Thursday, 5 June 2008

The Indian bicycle market

There are a lot of baseless preconceptions about UK political parties: being charitable about this, Labour is for the workers, equality and redistribution; the Tories are for a smaller state, self-reliance and law'n'order: and the Lib Dems are the protest vote party.

OTOH, we all know perfectly well that politicians are compulsive liars. When it comes to promising the moon-on-a-stick; lying about their abuse of expense allowances, drug and alcohol ab/use or extra-marital affairs, fine, the sensible voter just ignores it. Similarly, they tell lies about the other party. That's fine as well, nobody believes this either. What has puzzled me is that the party being lied about never actually defends itself.

To take a specific example, the Tories suggested increasing the Inheritance Tax threshold to £1 million, levying a £25,000 charge on non-doms and increasing 'green taxes' (whatever they are - I work in tax and a lot of it is grey areas). The Lib Dems promptly accused them of "unfunded commitments" and Labour yapped on about the 'cost' of these proposals (somewhere in the region of £2 billion per annum) meaning that 40,000 nurses would have to be sacked, or some such made up figure.

Notwithstanding that Labour have since more or less adopted the Tories' original suggestions, why-oh-why did the Tories at no stage say words to effect of "We won't reduce the number of nurses, or coppers or teachers!! There's at least £100 billion of waste in the system each year! The quangocracy! The EU contributions! The tax system that takes from the poor and gives it back to them as Tax Credits!"?

I can only assume, for want of a better explanation, that we are looking at an 'Indian bicycle market' scenario, which in outline is as follows ...
When I was at Uni, one of my classmates did his talk on the Indian bicycle market. I am paraphrasing and ornamenting here, but the basic gist was as follows:

There were originally three bicycle manufacturers in India (this is pre-Partition), let's call them BSA, Raleigh and Triumph, for sake of argument. Each made a more-or-less identical bicycle that would do any job and was a good all-round bike. But of course, with a homogeneous product, there was eternal competition on price, quality and service - easy for the customer to judge. Thus none of the three companies was particularly profitable.

So, the three decided to segment the market:

a) One manufacturer positioned the cross-bar further down, added softer tyres and saddle, wider mudguards and a front-panier. This was the Lady's Bike.

b) The next manufacturer added drop handle-bars, harder tyres and saddle and reduced the size of the mudguards. This was the Gentleman's Racing Bike.

c) The last manufacturer added a comfy saddle, front and back paniers and solid rubber tyres. This was the Delivery Boy's Bike.

Of course, no Lady wanted to ride a racing bike or a delivery boy's bike, so she was prepared to pay more for a Lady's Bike. The Gentleman Racer wouldn't be seen dead on a girl's bike or a workman's bike, so he was prepared to pay extra for a Gentleman's Racing Bike. And the delivery boy saw the other bikes as mere fripperies, and was prepared to pay extra for the solid, Delivery Boy's Bike.
Getting back to 21st century British politics, this is what we have. Three parties offering more-or-less identical 'products' dressed up as three completely distinct things. They are not! The so-called differences between the parties mask far larger similarities! 

Let's look at why our three main parties never refute the accusations of the other parties - under the bicycle analogy, if the manufacturer of the Lady's Bike lied and said something like "The suspension on the Gentleman's Racing Bike is much too hard!", the manufacturer of the Gentleman's Racing Bike was perfectly happy to allow this preconception, as it guaranteed that the Gentleman would wish to prove his mettle and all-round manliness by eschewing the Lady's Bike and buying a Gentleman's Racing Bike. The manufacturer of the Gentleman's Racing Bike had no interest in blurting out The Truth, to wit "Hey! Your suspension is no softer or harder than ours!" as this would have just given the game away!

Similarly, when the manufacturer of the Gentleman's Racing Bike derided the Delivery Boy's Bike as being "slow and heavy", the manufacturer of the Delivery Boy's Bike was quite happy, as he knew that his target market would interpret this to mean that the Delivery Boy's Bike was in fact solid and reliable - even though it was no heavier or more reliable than the other two brands. And so on.

In other words, the Tories are quite happy if Labour accuse them of wanting to "slash public services" - the Tories have not the slightest intention of doing so, but this sort of double-negative advertising means that voters who'd like to see smaller government and lower taxes will vote Tory. Similarly, Labour are quite happy if the Tories accuse them of wanting to "tax the rich" - Labour have no intention of doing so, but at least this double-negative advertising guarantees Labour the votes of people on low- to average incomes, who imagine that taxes on the rich will benefit the low- to average earner. And so on.

Exactly this strategy enables the three main parties to carve up their 'market' (our votes) into segments - far better for each party to have a 'core vote' and do the occasional token battle over a few 'swing voters' (without too much blood shed on either side) than to have a proper debate over fundamental things like what on earth the rĂ´le of "the State" is in the first place, for example.


MJW said...

Good post, but I think what your missing is the reason why we have these false positions on the wastage existing within the state. For the Labour Party having a big tax big government (i.e. large public sector) stance allows it redistribute wealth, which is something it wants to do, it also allows it to push particular social agendas i.e. it can offer benefits that the private sector can’t because its under no obligation to be efficient and it isn’t competing for revenue in the same way (it can appropriate more tax within reason), and it also buys the support of those who are recipients of the wasted resources (it doesn’t disappear it simply goes down an ineffective route). On the other hand, the Labour Party doesn’t actually want to admit that it’s doing this, because at the moment it can fool a chunk of the population who would be outraged if they were to ever openly engage with what is going on.

But why does the Conservative Party engage with the straw men that cutting waste means cutting front line services like policing and nursing when it quite clearly doesn’t make sense? Well, because just like the Labour Party it knows that waste actually benefits a lot of people in the public sector and it wary of the resistance these groups will have to any attack on their self-interest, and the potential follow on resistance that may come from those who implicitly support this redistributive position on ideological grounds (even if they explicitly deny its existence) and those who are stupid enough to be fooled by the straw men. So both parties have to tiptoe around the straw men, being careful not to prompt a backlash by threatening them.

Vindico said...

Good post. Maybe this si why the main parties don't attack smaller parties on their policies but simply attempt to ridicule and deride them? To attack on policies would serve to label them and thus lead to an erosion of 'their' market and so respective market shares. By ridiculing small parties in an attempt to discredit them they hope their market will remain intact at voters stay away from the shoody product of the untested competitors.

DBC Reed said...

Dunno what your mate at Uni intended by describing the Indian bicycle market but it shows how "free markets" don't often work as effective competition soon goes out of the window.
These geezers have decided to give up competing with each other for the say 10 million potential bike owners and have tacitly agreed to split the market three ways: within their niche markets there is is no price competition. In a state of perfect competition all three companies would have to finance a huge amount of spare capacity which would never be called on.Likewise a market in state schools would have to have a huge number of under-used rooms buildings and staff: if all the schools came to a tacit de facto
understanding that they would only provide for the numbers of pupils they were likely to get, they would only be offering a pretence of competition.

Mark Wadsworth said...

MJW, Labour have redistributed, but not to the poor, they have redistributed to the Quangista and bureaucrats. And the already wealth did relatively well under Labour, all those extra taxes are coming from low- to average earners.

V, exactly!

DBCR, 'extra capacity' is a defining feature of monopolistic competition, i.e. where suppliers segment the market. But having driven up prices for e.g. Gentleman's Racing Bikes, the manufacturer thereof still needed from protection from new entrants, which I am guessing are not particularly high for bicycle manufacturing.

Schools can't afford to have too much extra capacity in terms of staff numbers - too expensive, although having some spare rooms doesn't cost much (once you've paid for the land!!). 99% of what makes a good school a good school is staff and pupils, and good staff and good pupils are in limited supply, so I am not too worried about this.

Lola said...

I.B.M. (how poetic!) can only work where the barriers to entry are high or the indiginous organisations operate a cartle with the collusion of the State. In the case of New Tory Libdems as they are the indiginous organisations, and are in power in the State, they can be a cartel and support it. It's a 'political class' thing.

To my mind the answer has to lie in the reduction of the power of the party system and the rise of more independently minded MP's. There is a danger with this in that single issue MPs (Save the Local Hospital Party) could become more prevalent. I actually do not think that this would be an issue.

The interweb offers a small chance that this could become reality. Hence it won't take long before the New Tory Libdems all agree that is needs regulating to keep people 'safe'.

And it is another reason to vehemently oppose state funding of political parties.

Of course IBM is endemic in the EU.