PRICES AND EMPLOYMENT

Recovery in Emerging Economies: Learning from our Past, Preparing for the Future.Prices & Employment

Abstract

Money allows people to purchase what they need, not to mention their wants. The importance on having employment must be emphasised, whether this be in the private, entrepreneurial or public sphere.

The role of the Trades Union Movement is acknowledged as the bargaining agent for the rights of workers. Equally the Consumer Movement must deal with the rights and responsibilities of consumers.

This paper analyses prices similarly to employment because the correlation is overwhelming. The right to food, clothing and shelter fits into the basic needs of mankind. A department of the University of the West Indies (UWI) – Sir Arthur Lewis Institute of Social and Economic Studies (SALISES) – conducted a study in 2008, which concluded that there is no price gouging in Barbados. This is accepted by the informed since it is a legitimate business activity, during emergencies, like supply and demand in normal trading.

A methodology is needed to voluntarily negotiate the settlement of prices, in a similar way, to how wages and salaries are attained; to dispel the notion that some business practices of goods and services are motivated by greed.

May, 2010.


1.         Introduction

As long as the subject matter contains some socio-economic dimension the conclusion will be that it is easy to establish a link to consumerism. I am prepared to state that consumers are the most important people in society only because it is my belief that each of us is a consumer. The only time this is different arises when someone, because of the mere dent of personal wealth, opts out.

This paper will look at the importance of the need for money. It will examine, in short measure, that before currency as we now know it there was some form of barter system. A barter system must have it shortcomings since the person trading breadfruit for potatoes will need to first find someone who holds potatoes and has a need for breadfruits in order for the exchange to take place.

It will be necessary to take a look at the factors of production and then to explore a system that rewards the factors. This will include the theory of supply and demand. It may be necessary to check how the price of goods and services is decided. Has the price been determined by the retailer with no reference to the needs of consumers? In other words, did the manufacturer build the furniture with no regard to the size of house to which it will enter or if it will be necessary to remove the roof of the building in order for the furniture to be placed inside the house? “In real life retail prices are always predetermined by the seller, and wholesale, producer and other prices are determined by contract.” Dr. DeLisle Worrell, Governor of the Central Bank of Barbados, when addressing “What’s Wrong With Economics”.

Will our type of market influence our pricing structures? How does this compare to how workers negotiate their wages and can we learn any lessons that may assist the way prices are formulated?

  1. Wages – Reward Factors

The economist sees wages and salaries as the price paid for the reward for labour. An accountant views these differently: salaries are considered moneys paid to office personnel as an overhead expense. Whereas money wages speak to how much is earned by the employee. Real wages refer to the actual ‘basket’ of goods and services the worker can purchase with his money wages.

Table 1           Average earnings and prices, 1970 – 1982

Source: UK Monthly Digest of Statistics (Jan. 1970 = 100).

Notes:

  1. Average earning rose, almost doubling in 1974-78 and again in 1978-82
  2. Retail prices rose almost in line with earnings
  3. It follows that although the average citizen in 1982 earned almost 4.5 times what was earned in 1970, it only purchased about 2 per cent more in actual goods and services.

When one looks at the number of people who form the workforce together with the other family members who rely on the wages of the workers, it is mindboggling to accept these are the same people that form the poor in society.

It may be argued, with justification, that the organised trade unions as well as the organised employers are monopolists and monopsonists, (monopoly buyers) respectively. The only consumers to be regarded as not organised may be the pensioners; although organisations like AARP and BARP may be able to suggest otherwise. Then it will be safe to suggest that the only people not organised are the consumers who are not organised for purchasing purposes, even when some of them are part of the organised trade union movement.

Some in Government even dare to suggest that there should be a wage freeze or a bigger word like ‘moratorium’ of wages may be used to add weight to its meaning. What is alarming, the trade union movement, by its silence, will appear to give credence to such a bastardly suggestion. I will argue that any time your wages or salaries do not increase in line with inflation then you have effectively been given a wage or salary cut. .

There is another problem: we rely, almost exclusively, for about 80 per cent of our food to be imported mainly from North America. To curb this excessive intrusion, we need to grow what we eat and eat what we grow. This will mean we will need to have a completely new strategy for our farming and agricultural base.

  1. Money

 

Only when a contract has been entered into do you, as a consumer, have to pay the merchant or business. Furthermore, if no prior arrangement about the mode of payment has been entered into, you are expected to pay in currency that is legal tender; that is in notes and or coins. Unless prior arrangements are made, such as those advertisements that peddle the use of credit and debit cards, a merchant does not have to exchange his goods or services for anything other than money.

 

  1. Price variations

 

Usually there is no limit to a price providing that the consumer agrees to pay it and the price is not higher than the one the merchant or business advertised. To avoid paying too high a price it is wise to ‘shop around’ but, we must confess, shopping around can be a very expensive addition to shopping. The Barbados Consumers Research Organisation, Inc., has tried to lessen this problem by requesting some 27 Supermarkets to forward their prices of about 140 individual items to assist consumers with a way of comparing prices in an equitable way. To date, only all the businesses of the Super Centre chain and those of Trimart Supermarkets have responded in a meaningful way. Consumers may go to the Website: http://www.consumers.org.bb under Basket of Goods and get a good idea of what some Supermarkets charge for the purchase of similar items of goods.

  1. Fixed maximum prices

 

Governments usually impose price control items in a so-called Basket of Goods. Before November, 2007 there were about 5 items that came under Price Control arrangements. These were mainly gas related and things like chicken wings and backs. At that time, another 27 items were added to the Miscellaneous Price Control Act. There are other items like medicines prescribed by doctors and dentists that may form part of Fixed Maximum Prices.

  1. Price Gouging

There is an almost total misuse and misunderstanding of what price gouging is meant to be. That there is no price gouging by merchants in Barbados and those high prices are caused by external factors, mean I am happy to agree with these positions as put by Dr. Winston Moore and Professor Andrew Downes of a Department of the University of the West Indies (UWI) – Sir Arthur Lewis Institute of Social and Economic Studies (SALISES) – when concluding a study on behalf of the Barbados Chamber of Commerce and Industry (BCCI). That there is greed by some business players leaves me in little doubt. However, price gouging is a legitimate business practice when conducted during emergencies and natural disasters and when any excesses are removed. Just as merchants may increase the price of some items to meet a sudden demand when an emergency is pending, like a hurricane, when the emergency no longer is eminent, the lack of demand for these same items may force the merchant to reduce the price of these goods to below the normal advertised prices, in an effort to get some sales. It follows, therefore, that if merchants are pricing goods during normal times as if emergencies exist then that may be considered ‘greed’.

 

  1. Price agreement

 

When we refer to the price of a good it is usual to refer to the price that the merchant or business is asking. A business may ask whatever price it wishes but you, as consumer, do not have to accept it. We must never forget that there are really three (3) prices involved when buying goods and services:

  • The price the business is asking
  • The price you, as consumer, are offering to pay
  • The price that you and the business agree

Just imagine the chaos that would arise if one arrives at the cash-out with a trolley full of groceries and suggests to the cashier that you would like some discounts on the individual items. This is not a workable solution.

  1. Refusal to supply

 

Any “refusal to supply” is tantamount to some form of price fixing. It was thought that “Price Control” would encourage merchants to not stock the goods so controlled.

 

  1. Refusal to sell

 

A merchant may refuse to sell consumer goods without giving any reason. However, he may not ask more than his advertised price. (Trade Descriptions Act) A merchant can also order you off his premises. He does not have to give you any reason. Remember, his premises are the places where the public may go but cannot be regarded as Public places. Regarding the refusal to sell, this is justified because the merchant’s advertised price is not an offer under the law of contract. It is merely an ‘invitation to treat’.

  1. Government

 

So important has prices been that the Government saw the need for the high prices of goods to be brought under some control and came to the aid of consumers by declaring that the COST OF LIVING is to be given priority. It was not long after the said Government announced, by way of new taxation measures, serious increases of its own during recessionary times that would adversely impact the business community and, maybe, not realising that increases that affect businesses will also impinge its consumers to end up with a loss-loss situation.

In a normal situation it is acceptable for prices to find a level acceptable to consumers through the process of supply and demand.

Barbados, however, is in an oligopoly

The methodology that I am presenting in this paper will differ from what is considered normal. I am aware that I need the good Economists to come to my assistance since it is unlikely that a mere consumer advocate, not titled, will get acceptance however important the thesis.

 

 

  1. Supervision

Of the produce we import, our authorities only get to find out the factory and farm gate prices from the importing country when these products reach our Custom Officers in the form of invoices at our Ports of entry. This is far too late. There needs to be a PRICES BOARD/AUTHORITY/COMMISSION/OMBUDSMAN that will have the teeth to investigate what we buy from overseas and to have a DATA BASE of all the sources from where we buy and full knowledge of all products being purchased with knowledge of the unit price of each. This procedure will assist greatly in understanding how the prices are arrived at so that consumers are not surprised when the other add-ons contribute to excessive amounts.

This will mean that when an importer produces an invoice there will be no need to question its authenticity, since there will be known information and transparency to assist in the knowledge base. Amazingly, this may very well assist in the prices that are eventually passed on to the end-users or consumers.

  1. Society type

Barbados is a small island country and, when we wake tomorrow, it will still be its small size. This alone limits the amount of anything. When we look at the amount of players in the grocery or retail trading chain, we notice there are but a few. A closer examination will reveal that some of the players, although with different trading names, belong to the same owners. So, it is clear that what we have is an OLIGOPOLY, when the ideal situation calls for some meaningful competition in the marketplace. Our Oligopolistic situation has been itself a hindrance to even small operators coming to the fore, for the pricing structure and the holding of significant portions of products together has been able to deter any form of meaningful competition.

  1. Strategy

Using all the strategies employed by the trade union movement, I will argue that the consumer movement needs to do two (2) things as a matter of urgency: we need to forge our way to be a part of the Social Partnership, since no other body, be it Government, employer or trade union can speak or represent consumers better than consumers themselves. Also, we need to be a part of a Mechanism to Voluntarily Negotiate the Settlement of a select number of items, let us say 400, to be called ‘a Consumers’ Basket of Goods’. There are some 30, 000 to 44, 000, individual items of goods in the large supermarkets. To voluntarily negotiate the settlement of just 400 or less than 1 per cent will be more than manageable.