If J.R.R. Tolkien’s classic The Lord of the Rings was re-made into a seasonable film today, it would probably look like this: The Dark Lord Sauron would be replaced by Sir Terry Leahy, while Tesco would take the place of Sauron’s dark empire Mordor. The threatened idyll of the Shire, where lovely Hobbits form a small-is-beautiful barter economy, would be replaced by a pastoral Merry England of some distant past. The titanic clash between the evil wizard Saruman and the wise wizard Gandalf could be replaced by the recent showdown between Tim Montgomerie who dubbed Terry Leahy a ‘champion of the poor’, and Guardian journalist Alex Renton, who thinks that “Sir Terry has done more damage to the fabric of British life than any other businessman in modern times”.
But let’s put the ‘culture war’ aside for a moment and look at the economic arguments. Renton does not dispute Montgomerie’s point that the spread of big discount supermarkets like Tesco has made essential goods such as food cheaper. But he believes that “Tesco and the other chains lowered prices because they never paid the real costs of what they sold”.
Those ‘real costs’ include, first of all, the revenue loss suffered by high-street shops and farmers, and their knock-on effects. Secondly, Renton argues, customers have often used the cost savings they realised through switching to discounters to purchase other things. This has increased consumption, and hence environmental damage.
Heads I win, tails you lose. Suppose that by switching from high-street shops to discounters, inhabitants of the Shire could save five gold coins per month. Now there are two options. They could bury their coins in their gardens, in which case Renton might accuse the discounter of being a jobkiller. Or they could use the five gold coins to, say, take out a gym membership, so that the gym would have to hire new trainers and receptionists. In this case, Renton would probably accuse the discounter of fuelling consumption, and thereby damaging the environment. Burying the gold coins creates a negative externality because revenue streams have been taken away from other shops and not spent on anything else. Spending the gold coins creates a negative externality because consumption is bad for the environment.
This assumes, of course, that Renton is serious about his economic analysis, which is doubtful. Let’s assume a scenario: the farmers of Inverness (a town which Renton considers part of Tesco’s blood trail) relaunch the local farmers’ market. Through some innovative strategy, they manage to reclaim a sizeable market share from Tesco, which then has to downsize and sack staff.
Would Renton then argue that the job losses at Tesco constitute a negative externality, and accuse the farmers of not paying the ‘real cost’ of what they do? Or does Renton define a market failure as a mismatch between the preferences of the average consumer and himself?
It just doesn’t make sense to hide a paternalistic agenda behind bogus economics. If you want to make an economic case, make an economic case. If you want to tell other people what to do, say that you want to tell other people what to do.