Blog: Economics in Action

In 2005, H.M Treasury appointed Sir Nicholas Stern, an economist, to report on climate change. Stern calls climate change ‘the worst market failure the world has ever seen’ and states three main goals to overcome it; (i) the pricing of carbon through tax, trading and regulation (ii) a policy which supports and encourages low carbon technology and (iii) the removal of barriers which lead to energy efficiency along with informing, persuading and educating individuals with regard to climate change.

A relationship between the environment and economics is inevitable as economics is the study of scarce resources, resources that we source from the environment around us. The Stern report, which was published in October 2006, was not the first study to discuss this relationship, however, Stern emphasised the cost of environmental degradation to us in terms of global gross domestic product (GDP, something economists could easily relate to) with shocking results.

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Despite misgivings about the growth of giant retailers, as reviewed in a previous post, the Competition Commission’s new enquiry is unlikely to shake up UK supermarkets any more radically than its earlier probes in 2000 and 2003. Even though it has detected some anti-competitive practices – such as big chains pressuring suppliers to sign exclusive deals, and buying land to stop rivals building stores on it,  the Commission can allow these if consumers are judged to benefit. The ‘Big Four’ can claim they do, through persistently low prices and now from the environmental and nutritional improvements they promise to wring from already lean supply chains.

So why do we still feel uncomfortable stepping through Tesco’s (or Sainsbury’s, Asda’s and Morrisons) ever more prevalent sliding doors, when they can claim to be cutting our bills without crucifying our consciences?

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Sex and drugs could soon be the only item you can’t buy at Tesco, in its UK home market or the increasing number of other countries (China is the latest) to which the supermarket chain now extends.

Tesco accounted for half of the new retail space opened in the UK in 2006 and has tripled its store numbers in the past six years, raising its grocery market share to 31%. (Asda and Sainsbury’s vie for second place with around 16%). Almost 60% of the land bank held by UK supermarket chains for future development also belongs to Tesco, which could raise its market share to 40% if all those sites were turned into new stores.

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