Why we can't buy Ghanaian chocolate bars

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I was quite struck by this article about a woman making artisan chocolate in Ghana:

Ruth had come over to meet potential trade buyers and told me her story. Chocolate was for her currently a cottage industry, using her garage as a factory and employing her mother to grind beans obtained from a nearby farm. To my mind, it was a chocolate equivalent to a micro-brewery, converting local crops for local consumption. Surprisingly, she is the first independent business to make artisan chocolate in Ghana.

It's a reminder - as the writer makes clear - that Africa is a very different place from the myth presented by NGOs like Oxfam or Save the Children with their images of starving children, subsistence agriculture and wicked foreign investors. Instead, we've a glimpse of an increasingly urban society filled with enterprising people like Ruth. It also tells us that the traditional source of funding - the bank loan - can be difficult for traders like Ruth to secure.

But before we get to tied up in feeling sorry for Ruth and her mum, let's remember she has the resources to travel to London to pitch to trade buyers at an exhibition promoting hundreds of Ghanaian businesses to buyers in the UK. The writer suggests - because he's from a cuddly social enterprise background - the sort of crowd-funding approach to financing Ruth's business that Hotel Chocolat and Brewdog has used. Make an offer - whether it's a cash return or free chocolate doesn't really matter - to potential small investors.

And it struck me that, regardless of the way in which investors are rewarded for their investment, this is a very good way of financing a business - the business-owner transfers the risk to the investor. And it's true that crowdfunding can be an effective means for many initiatives - Bradford's Drunken Film Festival for example - but wouldn't a better route for nascent small businesses like Ruth's being the issue and sale of share capital? Either through 'Dragon's Den' style angel investors or other routes to equity markets.

The other problem for a Ghanaian chocolate business is, of course, the way in which the developed world protects its chocolate business:

Cocoa producing countries limit themselves to mainly exporting beans -rather than manufactured cocoa, or chocolate products- mostly because of tariff escalation. The EU has a bound rate of 0 percent for cocoa beans, but a 7.7 percent, and 15 percent ad valorem duty on cocoa powder and chocolate crumb containing cocoa butter respectively;
Similarly, Japan applies a bound rate of 0 percent for un-processed cocoa beans, but charges a 10 percent tax for cocoa paste wholly or partly defatted, and a 29.8 percent duty on cocoa powder containing added sugar;
The US has no ad valorem on cocoa beans, but imposes a duty of 0.52 cents/Kg for cocoa powder -with no added sugar- and tariffs could go up to 52.8 cents/Kg for imported chocolate products containing cocoa butter.

Maybe that's for another day but it's a reminder that, for all our heart-on-sleeve keening about Africa, we consistently make it more difficult for businesses from places like Ghana to do business - other than on our strict and expensive terms - here in the developed world. To start with Ruth will get some protection if she focuses on small consignments but the tariffs will kick in the minute she's exporting for resale rather than individual consumption.


The best thing - other than investing - the the developed world can do is stop placing barriers between producers and manufacturers in places like Africa and the markets they needs to succeed in Europe, North America and Japan.

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When you buy from a big business...

Let's consider this message. Its sentiment is lovely, it speaks of the effort the small business makes to succeed, of the hours of struggle, the nights wading through paperwork, the early mornings racing to collect stock and still get back to open the shop. We've all got a great regard for the shopkeeper, their work (as Napoleon knew) is deep in the English psyche.

But the words on the board are still wrong. Not because there isn't some distant chief executive wanting a second yacht but because when you shop in a big store you're helping to pay the wages of the woman on the checkout, the lad stacking shelves, the folk in the back doing the banking, the warehouse staff, the drivers, the trolley boys and the smiling ladies in the cafe. And those people have daughters who want dance lessons and sons who want a football shirt. These employees of the big shop have school uniforms to pay for, mortgages, gas bills, bus fares and loan repayments.

The portion of your shopping bill that goes to pay the chief executive is tiny - in the case of big bad Tesco it's less than 0.001% of the company's turnover. And the proportion of each pound of sales going in profits is also pretty small - less than 5% even in good years. Most of the mark up goes on paying the wages of ordinary employees who have exactly the same struggles paying their way as do the owners of those lovely local shops.

Don't stop shopping in those indie stores but do so for the right reasons - great service, interesting products, high quality and good value. Don't shop there because you think you're sticking one to some bloated plutocrat because you're not.

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Why green economics should lead to larger and international not smaller and local

Skipton market day

Unfortunately David Boyle doesn't provide a link so we'll have to take him at his word that this is the Bank of England speaking:

‘If non-local goods are cheaper because market prices do not fully factor in the additional costs that they impose on society over locally produced goods — for instance, higher carbon emissions as a result of increased transportation — then local currencies may improve welfare.’

Having provided us with this quotation David goes on to use it as a means to plus his argument (and associated book) about a thing called People Powered Prosperity. Now David has a problem because people like me think that much of the 'resiliance' agenda is really about a form of localist protectionism - using the force available in planning and local democracy to impose barriers to large organisations doing business.

Now taking his Bank of England quotation as our text, we need to try and answer the questions that it raises. Firstly are 'additional costs' factored into market prices and secondly are non-local goods actually cheaper? In terms of carbon emissions, we have a pretty good guide to this in the work done on 'food miles' and carbon dioxide emissions. In 2008 two academics from Carnegie Mellon University in Pittsburgh, Christopher L. Weber and H. Scott Matthews produced a big study called "Food-Miles and the Relative Climate Impacts of Food Choices in theUnited States" which resulted in this rather lovely pie graph:

That's right folks - 83% of the carbon emissions in the food chain are down to producing the food rather than moving it around. Indeed the journey from producer to retailer represents just 4% of total emissions. Food miles really aren't the big deal our resilience buffs like to think. Some people even think that local production means higher transport carbon emissions.

It is even worse than this because small farms are much less efficient. And lower efficiency means they require more resource input to produce the same output as a larger operation:

Agricultural economists at UC Davis, for instance, analyzed farm-level surveys from 1996-2000 and concluded that there are “significant” scale economies in modern agriculture and that small farms are “high cost” operations. Absent the efficiencies of large farms, the use of polluting inputs would rise, as would food production costs, which would lead to more expensive food.

But David Boyle and the local resilience folk - having had protectionism thrown at them - now argue just what this evidence defies:

For me, the ultra-local agenda is not really about ‘local’ at all. It is about small. Small infrastructure, small communities, small business, small institutions, and the failure of the national institutions – and banks in particular – to deal effectively at that scale.

The problem is that, while small businesses are an essential part of the economic mix (for reasons of competition and all that Schumpterian creative destruction stuff), such businesses are always more resource intensive that larger businesses. This is best illustrated by taking David Boyle's observation that small businesses generate 51% of value added in the UK. The problem is that, according to the Federation of Small Businesses, SMEs represent 99.3% of all the private businesses in the UK. So put it another way - 49% of value added in the UK economy is added by just 0.7% of UK businesses.

So to return to the Bank of England's observation about 'local currencies' - there is very little (arguably nothing) to suggest that transportation is a significant negative externality in the food business and furthermore small businesses are less efficient than large businesses. This suggests that, far from the local resilient economy being less resource intensive and possessing of a lower carbon footprint, exactly the opposite is true - the effect of David Boyle's model would be more emissions not less. And let's point out that most of the transportation is subject to taxes and duties that capture that carbon dioxide externality in the prices of goods.

None of this is to say that local food production, small businesses and 'people-sized' institutions are a bad thing. Rather it's to say that seeing these things in terms of economics or the reduction of carbon emissions is a mistake. Such things are good because we - local people - choose to patronise them and make them work. In simple terms we're prepared to pay more for some of the things we use because we like the idea of terroir, provenance or having the world champion sausage-maker in your village. The problem with David Boyle and his sort is that they're too buried in their bien pensant leftiness to realise that the best and strongest argument for localism is actually a conservative argument. If we take the green imperative seriously then we should be arguing for more larger production units using fewer resource inputs rather than the inefficient but cuddly local economy. It's at times like this I'm glad I'm a conservative!

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On US start-ups - or rather the lack of them

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From Joel Kotkin in New Geography:

A 2010 SBA report found that federal regulations cost firms with less than 20 employees more than $10,000 a year per employee, while bigger firms paid roughly $7,500 per employee. The biggest hit to small business is environmental regulations, which cost small firms 364 more percent than large ones. Small companies spend an average $4,101 per employee on such regulations, compared with $1,294 at medium-size companies (20 to 499 employees) and $883 at the largest companies. This has come over a period when many of the key costs faced by the business-owning middle class – house prices, health insurance, utilities and college tuition – have all soared.

Make running a small business more expensive and there will be fewer small businesses. It's worth remembering that, when you talk to business people, it's almost always regulatory barriers that they cite as the source of growth problems. And, for large and established businesses, it makes good business sense to accept those regulatory costs since they prevent new entrants and increased competition.

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"Unhelpful", "anti-growth" and having "little understanding of...small businesses" - guess who!

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You guessed right?

Industry body the Federation of Small Businesses (FSB) has launched a blistering attack on council planners, calling for the wider use of powers to cut them out of the development process.

It has been coming for a while...

...the vast majority of its members who had used the planning system found it to be "utterly impenetrable".


The report said: "This complexity, cost and the unhelpful culture of planning officers create a disincentive to submit even a minor planning application."

According to the survey, 53 per cent of small businesses applying for planning permission in the past two years found the rules overly complex, with 38 per cent finding they had difficulty obtaining advice from officers.

Neither impressive nor surprising since planning is inherently anti-development and anti-business - well small business anyway.  Big business can afford the expensive consultants, the flashy masterplanners and the slick lawyers needed to get through the resistance of councils.

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How to prevent small business getting public contracts the Manchester City Council way

I know, dear reader, that you love the great city of Manchester. I know that my criticisms of that city's civic leadership have focused on their budgetary incompetence but today I want to use their procurement processes to show just how anti-business - or rather anti-small business - Manchester City Council has become.

I spent quite a lot of today - on top of a previous frustrating day - trying to complete a 'pre-qualification questionnaire' for a research and analysis 'framework' contract. Now it seems to me that this sort of contract - in essence an approved list of research, evaluation, intelligence and analysis providers - is an area where there are a multitude of smaller providers, one man bands, partnerships and social enterprises. Manchester however has clearly decided that these smaller providers are beneath them for they require the following documents:

• Two years of audited accounts - bit tricky for a start-up business, maybe a couple of recently redundant council officers just starting out!
• Insurance documents showing £10m public liability, £5m employee liability and £2million professional indemnity - that's a grands worth of insurance just to bid!
• Signed and dated policies covering equal opportunities, quality, health & safety, environmental and sustainability
• Three testimonials and three public sector references for work done for each lot - if you're bidding for all the lots on offer that's nine testimonials and nine public sector references
• Certificates, qualifications and profiles of all the people who have worked on the projects referred to in the testimonials

And in the City council's PQQ documents there's a whole sector on "sustainability" (bear in mind this is a tender process for research and consultancy rather than supplying products, digging roads or such) including such gems as:

Please summarise how you minimise the environmental impact of your work activities, including any procedures for life cycle analysis of the procurement, use and disposal of products.

And:

What environmental objectives and targets have your organisation set against which performance is measured? Where appropriate, please state your current top three objectives and their relevance to your industry.

We're talking here about small consultancies providing research expertise - these sort of questions are simply not appropriate nor to they contribute anything to making Manchester City Council more sustainable - whatever that means. It does, however, get even better:

Please summarise how your business can help the city support the Council’s Sustainable Procurement Policy’s key objectives? A copy of the Sustainability Policy can be found here: www.manchester.gov.uk

And:

Please detail your willingness to work with the city council to contribute to the city’s Climate Change Action Plan target to reduce the city’s CO2 by 41% by 2020. A copy of Manchester’s Climate Change Action Plan can be found here: www.manchesterclimate.com

This approach to procurement - adding in spurious idiocies about "sustainable procurement" and "climate change" that might make some sort of sense in the buying of gas supplies, building materials or road construction but just put off small suppliers of consultancy and research.

Councils and other public sector bodies talk a great deal about opening up procurement, about supporting small business and the voluntary sector in the procurement process and about local purchasing strategies. This one PQQ demonstrates to me that - in Manchester's case - this is just talk. The procurement process merely suits the bureaucrat and the big business, it prevents innovation, discourages small and start up business and excludes new entrants through the use of frameworks and approved lists.

But then, why am I surprised? It is Manchester City Council after all and we know they can't manage their way out from a wet paper bag!


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Of course markets work - especially free ones

As you all know I like markets – those grand municipal institutions like Kirkgate Market in Leeds (pictured above), little local covered markets like that at Keighley, great street markets in places like Walthamstow and Skipton. I like farmers markets, continental markets and pot markets. And it goes without saying that because of this I like free markets.

What I don’t understand – although I have tried – is why otherwise intelligent seeming folk like Susan Hinchcliffe can make sweeping statements saying that “free markets don’t work”. Especially when she works for a business organisation. Indeed, this sweeping ‘anti-market’ statement is really common – and hardly ever challenged.

Some folk seem only to like markets where everyone is small, where there are no large dominant organisations and no bad capitalists. Just friendly smiley folk talking to you over a market stall or serving you at their shop counter. And the way to do this is to tax big businesses and businesses doing or selling things we disapprove of (gas guzzling cars, premium lager in cans, cigarettes, imitation samurai swords and air travel). Or better still to ban them altogether.

This makes me cross. Firstly because banning things is a blunt – and mostly ineffective – weapon but mostly because really free markets would do just what these folk want if we stopped messing about with them! Why do you think large businesses support environmental auditing requirements, extensions of worker rights, tariff protections, the common agriculture policy, expensive city centre car parking, large regulatory quangos and an array of market controls too bewildering to describe?

Have you guessed? Big businesses like all this regulation because it keeps small businesses from competing! The big car manufacturers lobbied hard for OEM parts protection – and Nick Clegg’s euro-pals said yes and closed down the free market for car parts. All that banking regulation rather suits the banks and will continue to do so as it makes it really hard to set up a bank – keeps down the competition! And have you ever wondered why the newspaper industry is so keen on controlling the Internet and stopping new competition from self-generated news? It wouldn’t have anything to do with stopping competition would it now?

So next time you hear the terms “market failure” or “free markets don’t work” remember the small trader on your local market or the corner shop in your village. And note that they struggle because Government tries to control markets – through taxes, through regulation and through stupid laws. And remember that, despite all this, despite the efforts of government to do the bidding of big business, markets still thrive, still work and still deliver value for you and me.

Free markets do work - every time!

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Try talking about a three-day week to the small business owner!

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I have been pondering how I might comment on “21 hours”, the latest piece of “research” from New Economics Foundation – who are to economics what homeopathy is to medicine.

This evening as I walked through Bingley, the real truth came to me. I walked – at about 6.15pm – past Ophiuchus. Run by Donna and Oliver, this is a hairdresser. And it was open. I wondered what this couple would think about:

“A ‘normal’ working week of 21 hours could help to address a range of urgent, interlinked problems: overwork, unemployment, over-consumption, high carbon emissions, low well-being, entrenched inequalities, and the lack of time to live sustainably, to care for each other, and simply to enjoy life.”

I suspect the answer would be somewhat a somewhat bemused shrug. After all let’s look at Donna & Oliver’s work:

*The shop is open six days every week – seven days during busy times such as approaching Christmas or before the school summer holidays

*Most days someone – usually either Donna or Oliver – is working from 8.30 in the morning through to 6.30pm or even later if there are still customers

*When the last customer’s hair is finished there’s the shop to clean, tidy and lock up – another half hour each day

*And then there’s stock to order, books to keep, tax and VAT forms to fill, staff to manage and tradesmen to arrange

Assuming it’s a normal week, Donna and Oliver probably clock up 100 hours working. And it’s stressful – margins are tight, business is tough and there’s plenty of competition. And on top of this Donna and Oliver have two kids – who have all the demands and needs you’d expect of young children.

Talking about “21 Hours” is an insult to these hard-working, decent, caring people who happen to have made the life choice of running a small business. The “21 Hours” idea is the product of people who have no clue why people work, what business is about or how the normal life of normal people operates.

We’d all like the “good life”. But some – like Donna & Oliver know it only comes from hard work, effort and good service. So New Economics Foundation, you know where you can stick your “21 Hours”?

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Let me introduce you to real social enterprises

The world seems full of folk claiming that “social enterprise” is the way of the future. And, in doing so implying that good old-fashioned businesses – you know, the ones where I make something and sell it to you or do something because you pay me – are somehow “anti-social”.

Now I have no problem with how people organise their businesses – as a consumer I care only about the nature and quality of the service or goods I receive. Well that’s not entirely true – I’d also like them to behave ethically. But that doesn’t mean not taking a profit, not paying themselves well in recompense for the risks taken or not having shareholders. And it doesn’t mean having a “social mission”, it doesn’t mean “fair trade”, it doesn’t mean not owning shares in oil companies or aerospace manufacturers. These are just elements of a marketing strategy based on political positioning.

An ethical company is one that doesn’t mislead people about its products or services, that operates within the laws and mores of the country, and that seeks to exceed the service expectations of customers. Nothing more.

And, you know, all but a tiny handful of for profit businesses behave that way. These businesses are as ethical – perhaps more ethical – as all the Co-ops, so-called “social enterprises” strutting around out there saying “look at me, aren’t I the good boy”, and “third sector organisations” trying to pretend they aren’t really just government subcontractors.

There is nothing – absolutely nothing – more social than the market. The market requires people to engage, to interest, to participate. The market encourages people to compete, to create, to exceed expectations and to take risks. And the market also promotes co-operation, innovation and partnership. Businesses operating in a free market are social organisations – however they choose to govern themselves. These businesses have to interest themselves in their customers – what they want or need, what there problems may be, what help they might require. They are real social enterprises.

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A reminder why the private sector is better than the state

In a recent post Tracey Cheetham takes to task a business that wrote to her regarding the delivery of wine and the postal strikes. Now I could take her to task over the position she took - business should use the post office because of its social mission. Sod whether or not that business gets a decent service from said business.

But what really struck me was the nature of the response Tracey received from the business - they'd taken the trouble to read the letter, consider the point she made, examine their business practices and respond accordingly. It looks likely that, through this action, that business has a friend and advocate (albeit not sufficiently for them to be named in Tracey's blog-post) - someone who'll buy some of that there wine!

Does Tracey think that a similar letter to a nationalised industry, a government department or one of those myriad agencies of the state that she loves so much would get such a positive caring response? Does she think that a random e-mail raising a slightly critical point to - say - the Royal Mail would get that kind of response? Somehow I very much doubt it - what Tracey would get (eventually) is a series of excuses wrapped around with a half-hearted apology. The person answering the letter doesn't give a monkeys whether Tracey is happy with the response or not -it's just another letter off the pile or e-mail from the box.

For me, Tracey's post is a timely reminder of why private business - and certainly small business - delivers so much better service than we get from the state. And the reason? Because - unlike the government - they care about having our business.