenager. Probably has been soaked in the 'accept what you're given' NZ miasma.

The small shop can't compete so well, and the one that used to make good wurst sausages had to move from mid-city because the rent went up, now has a florist there, handy for funeral flowers as all the 90 year olds drop off their perches.

Odysseus said...

Labour's calling out of supermarkets is nothing more than a diversion from the galloping inflation brought about by their reckless policies. Typical Socialist tactic when things turn to custard - "look over there, saboteurs!".

Anonymous said...

Singapore's NTUC is a very successful enterprise. i.e. supermarket chain under the auspices of the Singapore unions.
I shopped with them when I lived in Singapore.

The Barron said...

The role of the state is to protect the people from exploitation. Even the Americans mitigate monopolies. The answer to the NZ duopoly ...

Regulate. Regulate. Regulate.

Jens Meder said...

Colin 59, Mark Simpson.and all -
As without saving or sacrificing for accumulating reserves for security, trading and useful (profitable) investment - i.e. capitalism - at the expense of hand-to-mouth consumption potential, there would be no civilization nor prosperity even under so called "Socialism" or state monopoly capitalism -

it is clear that you cannot blame the "tool" (capitalism), but only the way we apply that tool.
Just the same as we benefit from education - although it also enables some more educated people to come up with more sophisticated crimes - for which we don't blame education, but the individuals involved.

Yes, with the principle of "COMPASSIONATE CAPITALISM" there is a "third way" of achieving constructive harmony through systematically reducing and eliminating the conflict between the haves and have-nots -

not by charitably redistributing all the income and wealth of the haves, but by helping the have-nots to participate in the effort also to become owners of adequate wealth.

The NZ Super Fund is a good example of successful and fair compassionate capitalism, because unlike with plain charity donations, the poor also contribute to the NZSF through the taxes (GST) they pay, and while the haves contribute much more, their direct benefit from that is only at the same rate of NZ Super as for the poor.

Politically there might be weaker opposition to more govt. taxation revenue if it goes directly into (retirement) wealth ownership creation rather than for immediate consumption.

Ricardo said...

I was in Moscow in 1988. You can have your state owned shops and everything else. They don't work.

Guerilla Surgeon said...

Pity Aldi doesn't want to come here. Apparently they have done wonders for Britain and Australia.

David George said...

Boris Yeltsin after a visit to a Western supermarket:
“When I saw those shelves crammed with hundreds, thousands of cans, cartons, and goods of every possible sort, for the first time I felt quite frankly sick with despair for the Soviet people.” “That such a potentially super-rich country as ours has been brought to a state of such poverty! It is terrible to think of it.”

As an aside here's a visit by a young Aussie couple to a present day supermarket in Siberia. Quite the transformation. The dreaded neoliberalism doing what it does?

greywarbler said...

Odysseus you are odious!
Typical Socialist tactic when things turn to custard - "look over there, saboteurs!".

Cast your net a bit wider. All political parties are good at subterfuge. And can win with those who are inclined to embrace their type of blarney - you from the moneyists I take it. The saboteurs in Labour at present have been influenced by them indeed.

Scouser said...

Follow the numbers. Since Woolworths (AuS) via Progressive were allowed to purchase Woolies (NZ) (strangely enough under Labour's watch) the supermarket chains' margins have about doubled from what was historically on a par with international norms. Not a surprise when there is a duopoly. There will also be less commercial pressures to become more efficient as there is less competition. But note NZ has always paid too much at the supermarket so this is not a new occurrence caused solely by moving from a cartel to a duopoly.

However, an extra ~ 3% monopolistic profit and some extra costs from inefficiencies don't explain our VERY expensive supermarket produce. There are large underlying costs from our small markets and expensive distribution. I also suspect that we pay over the odds for imported goods because of our small size and that a number of importers do rather well thank you very much. Local suppliers not so well.

This says to me that some of the blame for high costs quite rightly lie with supermarkets but ..... initiatives such as Kiwishop or introducing regulations around supermarket suppliers will successfully distract from Labour's current dismal execution performance but like almost everything it has done in the last four years will not make a real difference.

greywarbler said...

This hits the nail from Gordon Campbell, Werewolf on Scoop:

Only major prosecutions under anti-trust law hold out the possibility of breaking the stranglehold that the chains have on New Zealand consumers. Unfortunately, in their hostility to government intervention, the 1980s reformers didn’t bother to ensure that our anti-trust laws are fit for purpose.

But misses here: Given that the two Australian supermarket chains that dominate our grocery industry routinely rack up profits in the order of $22 billion annually, that’s a no-brainer.

Foodstuffs as far as I know, is still NZ and an evolved feature of GUS grocery co-operative chain. Woolworths through its various spawn, is the Australian investor.

See about it:

John Hurley said...

That phrase "sin of cheapness" comes from Rutherford Waddell (which we learnt about in the sixth form)

I don't know why it isn't included in the Otago Settlers Museum?

David George said...

Here's a great poem. The right to hate:

Tom Hunter said...

You should also read this piece by economist Dr Eric Crampton, Kiwigrocer is a classic Catch 22.

Consider a multinational grocer like Aldi or Lidl, or any of the other dozens of large grocery chains. If one of them wanted to eat New Zealand grocers’ lunch, what would it have to do?

He goes into the detail but basically it boils down to:
- they'd have to go through the Overseas Investment Office first.
- Assembling the properties for your supermarkets is tough in the face of local opposition and covenants on land occupied by previous supermarkets.
- The Resource Management Act and Alcohol Licensing Boards are also used to block such developments right now.

Crampton summarises it thus:
Recommendations for a government-backed KiwiGrocer simply seem a non-starter for the exact same reason that KiwiBuild failed.

The Government, as grocery development agency, would hit the same barriers as any other entrant.

But if the Government can ease those barriers, then KiwiGrocer would no longer be necessary.

So ease those barriers.

In other words the exact opposite of recommendations by earlier posters to "regulate, regulate, regulate", which is the usual Leftist answer when existing regulations produce poor outcomes.

sumsuch said...

So amusing, the speakers for freedom spawned by '84. We're going down the toilet hole and these are the main talkers. Like a mustard crop.

Tom Hunter said...

Perhaps it would help if you could answer and argue his points? Despite having a PhD in economics he's not putting forward anything overly sophisticated or deep in economic theory. These are basic, easily understandable reasons as to why our supermarket chains don't have enough competition.

You have two options:
1. More regulation (see above) to correct a situation created by the usual lousy combination of government interference/regulation and private sector exploitation of such.


2. More regulation that has to become ever more prescriptive, like Muldoon did.