A cross-party group of MP’s published a report last week in which they claimed that we have 10 years to “save the high street.” They tell us that once the big supermarkets kill off the smaller stores they will raise their prices, and this means that supermarket expansion should not be allowed to continue unchecked. They have called for the government to appoint a “retail Tsar” (interesting choice of language, eh?) to keep the big boys in check and protect the little guys, and for a ban on further take-overs and mergers.

The report is a pile of economically ignorant, rationally vacuous, freedom hating, patronising piffle. For a start, it is not the presence of small convenience stores that keeps supermarket prices low. It is the combination of the low cost of bulk-buying, intelligent negotiation with suppliers, and, most importantly, the presence of equally big supermarket competitors that keeps prices so low. Tesco is not bothered by small corner shops and independent stores and thus doesn’t set its prices by them. It’s bothered by Asda, Sainsbury’s & Morrisons. And lets face it, supermarkets could significantly raise their prices and still be cheaper than many smaller stores.

To understand something of the hysterical nature of the report (hysterical both in terms of its tone and in terms of the fact that the stupidity is incredibly funny) we need only look at the warnings it gives. Quite often when someone wants to gain sympathy for their position on some issue they cry “what about the kids!” in a last ditch attempt to convince people that a vacuous argument has some saving merit. Well, this report does something similar, only going much further. Along with “what about the kids” the report screams that the unchecked expansion would also be bad for old people, poor people, people who don’t drive, women, and minority groups like Muslims. Fucking hell! Are they talking about the expansion of supermarkets or an explosion at a nuclear power station in the Middle East?

There are a number of points to make in response to the nonsense of this report:

1. Just What is a Monopoly?

I rarely meet a single person who actually knows what a monopoly is. Strangely the word is associated with a free market, and that is exactly what the MP’s report does. This flies in the face of the truth – monopolies are impossible in a free market. The clue as to why lies in the proper definition of “monopoly.” Monopolies are fundamentally coercive. A monopoly involves exclusive control of a given sector which is closed off from all competition and leads to the setting of prices independent of both the market and the law of supply and demand. Fundamentally a monopoly is about the impossibility of competition – rather than the absence of it. In a free market you can never get this type of monopoly. In fact, the only way to get this sort of a monopoly is through an act of parliament. Royal Mail is a monopoly in this sense – competition is forbidden by law (strangely few people complain about this). Government has granted Royal Mail special privileges which would not exist in a free market.

America once had the most free market that ever existed. During this time all attempts to corner a market, kill off competition, and then gain huge profits through high prices failed. The reason is simple: When a company kills off competition and then drives up prices this will attract new competitors and investors to that area. Its practically an economic law – high profitability attracts new competitors and investors. It always has and always will. Prices can never be sustained above the market level outside the law of supply and demand for very long. As Alan Greenspan puts it: “the ultimate regulator of competition in a free economy is the capital market. So long as capital is free to flow, it will tend to seek those areas which offer the maximum rate of return.” When prices go up, new competition backed by fresh investment is attracted, supply of the product goes up relative to demand and prices therefore fall.

We should note that high prices are not the only way to increase profits. Lowering costs – production, distribution and other overheads – is another way to do it, as is an increase in efficiency.

Economics 101 folks.

2. The Pressure on Small Stores

What are we to say about the “plight of the little store?” Tesco most certainly puts a strain on many smaller retailers.

**Cue soppy violin music**

Ian Proudfoot, joint managing director of independent grocers Proudfoot, accused Tesco of “predatory pricing.” Business at his family owned store in the town of Withernsea plunged after Tesco sent 6,000 local households a 40% voucher for its own store.

**Pass the handkerchiefs**

“It was the wrong thing to do, it was bully boy tactics. They weren’t going to keep those magic prices for ever,” says Mr Proudfoot.

**Someone call the frickin‘ police**

“Tesco are raising the standards in this country, but they also have a blind spot for fair and square.”

It’s difficult to see Mr Proudfoot’s argument here, except, obviously, that he’s getting his arse kicked. Quite frankly giving out vouchers was a brilliant business idea to win custom to a new store. It has absolutely nothing to do with not playing “fair and square.” The purpose of business is to make money, and this is done by providing customers with a better deal than your competitors. Simple. But, many on the Left imply or assume that it’s intrinsically bad to take business from another shop. In fact, it’s difficult not to conclude that such arguments are merely cheap attempts to rationalise the romantic notion of “sticking up for the little guy” and “rooting for the underdog.” In my experience, however, most smaller retailers are nothing other than predatory little viruses that simply seek to capitalise on their location for custom rather than on their quality of service or value for money. These businesses exist because it’s more convenient to us to walk 2 minutes for a pint of milk at 45p than go a bit further for a pint of milk at 35p.

No retailer – big or small – has a natural right to exist and stay in business. Small retailers might lament that their livelihood is at stake, but this is a falsehood. Of course, they may indeed be put out of business, but this is far from being the end of their lives or even of their careers. Millions of people throughout the country seem to manage just fine without owning a convenience store. Small-business owners can find work elsewhere, and shouldn’t have much of a problem doing so with the wealth of experience that they have. They could very well apply for one of the thousands of jobs that Tesco creates: if you can’t beat ‘em, join ‘em.

Not that this washes with the great unwashed. Calls for government intervention simply get louder in proportion to the size of the profits. But by what right can we lobby government to save failing, less efficient businesses? And by what mechanism should government do so? Any government intervention would involve using money taken from the millions who pay taxes and do not run small businesses to prop up those who do run small businesses, simply to allow those businesses to charge people more money for products. Great idea, eh? Penalise success and assist the worst performers – the Socialist Ideal. Why should I have to pay more money for inferior products just to keep bad businesses in the black? Why should people have to continue buying from local shops even if they can get a better deal elsewhere and save money? Are people and bigger stores to be penalised simply to protect some old crusty shop owner? How come? Because he’s been there a gazillion years? No one has a right to be in business if people do not want to do business with him and if other businessmen can do better.

The fact of the matter is that the only businessmen who need fear competition are bad businessmen – the kind who are lazy and want to remain static rather than move with the demands of the market. Good businessmen have nothing to fear, because good businessmen know how to survive next to a giant like Tesco. Take the city of Edinburgh. Princes Street is your typical shopping street with the usual big retailers. But, in the streets off Princes Street and all along the Royal Mile there are countless examples of fantastically successful small businesses. There are shops selling homemade sweets, another selling handmade fudge, another selling 100’s of scotch whiskeys, a specialist cigar shop, an all-year-round Christmas shop, a shop selling New Age spirituality stuff, one selling hand painted ceramics. Other good examples of successful small businesses can be found on Shankill Road in Belfast. The Shankill Road has nearly 10 independent Butchers and fruit shops, despite the fact that they share the road with an Iceland and a Co-op, and despite there being no fewer than THREE Tesco stores nearby – one 5 minutes walk away, a second 5 minutes drive away, and a third a 10 minute bus journey away. How do they do it? One particular butcher gets my business. He sells me stuffed pork chops, lamb chops in a choice of coatings, huge chicken kievs, and all kinds of unusual sausages. In short – he sells me stuff Tesco doesn’t and thus wins my business. I buy most of my fruit either from a shop on the Shankill Road or from a small independent shop in the city centre – which is 30 seconds away from a Tesco. Why? Because their fruit is head and shoulders above the fruit you buy in Tesco and because they carry a bigger range of fruit – blueberries, raspberries, sweet seedless grapes – that no local Tesco carries.

3. The Strain on Suppliers

In all the anti-Tesco polemic opponents turn a blind eye to the fact that Tesco is committed to competitive prices, customer service and efficiency. If their prices were extortionate, their service piss poor, and their operations sloppy then their business would plummet. Tesco are only successful to the extent that they adequately supply their customers needs. Make no mistake about it, Tesco brings a multitude of benefits to people: they provide thousands of jobs, affordable high quality goods, and investment in local communities. This causes many critics to fall back on the “plight of the supplier” as their major line of attack. At best this provides a distorted half-picture, and at worst illustrates a noxious, stomach-churning sentimentality. Notably, Tesco is a signatory of the 2001 Supermarket Code of Practice, drawn up to regulate trading relationships between the major supermarkets and their suppliers, because it’s in the interests of any business to maintain strong and mutually advantageous relationships with suppliers. No business benefits when its suppliers struggle or go bust.

Now, suppliers do compete with each other for business, and some may feel the strain. But unhappy suppliers still have choices. They can sell their business and go in a different direction. Or they can change their business partners. No supplier of goods is being forced to do business with Tesco. They can do business with any number of other shops and supermarkets who are in direct competition with Tesco. Alternatively they can sell direct to customers. Clive Sage, a Dorset sheep farmer, stopped supplying supermarkets six years ago after prices fell too low for his liking. He now sells direct to consumers and appears to be doing fine.

4. Consumer Choice

Some folks attempt to justify government interference on the grounds that consumer choice is reduced when Tesco puts smaller retailers out of business. Aside from the absurd notion that government exists to increase our culinary choices, this argument is bunkum – in its purest form – and I conducted my very own experiment into the matter. My own area has a large number of small shops and medium-sized stores (all of whom do incredibly well despite there being a Tesco 10-15 minutes walk away). By and large these stores sell all the same stuff that you get in Tesco: Heinz baked beans, Uncle Ben’s Bolognese sauce, lettuce, Kingsmill bread, Coca Cola, Mars bars, Denny sausages, Coleraine cheese, Toilet roll, Goodfellas pizza, to name just a few. There are only two substantial differences: (1) these stores do not hold as many product types as Tesco, and, (2) the smaller stores can charge as much as 40% extra for the same product. I pay 55p for a tin of Coke in my local shop, and only 39p for the same frickin’ thing in Tesco (who occasionally sells me 12 tins for the price of 6). So, my choice is this: where do I go to do my shopping? Do I go to Tesco where I have a far bigger range of cheaper goods all under the same roof, or do I dart around several other smaller shops paying more for the same stuff? Perhaps Tesco does restrict choice after all, since it’s difficult to see why anyone would choose the latter. But, they can if they wish.

Some people choose to avoid stores like Tesco, charging them with selling characterless food in an equally characterless environment. Whilst I should repeat that the food is largely the same stuff, I will add that this argument is a matter of taste, and thus merely subjective. It hardly provides a solid basis on which to lobby government for intervention. People who do not like the environment of Tesco stores can take their snobbish attitude elsewhere. Tesco is a supermarket, designed to make shopping as easy as possible, and personally I’d much rather shop in such an environment than in some grotty, dusty little store with black bananas hanging in the window.

Tesco’s success is not down to how much it has reduced our choice, but rather is a testimony to the fact that people have chosen: they have chosen to shop at Tesco, and can choose other shops and retailers if Tesco begins to screw up in the way Mark’s & Spencer did after it became the first retailer to break the £1bn profit barrier. Most customers have a good choice of retailers, and a retailer can only grow profits by growing their sales, and can only grow their sales by making their stores more attractive for customers. Businesses know very well that their customers came from somewhere, and could go back.

I will only continue shopping at Tesco if it continues to meet my needs. And since this is the case the retail sector already has the only justifiable and necessary regulator: the customer. When giants like Tesco have won so many customers through productive efficiency, low costs, and offering better products at lower prices then rather than being castigated for it they deserve the highest praise.

Stephen Graham (B.Th Hons)