Lee Friday – July 31, 2017
In a letter to the editor of the London Free Press, Lloyd Stacey writes:
I find it strange that companies such as Loblaws, which make plenty of money, are comfortable threatening to set up automated checkouts to directly address a living wage.
Well, consumers can do something about those actions. We can refuse to use those lanes, and if a store has too few humans to meet our needs, we can go somewhere else. We may not have controlling shares in these companies, but we have something even more powerful, our wallets.
I will keep an eye on how companies react and where I my money will reflect their actions.
There are two issues here. First, more automated checkouts in response to a higher minimum wage. Second, the response of consumers to more automated checkouts.
INCREASING AUTOMATION BY LOBLAWS
Those who criticize Loblaws or any other company for automating various tasks, do not understand how the free market operates. The free market, by definition, consists of the voluntary agreements of millions of individuals – the buying and selling of products, and the buying and selling of labour. A government mandated minimum wage is not voluntary in nature – it is forcefully imposed on the free market, thus forbidding individuals from making voluntary agreements.
A wage is simply the price of labour, and a basic economic principle states that when the price of something rises, less is demanded. Thus, it should come as no surprise when Loblaw’s, or any other company, reduces its labour force in response to higher labour costs imposed by the government. The goal of these companies, as it should be, is to maximize profits.
Most people are unaware of the huge risks taken by entrepreneurs. Eighty percent of new businesses fail within five years. They fail because they were unprofitable. They were unprofitable because they could not persuade enough consumers to part with their money. When they go out of business, workers lose their jobs. If workers want to keep their jobs, the company must be profitable.
Profits indicate consumer satisfaction, a rising standard of living for consumers, and continuing employment for workers, so profits are good. More profits are better. Businesses that succeed in the long term are always under pressure from their competitors – next year’s profits are never guaranteed. But competition is good, and more competition is better – because unfettered competition ensures the best possible outcome for consumers in terms of lower prices, more product selection, and higher product quality; and the best possible outcome for workers in terms of employment opportunities and compensation.
Producers know that workers and consumers benefit from unfettered competition. But producers hate competition, because competition involves hard work, which means continued success is always in doubt. This is why various companies and industries spend a lot of money lobbying the government to enact laws which regulate business activities. Larger companies can afford the regulatory compliance costs, but their smaller competitors, who cannot afford these costs, are forced out of business.
Additionally, companies who pay their employees more than the minimum wage are often the same companies who call on the government to impose a higher minimum wage. They do not support the minimum wage because they are benevolent. They support it because they know their smaller competitors cannot afford to pay it. Thus, unemployment increases whenever the government orders an increase to the minimum wage. Individuals willing to work for a wage below the minimum wage are legally denied the opportunity to compete for jobs at this lower wage.
The free market is diluted by thousands of regulations prohibiting competition. The result is declining production and employment; consumer products which are lower in quantity, lower in quality, and higher in price; and a lower standard of living.
THE POWER OF CONSUMERS
It is not economically sensible to boycott stores which install more self-checkouts. These companies are doing what they always do. They are simply attempting to decrease their costs and increase their efficiency, in their continual quest for higher profits.
With that said, Lloyd Stacey is correct when he says, “We may not have controlling shares in these companies, but we have something even more powerful, our wallets.” This is very important, and I commend the writer for his economic insight. This is a concept every person should understand. Let us briefly explore it.
Sadly, a pure free market does not exist. We have a fraction of a free market. As discussed above, this is due to regulations imposed at every level of government which prevent the operation of the free market in numerous ways. Producers lobby the government to enact regulations which will hamper, or eliminate, their competitors. To put it more plainly, the lobbyists are unhappy that consumers are patronizing their competitors. So, the lobbyists use the coercive institution of government to overrule the decisions of consumers. This is a crucial economic lesson. On the free market, the consumer is king!
Even if most consumers are economically ignorant and criticize corporations for their ‘greed’, they will not boycott these corporations. At least, not many consumers will boycott them, certainly not enough to make a difference. Economist Walter Williams explains:
Some think that it’s greed that motivates businessmen to seek substitutes for labor, such as kiosks, as wages rise. But don’t blame businessmen; just look in the mirror. Suppose both McDonald’s and Burger King are faced with higher labor costs as a result of higher minimum wages. McDonald’s lowers its labor costs by installing kiosks and laying off workers, but Burger King decides to not automate but instead keep the same amount of labor. To cover its higher labor costs, Burger King must charge higher prices for its meals, whereas McDonald’s gets by while charging lower prices. Which restaurant do you think people will patronize? I’m guessing McDonald’s. What customers want is an important part of a company’s decision-making.
We should not demonize companies for slashing costs in pursuit of higher profits, or to maintain current profits. Profits, as we have seen, benefit all parties. Profits can arise only through consumer satisfaction. More free market competition = higher profits = a higher level of consumer satisfaction = a higher standard of living. In contrast, when the institution of government intervenes in the free market to satisfy the interests of lobbyists (special interest groups), this reduces the power of consumers and results in a lower standard of living for the people. I have written about the negative economic effects of government interventionism here. The government cannot improve on the efficiency and standard of living produced by the free market. It can only take what the market offers, and diminish it.
This is not to say that a boycott cannot be economically beneficial. We just need to be clear about which institution should be the subject of the boycott.