In Praise of Red Tape

Scale is not always a good thing, it has unattractive qualities too.

I once ran a payphone business. I know, it does seem rather quaint, in today’s 4G world, to remember that people actually had to rely on finding a phone box, and not just any phone box, but one that was working, just to talk to someone. Anyway, I remember being in a central European country, that should perhaps remain nameless, talking to the head of its national telephone business, about the liberalisation of the payphone market there. “Our market is open to anyone to come and install payphones; they just have to be approved operators.” He smiled rather ruefully when I asked him how many companies, apart from his own, had been approved: his answer was “none”!

In the Financial Times today there is an article about IKEA and its CEO’s displeasure with local authorities, in some parts of Germany in particular, delaying it from rolling out more and more of its hugely successful stores. IKEA, like MacDonalds, and any number of others, have very successful international “franchises” that people can’t seem to get enough of. He seems to be suggesting that this delay isn’t a good thing, but is it right to let them open them without a little “red tape”, just because there is demand and these companies can justify the investment in another store? Are there perhaps some benefits to putting the brakes on a super-successful retailer’s enthusiasm to grow?

I am interested in how people make decisions and the trades-offs they entail. There is always a trade-off involved with a choice and these trade-offs are not just economic ones. When you buy a new car you are balancing a number of issues including:  economics, from price to lifetime cost and resale value; brand and the ego and status benefits/costs of being seen driving one, over another; as well as safety and even environmental issues. Every buying decision is a complex trade-off between these things and people in different market segments “balance” their decision differently; that’s what market segmentation is all about: it’s why you might buy a Volvo and I might buy a Renault.

Society also has “buying” decisions to make, albeit through a highly politicised, often cumbersome, and bureaucratic process. In this example, who should we allow to build a new store and where should we allow them to build it? In the UK it feels like we value financial logic above everything else, when making these decisions; we seem to believe that the economically strongest should always prevail. What do we end up with? Dying high streets populated with pound stores, big pubs and MacDonalds and an IKEA within 20 miles of anyone. The very real differences that used to exist, and which used to characterise our retail landscapes, have mostly gone now and what did we get in return? We got very unattractive high streets and a retail culture built around the lowest and least attractive common dominator, scale, which has lead to the retail centre of gravity migrating out of town, and far, far, less competition.

Scale is not always a good thing, it has unattractive characteristics too. Limiting the growth of market leaders is a good thing, not just for society, but also for consumers, and for competing businesses too, whether that is done through legislation, local politics, or even “people power”.  Apart from being somewhat sidelined by mobile phones, the idea of street payphone competition was daft anyway; there was no money in it. Sometimes red tape can stop people doing silly things too.

Red tape often has latent benefits.

Mark

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One Response to In Praise of Red Tape

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