Tenuous economic lessons drawn from detergent shoplifting

The Tide is turning.

Last year, I wrote about the extraordinary news that Tide – a popular brand of laundry detergent – was being stolen and used as a black-market currency across the United States (I also titled the post Laundered Money which I am still proud of ten months later). The retail price is high, the resale value is only slightly lower, it's impossible to track and everyone uses it. I looked at how well it would work as a unit of exchange:

Crucially, one bottle of it is identical to any other, a quality economists call "fungibility", putting it in the same class as oil, precious metals, or currency itself. If someone lends me a bottle of Tide, I don't have to return the same one to them when my debt is called in – in fact, because there are no serial numbers, it would be impossible for them to tell even if I did…

[Stolen] Tide is also a highly liquid commodity, frequently traded, which will allow a natural, and relatively stable, value to emerge for it.

Now, New York Magazine's Ben Paynter has done further investigation on the Tide-boosting phenomenon, and taken some of the magic out of it. It turns out that while a lot of people are stealing a lot of detergent, there's less evidence of the currency side of it. Crucially, Paynter, who was speaking to police in Maryland, didn't hear the same stories that Kentucky police passed on in March 2012 of people exchanging Tide for drugs, or being offered Tide instead of drugs. Instead, it's just your common-or-garden people-are-shoplifting-something-to-sell-it-and-use-the-money story.

But! There's still tenuous economic lessons to be drawn from the NY Mag piece. The first comes when the Maryland police describe their frustration with the fact that the penalties for a misdemeanour aren't that high:

After [Sergeant Aubrey Thompson's] team busted one area shop owner for taking in stolen Tide, the perpetrator struck a deal for a $250 fine and a form of probation—then turned around and raised the price his store charged for Tide by $3.

What we're seeing here is an example of someone with price-setting power passing on a regulatory cost. Simple models normally wouldn't ascribe price-setting power to the owner of a lowly neighbourhood grocery store, since it's more typically found in examples of monopolistic competition. But in reality, every shop owner has a quasi-monopoly over "shops in this location", which grants them the ability to set prices a bit. (That is: even if you know your corner-shop is charging you 10p more than the supermarket down the road, you still pay up, because you don't want to walk).

That price-setting ability lets the shop pass on costs incurred from regulation – in this case, the regulation which ensures that it cannot resell stolen goods. The owner treats a $250 fine as just another cost of doing business, and raises the price of Tide accordingly.

And yes, laws against reselling stolen goods are regulation. Think of that next time you hear someone railing against "red tape".

The other tenuous economic link comes from Paynter's description of the history of Tide:

When the company released Tide in 1946, it was greeted as revolutionary… Procter & Gamble, naturally, patented its formula, forcing competitors to develop their own surfactants. It took years for other companies to come up with effective alternatives.

It's a good description of the plus-side of patents. Procter & Gamble gets a reward for its innovation by being guaranteed-first-to-market, while competitors, eager to chase that market, develop other surfactants alongside. The pace of human invention speeds up, and after less than thirty years, all that knowledge is released into the public domain for anyone to apply.

It also reminds us what's broken with much of the current intellectual property regime. Imagine if, instead of patenting a surfactant, P&G had patented "a method for cleaning clothes" which described nothing more than "the application of a surfactant to fabric in water". Any other surfactants invented by competitors would then still be covered by the P&G patent, giving the company a monopoly over that entire method of cleaning clothes. Worse still, what if P&G had applied for that patent before anyone had actually invented a surfactant? The company could then sit back, wait for someone else to actually innovate, and then sue them for infringement when they do.

That rather describes the state of patents now, at least in the IT industry. Consider the patent trolls who are asking for $1000 from end-users who have networked scanners:

He said, if you hook up a scanner and e-mail a PDF document—we have a patent that covers that as a process.

The same legal framework which enhanced innovation in the 1940s may well be hindering it now. Worse, it has basically turned into a license for extortion.

But at least our clothes are clean.

Bottles of tide on a store shelf. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Beware, hard Brexiteers - Ruth Davidson is coming for you

The Scottish Conservative leader is well-positioned to fight. 

Wanted: Charismatic leader with working-class roots and a populist touch who can take on the Brexiteers, including some in the government, and do so convincingly.

Enter Ruth Davidson. 

While many Tory MPs quietly share her opposition to a hard Brexit, those who dare to be loud tend to be backbenchers like Anna Soubry and Nicky Morgan. 

By contrast, the Scottish Conservative leader already has huge credibility for rebuilding her party north of the border. Her appearances in the last days of the EU referendum campaign made her a star in the south as well. And she has no qualms about making a joke at Boris Johnson’s expense

Speaking at the Institute of Directors on Monday, Davidson said Brexiteers like Nigel Farage should stop “needling” European leaders.

“I say to the Ukip politicians, when they chuckle and bray about the result in June, grow up,” she declared. “Let us show a bit more respect for these European neighbours and allies.”

Davidson is particularly concerned that Brexiteers underestimate the deeply emotional and political response of other EU nations. 

The negotiations will be 27 to 1, she pointed out: “I would suggest that macho, beer swilling, posturing at the golf club bar isn’t going to get us anywhere.”

At a time when free trade is increasingly a dirty word, Davidson is also striking in her defence of the single market. As a child, she recalls, every plate of food on the table was there because her father, a self-made businessman, had "made stuff and sold it abroad". 

She attacked the Daily Mail for its front cover branding the judges who ruled against the government’s bid to trigger Article 50 “enemies of the people”. 

When the headline was published, Theresa May and Cabinet ministers stressed the freedom of the press. By contrast, Davidson, a former journalist, said that to undermine “the guardians of our democracy” in this way was “an utter disgrace”. 

Davidson might have chosen Ukip and the Daily Mail to skewer, but her attacks could apply to certain Brexiteers in her party as well. 

When The Staggers enquired whether this included the Italy-baiting Foreign Secretary Johnson, she launched a somewhat muted defence.

Saying she was “surprised by the way Boris has taken to the job”, she added: “To be honest, when you have got such a big thing happening and when you have a team in place that has been doing the preparatory work, it doesn’t make sense to reshuffle the benches."

Nevertheless, despite her outsider role, the team matters to Davidson. Part of her electoral success in Scotland is down the way she has capitalised on the anti-independence feeling after the Scottish referendum. If the UK heads for a hard Brexit, she too will have to fend off accusations that her party is the party of division. 

Indeed, for all her jibes at the Brexiteers, Davidson has a serious message. Since the EU referendum, she is “beginning to see embryos of where Scotland has gone post-referendum”. And, she warned: “I do not think we want that division.”

 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.