Sunday, November 11, 2007

Dollars+Sense: We want to pay more for those

Ask us what we want, as the Canberra Times did last month in a specially-commissioned poll, and 88 per cent of us say we don't want tax cuts - we want the money spent on health and education instead.

But the politicians don't believe us. Peter Costello was actually candid enough to say so at the Press Club a few days back. They think that in the privacy of the ballot box we are much more selfish.

It's the same with fair trade. Most of us say we would be prepared to pay more for goods that aren't made in sweat shops. But when we are actually out shopping, might we be more selfish?

Harvard University economists Michael Hiscox and Nicholas Smyth decided to find out... just about the most ingenious way possible.

Working with an upmarket New York retailer they found two similarly-priced brands of towels that were both made under fair trade conditions and attached a label to only one. It read: “These towels have been made under fair labor conditions in a safe and healthy working environment which is free of discrimination, and where management has committed to respecting the rights and dignity of workers.”

The sales of the labelled towels jumped 11 per cent.

Then they pushed up the price of labelled towels, in order to see whether people would still prefer to buy them even when they cost more.

Astonishingly, they found that that the sales of labelled towels jumped even higher. They jumped to 20 per cent above what they had been without the label.

It was the same with candles. The label pushed up sales 26 per cent on its own and 30 per cent when augmented by a higher price. The higher price seemed to make the decision more real.

Their conclusion is that shoppers mean what they say in surveys. They are prepared to put their money where their mouths are when it comes to fair trade. At least in New York. Its a business opportunity going missing.

I have a feeling that its the same with Australian voters and spending on hospitals and schools. We mean what we say. And we are prepared to give up tax cuts to get it. Can anyone see a political opportunity going missing?

Source: Michael J. Hiscox and Nicholas F. B. Smyth, Is There Consumer Demand for Improved Labor Standards? Evidence from Field Experiments in Social Product Labeling. Department of Government, Harvard University, 2005

Slate, via The Undercover Economist