Saturday, April 27, 2013

Context at last

"It costs how much? Are we being ripped off?"

Up on the masthead of Sydney Morning Herald this morning.

It refers to a full page story in the business section, headlined "Lucky country becomes the land of eye-watering prices."

It's just the latest in a whole series of media stories along the same lines, but at least this one has some context and includes points I've been making in earlier posts on the subject but which have been missing from earlier media stories.

This one quotes a Deutsche Bank report which shows Australia is one of the world's most expensive countries. Sydney comes in at number five most expensive overall and we're at or near the top of cost lists for various items.

But in this story there's context, at last.

What I said in my post about it in February was: We live in a capitalist system in which the market rules and market forces apply, so companies charge as much as the market can bear.

In Australia we earn far more on average than comparable countries. We earn more, so why do we expect to pay the same as or less than people who earn lower salaries?

Compare the US and UK for example, with conversion into Aussie dollars. The minimum wage in Australia is $15.51. In the US it's $7.25, the UK $9.13. The average wage in Australia is $73,000pa. In the US it's $47,000, in the UK it's $39,100.

We earn almost twice as much, so relative to our earnings we pay much the same, even less in many instances, for stuff we buy. Companies' pricing is based on ability to pay, on what the market will stand.

Nothing like that has been in the mainstream media stories, until now, so they've been misleading. Exclude the facts that get in the way of a good story, you might say. Ruth Williams'story today has the balance that's been missing.

She quotes various people making sensible comments and giving the all-important context.

Choice believes that many companies charge more for products in Australia simply because they can. ''It is about marketers deciding what is the highest price they can charge,'' chief executive Alan Kirkland says.

The Deutsche research confirms that many things that cost a lot more in Australia - such as hotel rooms, a flower delivery or a beer in a pub - involve labour, reflecting Australia's high wages.

Chris Morris, whose Colonial Leisure Group owns a portfolio of Australian pubs and restaurants and a conference and wedding venue in Dorset, England, says labour costs are a big factor in inflating the price of a beer. He estimates that Australian labour would cost, on average, three times more than in Britain.

Stephen Koukoulas, managing director of Market Economics, says the higher wages mean that, in many cases, Australians can actually afford to pay the higher prices.

Wages in Australia are about 50 per cent higher than in the US or New Zealand, and average weekly earnings have risen roughly 3.5 per cent a year for the past five years. Australian wages have outstripped inflation for more than a decade.

''If you want to pay the same as what Americans are paying, then accept American wages. You can't have the low prices without the low incomes,'' Koukoulas says.

And in a comment that applies to so many of these lists:

Saul Eslake, chief economist at Bank of America Merrill Lynch Australia, says the Deutsche report would have been more useful had it compared prices of items as a proportion of earnings in each country. This would show how affordable or expensive each item was for a person earning the local currency.

That's what it's all about, affordability. To simply compare prices is meaningless - for example, the report compares the price of a pack of cigarettes here against the price in Manila. Manila, where, for example, an HR manager on average will be paid $14,000 a year, in Sydney over $100,000.
There'll be many more of these stories and I sincerely hope the authors balance them by including the context.

Sydney Morning Herald story here.

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