Supermarket cuckoos

Tracy Corrigan, who writes for the Telegraph on banking and the like,  is excited.   While walking her dog on Sunday she discovered that a Tesco Express is about to open, not 50 yards from her house.   She foresees a future liberated from the boredom of ordering the same items week after week online because she can’t think what else to buy.  Shopping in-store she will find all sorts of goodies.

She thinks her position is, “actually rather radical” and goes on to explain that there are numerous websites dedicated to the “negative impacts of supermarket power” (none are mentioned, but see Tescopoly) and declares she is mounting a counter-insurgency following up with the quite remarkable (and wholly unsubstantiated) assertion that, “The small number of large chains in this country makes competition more intense.”

Yet what is most interesting about this piece is the comments.   If you analyse them into pro on the one hand and anti or neutral on the other then, on a rough count, they divide nearly 2:1 against Tesco.  If you exclude the neutrals and overseas comments, then the antis have it by over 4:1.   Does this mean that things are about to change in Tescoland? 

I think it might.   Since the supermarkets first arrived here in the sixties they have benefited from a favourable political and commercial environment – albeit one that has evolved and changed greatly since then – and this has underpinned their success.   However, nothing stays the same for ever and the economic case for supermarkets in their present form evaporated some time ago.  Good PR on the part of the supermarkets, a widespread belief that the market is always right (or at least much righter than anything else) and the dreadful habit of UK politicians of all parties to follow rather than lead have protected the supermarkets from any political fallout from loosing the economic case.    While the comments on Tracy Corrigan’s piece don’t prove that public opinion has definitively changed any more than the first swallow proves that spring has finally arrived it is, nevertheless, a clue;  two years ago the balance of pros and antis would have been very different.    

To understand how and why things have changed consider the stages that have got them from then to now.

Stage 1.   Government policy was changed in the sixties to favour the growth of ‘big retail’.    The hope was that powerful retailers would force suppliers to deliver better prices and quality (at the time they had a deserved reputation for supplying shoddy goods).   A particular aim was (and is) ’cheap food’ – a policy that presumably dates back to the Corn Laws.   Thus, when the first supermarkets arrived from the USA in the mid sixties (remember the supermarket scene in The Ipcress File in which an early specimen is clearly the height of contemporary cool) they were welcome as a way of galvanising both the retail sector and also the rest of the supply chain.

Stage 2.  The supermarkets became established and a few pulled ahead of the pack, gaining additional market power with size and thus started delivering on their early promise as they used their market power to bear down on dozy suppliers and extract better prices.   Rapidly rising car ownership boosted this process mightily by enabling supermarkets to concentrate on fewer, larger stores as did the emergence of IT systems to manage on a larger scale.   The scale of each store is such that they could sell at prices approximating to wholesale although it is more profitable to trouser most of the benefit and give customers only enough to maintain a small price advantage.   Nevertheless, the gap between supermarkets and traditional shops becomes very obvious.

In other words, the supermarkets had the huge advantage of a lower-cost business model, enabled by rising car ownership, computerised stock control etc. and backed by supportive government policy.

Stage 3.  Government welcomes the rise of supermarkets as a vindication of its policy and comes to see supermarkets very much as a ‘Good Thing’, especially so since so much of the rest of the economy was in near meltdown (it turned out that big retail, instead of knocking domestic producers into shape, simply sourced from overseas).  Supermarkets stand out as one bright spark in the pervading gloom.  Meanwhile, the winners among them grow rapidly by a combination of organic growth and acquisition because it turns out that the most important factor for success is size (because of the increased buying power and therefore lower buying prices).   The contrast between supermarkets and surviving corner shops becomes extreme.

Stage 4.   The winning supermarkets are now an oligopoly, dominating their market and dictating terms to both suppliers and customers.  Suppliers notice this (of course!) but customers don’t as the supermarkets carefully maintain the illusion of good value helped by supporters who continue to benchmark them against surviving corner stores although this is patently nonsense.  They start moving into other sectors helped by their vast cash flow and footfall.  Voices start to be raised against them and their practices but these are mainly couched in nostalgic terms (e.g. they are horrid, are mean to suppliers, devastate the High Street, etc.).   Many of these are good points but none cut  much ice with a government (as distinct from many MPs) still wedded to the idea of a cheap food policy and naively convinced they are delivering it.   The supermarkets actively foster the ‘we are cheap, we are on the hard-pressed customers’ side’  meme by constantly advertising price reductions, BOGOF offers etc.

Stage 5.   Abuses of market power become the norm.   The much publicised unfair contracts with suppliers are the inevitable result of the concentration of buyers; with so few supermarkets growers confront an oligopsony.   On the selling side, BOGOF and other offers are used to confuse shoppers about what constitutes a fair price; absent resale price maintenance, marked prices purporting to be RRP (recommended retail price) are often no more than Aunt Sallys - deliberately intended to deceive.  This can only mean that consumers are paying substantially more than they should.   Moreover there is evidence of outright price-fixing (also here and here) which is almost inevitable when the number of competitors becomes too small.   Also on the selling side, predatory pricing is used to crush competitors as the All Party Parliamentary Small Shops Group has reported (pdf – see page 25).   The tactics are utterly disgraceful but they get away with it. 

In other words, the supermarkets commercial advantage now derives from exploiting their excessive market power and they have become oligarchs.   A Conservative friend (also a councillor and on his planning committee) concedes that they are above the law.   The fluffy fledgelings of yesteryear have turned out to be cuckoos to the bewilderment of their poor parents.

Stage 6.  Most people still believe the supermarkets’ claim to be benefactors which provides ‘high cover’ for them in that government will not act if it thinks they are still well-regarded by the public.   In any case, government and opposition have been captured by a market fundamentalist philosophy that persuades it that ‘the market is always right’.   In theory they should understand that oligopolies frustrate the workings of a market but in practice this view leads to them cheer-leading for any private sector firm, however abusive.   Calls for reform fall at the first hurdle because they typically propose administrative solutions  (for instance the creation of a regulator, ombudsman or Code of Practice) despite the incredibly poor record of such approaches.

Stage 7.  Regulators like the Competition Commission and the OFT (Office of Fair Trading) that might go after them for abuse of market power in fact shelter them, even acting as enablers on occasion – for example by allowing Tesco to make convenience store acquisitions that, given its high market share should be ruled out, on the spurious grounds that ‘convenience’ shoping is different from ‘one-stop’ shopping so Tesco doesn’t really have a very high market share at all!   

This is partly because, like the government, they are influenced by market fundamentalists and naturally assume that everything must be just dandy and in part because, as good bureaucrats, they believe that, whatever the law might say, the reality is that the Government approves of the supermarkets and doesn’t want to spoil the party.  (This are, of course, essentially the same reasons that the FSA/Bank of England/Treasury troika utterly failed to regulate the City!)   To be fair, the regulators are belatedly getting a little tougher, but only marginally.

So, we have arrived at a point where a Good Thing from a few decades ago has evolved into a Bad Thing today.   It suits the supermarkets mightily but it’s bad for the nation as a whole - producers are being ground into the mud and consumers are being overcharged.    The comments on Tracy Corrigan’s piece suggest a growing public appetite to do something – even if exactly what remains unclear. 

Time for a change I think.

After school – the black hole that swallows hope

The A-level results came out last week leaving many wondering about the significance of the 27th year running in which grades have increased and whether or not they still represent the ‘gold standard’ in school education etc.

These are perhaps interesting questions, but … are we missing the elephant in the room?  I think so.

The long-standing primary purpose of A-levels has been to act as university entrance exams common across the whole country.   Once upon a time that meant that they were designed to be attempted only by the 20%-25% most academically-gifted of the school-leaving cohort and ‘passed’ (in the sense of leading to university or polytechnic) by a tiny minority.   Thirty years ago this was around 10% but  it has risen erratically ever since.  When Tony Blair became Prime Minister he famously introduced a target of 50% and it now stands at about 43% with the government increasingly constrained by funding difficulties.

So, A-levels are still doing their primary job, albeit in a context changed almost out of recognition.   In doing so they provide a large MINORITY of school students with a clear goal for their school work.  Even though in one sense this applies only to those in the sixth form in reality the benefit of this clear goal riffles down into the middle school and even perhaps to primary.   I can still remember being distinctly bored by school aged around 14 but equally knowing that this was something I just had to get through because – well – because that was what one did on the way to getting A-levels, then to university and, in due course, getting a job. 

But … that leaves the MAJORITY of school students with no clear target for their school days.  It is a smaller majority than 30 years ago to be sure, but still a very substantial one.  For them there is a black hole instead of the comparative simplicity of A-levels.  What for them is the point of school?  It’s not entirely clear although (or perhaps because) generations of initiatives have left a bewildering array of options.  It’s a system that’s grown like topsy over the years; insiders may perhaps understand it but for ordinary mortals it’s far too complicated.

On last Thursday’s BBC R4 ‘Today’ program (the relevant bit starts 5 minutes in) Evan Davis put this very point to Higher Education Minister David Lammy, “It’s quite a complicated [system] isn’t it now.  We have A-levels and we have all these other things – everything from HNDs, NVQs, BTEC, City & Guilds….  When you got to the Department did anyone sit down and try and explain it all to you… ?”  and a little later, “…we seem to introduce one [a new qualification] every Parliament and never get rid of the old ones…”

The Minister did the normal political thing of answering another question so Evan came back with the thought behind his earlier question (at 7 mins in), “But you’re comfortable with the system?   It doesn’t need tidying up or anything?   It’s a logical and neat system?“  Again, the answer was to a different question leaving Evan to wrap-up by joking that, “We could introduce an exam in the different qualifications“

At this point I must declare an interest – or perhaps a prejudice – that dates back to my first job.  Head office imposed on our manual staff a bonus system of byzantine complexity that had been developed in another Division.   With our very different circumstances it was quite mad and led to perverse and illogical results, but worst of all, it was understood by almost no-one, and certainly not by the staff it applied to.   With the link between effort and reward no longer clear and transparent output slumped and cost soared.  Since then I have been a devotee of the KISS principle so I think Evan was right on the money when he implied that it’s not a logical and neat system and suggested that a tidy up is needed.  Make that a total overhaul.   The ’system’  for those not aspiring to go to university is not, in fact, a coherent system at all, but merely the residue of failed initiatives accumulated over many years.   

Both the individuals concerned and the wider economy suffer terrible damage from this wholly unsatisfactory approach.

Although I’m sure all the civil servants and ministers at the DCSF would hotly deny it, the reality is that young people are treated as statistical objects, gaming counters to be manoeuvred into desirable outcomes.   It is, of course, the archetypal producer-push approach that invariably fails in other sectors as it is failing here.   Moreover, the education establishment in Whitehall (and the education industry in the country) has a one-eyed view of education that sees ’academic’ as good and anything else as ‘failure’.   The ‘failures’ are treated just like the sports ‘left-overs’ at my old school - the not-very-sporty ones who would never play for the school football team.  Staff went through the motions because it was timetabled and they were paid but that was it; no passion, no energy, no inventiveness and certainly no attempt to discover the hidden talents that certainly abounded outside of  football. 

For the individuals concerned the damage was highlighted this report last week of the youth drop-out rate hitting new highs.  It seems that a shocking 1 in 6 or 835,000  18 to 24 year-olds are now NEETS (Not in Education, Employment or Training) after rising by 100,000 over the last year.   At this rate it will soon be 1 in 3 of those not likely to go to university.   But there is worse – recent research looking back at those who were NEETS 10 years ago discovered that 15% had already died.   Even if that figure proves to be very much less going forward, the human cost will still be incalculable.

Is it possible to overstate just how obscene this is?   I don’t think so, and that’s even before considering the economic costs to the nation which is immense as  young people who should be contributing socially and financially are reduced to dysfunctional overheads.

The establishment’s inability to comprehend the importance of vocational skills and do something about it is a traditional failing of the British political system - there has been a black hole at the centre of our economy since the industrial revolution.   As early as 1835 Richard Cobden wrote after a visit to America that “our only chance of national prosperity lies in the timely re-modelling of our system, so as to put it as nearly as possible on an equality with the improved management of the Americans.”   Then again just after the Great Exhibition of 1851 the scientist and Liberal politician Lyon Playfair observed that  European industry was bound to overtake Britain if she failed to alter her outlook and methods.  In 1882-84 the Samuelson Royal Commission on Technical Instruction visited many continental countries and reported, inter alia,  that “The one point in which Germany is overwhelmingly superior to England is its schools, and in the education of all classes of its people … the dense ignorance so common among workmen in England is unknown …”  (my emphasis).   In 1942 the Permanent Secretary to the English Board of Education noted that over a wide range of German industries there was  100% vocational training as against 10% for the UK.   (Sourced from Corelli Barnett’s ‘Audit of War’ ).

The educational establishment may be all at sea over non-academic alternatives but parents are not.  As the BBC reported only last week, “The majority of parents (90%) believe schools should teach vocational and practical courses, as well as academic subjects ...” and that, “…78% thought schools did not equip young people adequately for the world of work“.  Wow!   That’s way off the usual scale of political consensus.   The difficulty here is not parents or employers but the political establishment;  the Westminster Village (and I mean ALL parties) just DOES NOT GET IT any more now than it ever did.   Time and again unflattering comparisons have been drawn (the above are only a small selection) and yet invariably the establishment response has been either to ignore the evidence or, at best, to tinker round the edges.  When panics periodically erupt in response to the manifest system failure, the Westminster Village responds in the only ways it knows – by stretching traditional definitions of  ’academic’ to breaking point, by loudly announcing  ’initiatives’ and by throwing money at the problem in the hope that some will stick and that public disquiet will be appeased by evidence of action.

Sadly, the Liberal Democrats are not immune from this sort of failed thinking.  For instance in Policy Paper 92 “Thriving in a Globalised World - A Strategy for Britain” (pdf) (circulated recently with the Conference agenda) the section on “Improving skills” kicks off by waffling about the changes globalisation has brought to cross-border working patterns (paragraph 2.1.1 et seq.), goes on to discuss statistical changes to demand for unskilled labour and the difficulty of competing on wages with workers from the new EU accession states before making a raft of detailed policy proposals.  Some (not all) are fine, but taken as a whole they reflect a top-down approach, amount to yet more tinkering round the edges and simply don’t do the business.  

This needs to change.  Specifically Liberal Democrats should make a total rethink a top priority with a view to making a proper system a major plank of our platform at the next election.  After all, it might prove popular with the 90% of parents who already agree with this view!   And that’s not to mention employers and the rest who understand perfectly well that the existing system is badly broken.

Which just leaves one final thought:  a ‘proper’ system of practical and vocational training would probably be far cheaper and would definitely be far more cost-effective than what we have now so the financial case points us in the same direction.