Monday, October 23, 2006

Supply and Demand

As I wandered down Lambton Quay for a spot of compulsory Labour Day shopping yesterday, I grabbed my compulsive coffee from the little bar at the end of the Old Bank building. While zapping my eftos card, the serving bloke informed me that there would be a 6 cents surchage, due to it being a public holiday. I later learned other places were charging up to 15 percent extra.

This is just the sort of thingI can imagine put-upon Joe or Josephine Middle New Zealander reacting to with outrage (extra charges? how dare they!), but to me it seemed a good example of market forces working properly.

Retail businesses, quite rightly, have to pay their staff time and a half for having to work on a public holiday, when most others are getting a break. Now, traditionally, penal wage issues have been considered a two-way struggle, with governments and unions pushing regulations, while business complains about the onerous costs these impose. Meanwhile, the consumer, the main driver for extended business hours, has generally been treated as an unquestionable force of nature.

But it makes sense for the extra costs to be moved to the source of the demand. Customers have collectively decided that, on their extra day off, they'd like all the normal services laid on. Someone has to provide those services, and the government regulation simply requires that these workers get a fair deal too. Spread out across all customers, paying for the privilege of shopping on Labour Day hardly hurts anyone's pocket too much.

On a related matter: I've always been a proponent of tipping, as practiced in North America and some European countries, and find it hard to fathom that many New Zealanders not only don't like it, but strongly oppose it in principle. There are two gripes as far as I can make out: 1) they resent being required to pay "extra" over and above the cost of the meal, and 2) they don't see why restaurant or bar owners can't just pay their staff a decent wage.

This misses the point that where tipping is in place, the base cost of a meal is usually significantly cheaper. And in the fickle hospitality industry, where business varies from day to day and hour to hour, it can be difficult for an employer to guarantee a truly "decent" wage. With a workforce that is normally young, transient, and unorganized, employers understandably tend to pay wages that will let them break even during a quiet time, rather than reward high productivity during a busy one. Nothing extra is paid for busting a boiler and dealing efficiently with rush hour.

In contrast, tipping provides both incentive and reward for working hard. In a sense, the staff member is sharing the risk and the return with the business owner, in that when the business does well, so do they. And if they are efficient and courteous, they are likely to get a still better tip. Without tipping, it's not surprising that New Zealand still doesn't have a "service" culture (what it has acquired is a culture of enforced sycophancy, which is not the same thing).

Tipping also allows the customer to pay money directly to the person who has been serving them. In a tipping country, this is one of life's minor pleasures . Instead of seeing your payment entirely soaked up by the wider business, you get to give a portion directly to the person who did the work, providing some recompense for what you can see is a pretty tiring and repetitive task. This transparent, person-to-person exchange of utility, stripped of transaction costs, is what markets are supposed to be all about - and it even allows in the human element (let's remember, Adam Smith's first book was called On Empathy).

It's surprising that New Zealanders don't take to this more, since we have a long tradition of bypassing more structured commerce and engaging in person-to-person exchanges. From 'I'll give you a crate of beer to fix my motorbike' to the popular and successful Buy, Sell and Exchange magazine, to its stellar internet successor TradeMe, New Zealanders have always sought to cut out the middle man and deal directly with each other.

But the constant feature of all these activities may be that they involve barter and bargain hunting. Where money is involved, Kiwis come over all coy. We don't even like to talk about it much, and we like to pretend it doesn't matter. One further criticism I've heard about tipping is that you shouldn't have to pay people to be nice to you; tipping is mercenary and takes away the "naturalness" from the interaction.

As Otago University would say, Get Real. Come on, the only reason the waitperson is there is because of money. That doesn't mean you can't be friends with them too. But the best way of showing your appreciation for their warmth and cheerfulness is in cash (in their place, what would you prefer?).

I have a sneaking suspicion that the real reason for being anti-tipping is that, alongside the admirable Kiwi virtue of being independent and informal buyers, is the not so admirable trait of being a bit mean.

That might have been fine, useful even, when we were a small, isolated frontier economy having to scrounge pirated parts for the tractor. But these days we're fully paid-up members of Con$umers United, and the Japanese banks fall over themselves to lend us dosh. As we enjoy the shopfest, we could probably afford to extend some of our profligacy to our fellow workers.

1 comment:

Cecilia said...

Simon,

An insightful analysis of tipping "culture." Having spent most of my adult life in a tipping country and a good part of that working for tips, I agree with all that you say.

"In a tipping country, this is one of life's minor pleasures."

How true this is. Personally I like tipping and tipping well. I enjoy being able to leave an extra generous tip because I especially liked my server, or because someone in my party was whiny and annoying and the server remained cool, or because I'm just heartily glad I don't have to do that any more. If I'm having a good day or feeling happy I'll tip extra just for the hell of it. Sometimes there just aren't any little old ladies nearby to help across the street and tipping provides nice outlet when you're feeling especially benevolent and generous towards the world.

BTW, I also had a (very good) coffee and biscotti at the little bar of the old bank building when I was shopping in Wellington when I visited you last year!