not 'the white stuff'
Adam Smith famously stated in An Inquiry into the Nature and Causes of the Wealth of Nations:
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.A group of dairy processors and retailers have just been found guilty of exactly that and fined a total of £116m. Good, perhaps it should have been more pour encourager les autres. A free market economy is the best way so far discovered of distributing resources, but cartels and monopolies are by their nature insulated from the free market and able to set prices that are overall worse for everybody than they could be. This is overall a bad thing no matter if they give excuses that they are just doing it to protect the downtrodden, as has been claimed by all those involved in this case such as Sainsbury's and Wiseman Dairies:
Sainsbury's, which has agreed to pay £26m, said its price initiatives in 2002 and 2003 "were designed to help British dairy farmers at a time of considerable economic pressure and public debate about whether farmers were getting a fair price for their products".and Dairy Crest, who helped the competition commission and therefore escaped a fine, which has a press release in which they state:
...
Wiseman Dairies, which faces a £6.1m bill, said that "every penny of additional revenues paid to Wiseman was passed directly to our suppliers".
The milk price initiatives in 2002 and 2003 were aimed at supporting farmers through this difficult period by returning higher prices to them for their milk. The implementation of these initiatives was very well publicised at the time and received widespread support including strong political backing.The period when this price fixing happened was a very bad time for farming which had just had the Foot and Mouth Crisis (the first one). At the time supermarkets where under preasure in terms of public relations and politics to try and do more for their suppliers, for example in 2003:
Mr Blair said: "I think we need to sit down with the industry and really work out what is the basis on which we want sustainable farming for the long-term.It would appear that according to them some firms went and took him at his word and attempted to form a cartel to do just this, to the detrement of all their customers. Which brings me back to Adam Smith, as when you expand on the quote from Wealth of Nations you find this:
"And in a sense, what price are we all prepared to pay for that as well."
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.
3 Comments:
So are we saying that 'The Good Samaritan' got it wrong? That the Pharisee did the right thing? That it was in the best interests of everybody for the robbed man, bleeding and suffering, to die?
If not, what should have been done otherwise to save him?
Acknowledged the parable is about giving with no self interest and no possibility of return, but if it is indeed true that 'every penny of additional revenues paid to Wiseman was passed directly to our suppliers", what's the difference?
Or were the suppliers just lying?
Not having a conspiracy 'to set prices that are overall worse for everybody than they could be' wouldn't have cut much ice with my wife if the cheese and milk had run out.
Firms (including farmers) go bust every day, and new ones arise in their place have learned from the mistakes. Free Markets are a dynamic, self correcting system. There are not an absolute fixed number of farms so if they go there will be no milk or cheese.
If a few farmers go bust then the price that the retailers pay the rest will rise until the rest are profitable. Even if every single farmer in this country did go bust then the milk and cheese would not run out, it would be imported from elsewhere.
This the power of the free market. An evolving system of suppliers and consumers constantly adapting itself so that resources are distributed in the most efficient way possible. Which is why you can get what you want with expending the minimum of your own resources.
The alternative is government mandated price controls, and if those are imposed then you really would see the milk and cheese running out. Just as price controls have caused shortages everywhere else that they have been imposed.
I know all that. By and large, I'd subscribe to the general theory. There's just a point where the potential consequences might be such that it could be a little stupid to let them happen for the sake of maintaining doctrinal purity.
cf The parable of the ass in the hole.
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