Monday, January 09, 2012

Future updates

Apologies for the lack of updates. I created this blog with the intent of providing quality articles rather than short blog posts, however with my final months at college I've been struggling to find the time to do this. I would love to post some of the work I've been doing in economics over the past two years, but with concerns over plagiarism this will have to wait at least until the summer when this is less of a worry and I have the time to edit my portfolio so it is suitable for online.

Economics has been a fantastic subject and I cannot wait to do it at university. I must admit, I took a bit of a gamble taking economics having no experience beforehand, but I've never regretted the decision. Completing my portfolio was sometimes painful (the word count is horrifically short at 650-750 words per piece of work), but it has been really fascinating following news stories I wouldn't otherwise consider, and with an international focus and approach. Before I would never even glance at news like the Chevron-Ecuador dispute (see Time's article for a recent update), but I'm glad I do now since the dispute has been such an interesting story in the fact that neither party will give in. The story just keeps going! And the responsibility of who should correct the market failure is a difficult one to evaluate: do you go from an economic perspective, an environmental perspective or a purely legal one?

As for my classes, I couldn't have studied International Economics at a more interesting time. The euro crisis has provided a perfect backdrop to our work on balance of payments and exchange rates, and it also has me pumped for PPE. One of the problems I often come across in my essays is that they occasionally turn political in the evaluation, and having to restrain myself to just economics is extremely difficult for me when writing about euro crisis. I want to find the underlying political and philosophical issues in the problems of sovereignty, debt and complete integration; it would be heaven if I could just add it to what I already know in economics!

So, what can be expected for the future of this blog? Not much, at least until my exams are over in May. However, I should be spending a month in Saudi afterwards, so expect lots of coverage of my desert adventures then! I will also take a long-needed update on my evaluation of the environmental crime and conflict in the DR Congo, something that I had worked on for a model United Nations last year and had wanted to turn into a research article for this site (to add to what I've learnt from various books since last year). And maybe, just maybe, I'll get round to my impressions of my holiday in Jordan last November.

Just maybe. If I'm nice.

Monday, October 10, 2011

My life is populated by books

I've been in a bit of a muddle recently. I had a tonsillectomy just over two weeks ago (hence the sporadic updates), and now deadlines are flying in left, right and centre and I haven't got a clue where I left off with my work. And then there's the books. I have books and articles in piles around my room, and I'm not exactly sure what to do with them all. They seem to be breeding.

My reading of Dancing in the Glory of Monsters by Jason Stearns has been put on postpone for the time being. So far it's a fantastic book, and I thoroughly recommend it if you want to learn about the conflict in the DR Congo and the social and political reasons behind it. One of the reasons why I started this blog was to write up about my research in the DR Congo partly from my reading and partly from my experience as a delegate of the country for a model United Nations conference back in January. I plan to write up a mini-exposé-style feature by the end of this year.

In the meantime I've been brushing up on my military history in a frantic rush to produce an essay on Haig, the deadline for which is Saturday! So in preparation I'm quickly reading Gary Sheffield's excellent The Chief: Douglas Haig and the British Army, a biography that is absolutely devoted to unravelling the myths and controversy surrounding Haig to develop a far more accurate account on this historic figure. Maybe expect a review on the book or a feature on Haig in the near future (no promises!).

To top my weekend off, I've got to try and finish some literature essays on Perfume: The Story of a Murderer (Süskind), Chronicle of a Death Foretold (Márquez) and Oedipus Rex (Sophocles), all of which are brilliant but I'm getting sick and tired of analysing all the time. Once I put these titles to rest, I doubt I'll be picking them back up in a long time. And don't get me started on Markus Zusak's The Book Thief... It's safe to say that I won't be writing blog posts on these four lovely books any time soon.

So, with everything going on at the moment I doubt I'll ever find time to write my Hitchcock article that's been sitting around in various forms of drafts on my computer. However, do expect an article on Hajj and Eid al-Adha in November, and maybe a post on my upcoming trip to Jordan. I don't have a clue what we're going to be doing there (I have a vague idea we're staying near the Dead Sea) but I'm dead excited!

Better luck next time.

Thursday, October 06, 2011

R.I.P. Steve Jobs

You may not use any of Apple's products, but there's no way you can deny that this man's vision impacted the world. He taught people to love technology, and to embrace it rather than shy away from it. Cheesy as this sounds, he understood the importance for aesthetics and user interface, a core reason why Apple has become as successful as it is today. And for that, he will sorely be missed.

Monday, September 26, 2011

Saudi Arabia gives women the right to vote

I have to say, I was taken aback when I read the front cover of the Arab News today - but in a good way.

Only a short update here; I felt it was necessary to write a post on the major breakthrough in Saudi society that has happened recently. Yesterday, King Abdullah announced that women will be given the right to vote and run in municipal elections come 2015, and this is most definitely a step in the right direction.

Many criticise Saudi Arabia for its treatment of women and their role in society, but forget that the country was only formed 79 years ago (an anniversary recently celebrated on Saudi National Day on Friday). Since then, it has undergone rapid development and modernisation to form one of the most stable economies in the world today. For countries such as the USA and UK, industrialisation has taken 200-300 years, and, for the UK, it wasn't until 1928 that all women above the age of 21 were allowed to vote.

So when you put it into this context, Saudi's progress to reach this stage in just 79 years from the country's formation seems quite remarkable. Hopefully the right to drive and a reduced need for male guardianship will follow.

Read more about this story: Independent, Arab News (Saudi newspaper)

Just to note, there won't be any posts up for a week or so. I'll be writing new content soon!

Saturday, September 24, 2011

Tesco makes more cuts than a slasher film

It's easy to roll your eyes when you hear a supermarket firm is cutting its prices. The claims of "smoke and mirrors" carry a warning, and as one analyst mentioned, "The devil is in the detail." (Source)

So why is Tesco's plan of £500m of price cuts being considered as a good strategic move then? First, for those who haven't heard of Tesco (there aren't any stores here in Saudi), or any of its subsidiary firms such as Fresh & Easy, it's the second-largest retailer in the world by profits, and it's a firm known for taking strategic risks. It is perhaps slightly misleading to call this new strategy as simply a series of price cuts; it's more of a pricing revamp across their stores, with the aim of reducing the complexity of their pricing system to make necessities more affordable. But why is this necessary?

Supermarket "savings"

Tesco's plan seems to be partly in response to the growing outcry that supermarket offers and deals, such as buy-one-get-one-free, are encouraging consumers to buy more than they need, which increases wastage and voids the savings they made in the first place.

This problem is particularly apparent for fresh goods. For instance, one day I might buy 12 yoghurt pots at 50p each if there's an offer that says, "Buy 10 yoghurt pots and get 2 free." At first, I think I've made a saving; I've spent £5 instead of what 12 pots would usually cost (£6), so I've "saved" £1. However, it's only a saving if I would have had the incentive to buy 12 pots had the offer not been there. It's very unlikely that I would eat this many pots within the expiry date, so any pots that I don't eat are wastage, and I've lost out. But even if I did eat all that yoghurt in that particular week, I would still have lost out because of the opportunity costs of my usual buying habits - I never buy yoghurt!  (Although an utilitarianist might ask if I enjoyed eating all that yoghurt before coming to such a rash conclusion...)

Anyway, that was slightly off the beaten track, but I hope that that example shows whether all these supermarket offers do actually save consumers money, as well as the complexity of calculating these savings out. Considering the amount of deals that consumers are bombarded by in these stores, in some ways these offers can be seen as too manipulative by supermarket firms (I say too because it's extremely naïve to think that firms should stop manipulating consumers altogether - they need to make money!).

The Big Price Drop

Now half-price.
Tesco's plan is to reduce their offers and instead simply cut prices, in the hope that it will reduce families' wastage and halve the rate of food inflation (source). The prices of necessities such as milk, bread, cheddar, vegetables, etc. of Tesco's own-label goods will be reduced from between 15 to 20%. Surely this will help those suffering from the recession to buy the goods they need, and shop in places less saturated with offers for goods that they don't need?

Well yes, it will. (Did you think I was being sarcastic?) To simplify, one analyst described Tesco's move like this:

"Price cutting is usually a smoke and mirrors affair. But I think this will cut through the fog of promotions and concentrate on very low pricing. Most consumers don't want four for the price of three, because they don't want four packets of whatever. They just want it cheaply. This should put Tesco on the front foot." (Source)

Nevertheless, there are two downsides to this. First is the Clubcard scheme - customers will no longer receive double Clubcard points, but instead one point for every pound spent. Cynics/rivals are claiming that this is where Tesco will save £350m, but so what if they are?

Loyalty cards and reward schemes have devalued over the past few years with so many companies offering some form of their own; while I imagine many price-savvy consumers save money with them, it doesn't instil the same brand loyalty like it used to. I, a person who rarely goes shopping and doesn't buy the food for the house, have 13 loyalty cards in my wallet. Of course, some Tesco shoppers will be annoyed by this at first, but people dependent on the Clubcard may end up saving more anyway with the price cuts. And like the buy-one-get-one-free offers, Clubcard isn't disappearing, it's simply being reduced.

The second problem is far more serious. What happens when a major oligopolistic firm lowers its prices?

"1, 2, 3, 4, I declare a price war"

Here's some theory for you: the UK supermarket industry is an oligopoly - there are a few large firms that dominate the industry. Interdependence between the firms exists as they are large enough to influence the market, and so each firm needs to take notice of their competitor's actions.

Oligopolies tend to compete through non-price competition. Advertising, brand names, sales promotions - these are the kinds of competition that exist between oligopolistic firms. Prices changes far less in oligopolies as firms are usually unwilling to engage in this type of competition. If a firm raises its price above the current market price, other firms will not follow. Their demand will fall as consumers flock to the other firms, causing the firm to lose trade, sales and most likely profit.

If a firm lowers its price below the current market price, this can also spell trouble - but for the entire industry. Since other firms are afraid that their demand will fall as consumers go to buy from the firm with the lower prices, they too will lower their prices. But they won't just equal out their prices, these firms will undercut the original firm to stay ahead of the game.

This can repeat itself numerous times as the industry heads into a downwards spiral until one firm simply cannot keep up with losses it is making at such a low price, causing it to go bankrupt. Firms like Tesco, on the other hand, are so massive that they are able to absorb sustained losses in a price war from elsewhere (if you want to know how well they are doing globally, have a look at their impressive expansion in Thailand at the moment).

What makes the supermarket industry particularly interesting at the mention of a price war are companies' price guarantee schemes. It seems that Ocado will suffer the worst from Tesco's price cuts, with its promised price-match on Tesco for most brands. Sainsbury's also might be in trouble with its recent testing of a price-match scheme in Northern Ireland.

So is it all doom and gloom for UK's supermarkets? The Guardian's article about supermarket shares plunging might suggest so. My opinion: this price war threat does seem more substantial than previous times when Tesco has announced to drop prices, but my real worry is whether Tesco's suppliers are going to be affected by all this. It's difficult to debate how much each supermarket firm is going to be affected at this point in time; obviously firms will be reluctant to reveal if they are struggling or not, so only time will tell how this will all pan out. For now, we might be better off asking this question:

What could this all mean for the UK's economy?

Any way you look at it, consumers are going to benefit in the short-run. With reduced prices on basic foodstuffs, consumers, especially those who have been suffering from the recession, will effectively increase disposable income. This could all lead to an increase in expenditure in the economy.

But on what? Time will play a big factor in this, because if the prices stay low (or become even lower as a result of a price war) for a sustained amount of time, then people will not only have more money but greater confidence to buy luxury items, which would have previously been used for essential goods.

However, if these luxury items are all exports, such as a new Sony TV, or a Honda car, then the economy is not better off at all. Tesco looks like it's striving to cut back the price of necessities, not luxuries. Given that many necessities are fresh products, of which a large proportion are British fresh products, British farmers and food suppliers could actually be worse off with the price cuts. So in effect, Tesco could be harming the economy if their supply chains are squeezed in this potential price war.

Conclusion: the devil is most definitely in the detail

There are a lot of "ifs" throughout this post, predominantly because I have no first-hand evidence on prices of actual goods being cut. As for this price war that's been featured in the newspapers recently, it's only really supermarket shares that have indicated what's about to come. If you want my advice to see whether The Big Price Drop has affected the supermarket industry, see what savings you make over the next few months with your normal buying habits. And keep an eye on the development of this price war, especially with slightly smaller firms like Ocado which are more at risk.