Old cars: Do we Need a Social Market Economy instead of Social Capitalism?

Angela Merkel -  leader of the social market economy in Germany

Angela Merkel – leader of the social market economy in Germany

My thoughts have been building on this for a while and this may be little more than a rant but I want to put my ideas up for discussion.

Let me paint you three pictures:

1. I recently had to scrap my 1995 BMW 3 series car. I had always serviced it at a BMW dealer, often paying more than £1000 per year on things like new suspension, brakes, etc and the thing was as well-maintained as a 20 year old car can be. And yet its market value was less than the price of a replacement bonnet! I had bumped into a van which had high bumpers and these had pushed in the grill, thus bending the bonnet. The lights also needed realigning and possibly the grill needed replacing but the damage was minimal. Think of all the complexity of a car like that, a system that tells you when it needs servicing, air-bags, h-plane adjustable seats, sun-roof, electric windows and a beautifully reliable and powerful engine. And yet its total value was less than a basic piece of pressed steel which probably cost all of £20 to make. Luckily, because my car had been well-maintained I got an offer near the maximum for a car of that age but if it had been tatty it could have been worth only £150 or even less. What a waste of metal and technology! What a wasteful society we live in! That car could have run for another 20 years with a new bonnet.

2. Tesco recently stopped doing their old line of reusable shopping bags and replaced them with a new one that has much thinner plastic and handles that are poorly bonded to the main bag. They probably saved a few pence on each one and so make a slightly bigger profit, but the new ones cannot hold as much shopping. The first three times I used them, one of my bags broke each time on the way home, dumping my shopping on the ground. Because I have OCD, this meant throwing most of it away. I wasn’t happy. All in the name of a few pennies more for them and about £5 less for me! I complained but they just told me to buy more bags, which is what I have had to do. But this also goes against the idea of cutting down on our consumption of bags, doesn’t it? Where has Tesco’s sustainability initiative gone now?

3. I recently had to buy a plastic bin for my kitchen. It needed to be a certain size because my kitchen has limited space so I researched a lot of bins! They were all different prices, from £6 (about $8) upward, but imagine my horror when I saw one for about £420! I couldn’t believe it. There wasn’t even anything special about it; plastic, slightly smaller than a wheelie bin. But it was marketed as a ‘Local Council bin.’ I have no doubt they are hoping some councils will find an excuse to buy the most expensive bin and it reminds me of rumours in the 80s of Nasa buying screws for $1000 and hammers for $10000 from unscrupulous companies, aware of the giant government budgets available. However, the effect in the bin market is to push up the price of all bins. There were many over £150. How could anyone afford these? What happens if bin manufacturers slowly phase out smaller bins in favour of bigger, more expensive ones. People will have no choice but to buy.

These three examples show free market capitalism out of control. Instead of supply and demand, you have the suppliers making the demands!

So what is the answer. Well, recently, with the growth of social media, and in particular Facebook, there has been a lot of talk about Social Capitalism. Here is it’s definition according to Wikipidia

In sociology, social capital is the expected collective or economic benefits derived from the preferential treatment and cooperation between individuals and groups.

This is definitely not what I advocate. It sounds like the sort of economy that creeps up on your or at least sits underneath the regulated economy. While I see the value of social interaction and that social networks can increase productivity, taking this route alone will not address the problems I see for us.

I believe in a regulated economy. Yes, I believe in government intervention. I believe that the cost of physical products should be matched against what the consumer can afford. No longer should we have people forced to pay high prices for products they can’t afford; fridges, cookers, cars.

I think the way forward is a derivative of the Social Market Economy.

A Social Market Economy is basically what sort of economy Germany runs, hence the picture of Angela Merkel. Here is the definition of a Social Market Ecomomy:

The social market economy is a form of market capitalism combined with a social policy favoring social insurance, and is sometimes classified as a coordinated market economy.

Nobody can doubt the impressive success of the German economy. The country has become the powerhouse of Europe, its citizens live in luxury (on the whole) and it has done it all by removing barriers to trade, a typical intervention by state.

And I would like to go further. I would like to see an income figure assessed each year for a low earner and medium earner (we can assume there will always be high income earners and that they will want luxury goods).

Then I would like to see a list made of everything a typical individual, couple or family might have to buy each year to achieve a happy lifestyle. The happy lifestyle cost would need to be independently assessed, but would include things like holidays, bins, clothes and even a car.

One would arrive at a figure for the total cost, and I have no doubt, at the moment this would be way beyond the reach of a low income earner.

The cost would probably be within the reach of a medium income earner and that is fine.

The Government would then regulate the prices to bring the total cost within reach of a low earner. More expensive items could be allowed for medium income earners but the manufacturer would have to pay a small tax on their income to produce these products.

Of course high income earners are going to want luxury items, well beyond the means of low income earners. If a company chooses to make these (Rolls Royce would be a good example) they would have to pay a large tax on their income.

I am quite sure the happiness rating for the UK would go up as a result!

Let me know what you think.

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