Adam Schoenborn: A true Tory economy embraces both supermarkets and communities

Adam Schoenborn is a Senior Researcher at ResPublica.

In response to ResPublica's new report on how localism can save Britain’s small retailers, Tim Montgomerie laid out his vision for a true Tory economy, a “Tesco capitalism” where:

“Our only job is to ensure competition, basic protections for workers and let capitalism do its magical best.”

If this is Tesco capitalism, sign us up.

The only place where we may differ from Tim is in our definition of competition. Adam Smith thought that an open market where competitors sought to undersell each other would allocate resources efficiently, aligning supply with demand as if by an “invisible hand.” In contrast, he thought that a monopoly, without threats to its profit-making, would become inefficient and abusive in its management of resources.

But today we look at competition and market concentration very differently. We have seen that, as Tim points out, concentrated markets with a small number of big players can be socially beneficial. Stores with immense market power like Tesco – which today sells one third of all groceries in the UK – usually emerge because they are efficient. Even if they sometimes use that power to distort prices or depress wages, they can still save the consumer money.  As a result, even if only four retailers sell three quarters of all groceries, the low prices they offer mean they represent what the Competition Commission called “a good deal for the consumer.”

This is nothing to scoff at. People on the lowest incomes spend on average more than 15% of their pay on food, so keeping grocery costs low can have a huge progressive impact for society. However, I would disagree with Tim that low prices are all that we want from competition.

As we have seen in the banking sector, this ‘low price’ approach to competition may ignore certain social risks and costs. In the grocery market, these costs include the ability for regular people to participate in the market, to compete independently against the big chains. Like butchers and bakers before them, small and independent retailers have been in sustained decline – with 5% fewer every passing year. Looking at the grocery market in the UK, it is inconceivable that an independent retailer starting out today could grow to become a market leader, as Tesco and Sainsbury’s have done in the past.

While two Competition Commission inquiries in the past decade have done little to change these trends, national competition law and government interventions are not be the right tools to fix this problem in the first place. Instead, local communities themselves should have more say in the planning of their high streets, and more opportunities to participate in the economy and to own businesses.

One of the tools to make this happen will be the new “neighbourhood development plans” set out in the Localism Bill, which will allow communities to input into the future of local environments, specifying where they would and would not like development, and what sort of development they would like. As part of this process, communities should have the power to designate the desired retail mix for their neighbourhood, specifying what type of retail development they would value. For those living in so-called “brand deserts", this could mean the fast-tracking of a long awaited new supermarket. 

This, coupled with other new powers, like Meanwhile Leases to create a Community Right to Try running a derelict shop, or – more controversially – allowing local levies on large or out-of-town retailers to subsidise rate relief for a failing high street, would give communities the power to build and conserve retail diversity, popular ownership and, as a result, the sense of local pride and social rootedness that ought to be the hallmark of a true Tory economy.