Undercover Economist

From the land of the free

FT Magazine, 18 February

“Don’t look a gift horse in the mouth.” This is reasonable advice, but I was recently given a couple of gift horses and looked them both in the mouth straight away. I know that whenever somebody else pays for the product or service that I am going to use, standard business practice steps through the looking glass into a world where normal rules do not apply.

The old proverb about gift horses argues that free is free and there is no point asking too many questions. At the same time, the fact that the proverb exists at all suggests that we often have reason to grumble about the things that other people buy for us.

My two gift horses were business class air tickets for the family, and the services of an international removal company (I just left one job in Washington D.C. for another based in London). There was an important difference between the perks: the removal company was chosen by my erstwhile employer. The tickets on British Airways were chosen by me.

Our move was a nightmare because the rules of the gift changed unexpectedly: we couldn’t send back by air many of the things that we had brought over by air. We had to repack on moving day. I should have read the small print, of course, but some competent advice from our move assessor would have been helpful.

But unhelpfulness is what you would expect: the victims have no means of redress. I cannot threaten not to choose them again, because I didn’t choose them this time. Whether they lovingly wrapped each item in silk and flew it first class, or doused my possessions in paraffin and set fire to them, the chance of repeat business was always going to be roughly zero.

British Airways, by contrast, was superb. I watched my little daughter snuggle up with her teddies on a flat bed as I gulped champagne. (Watching other business-class passengers contemplate a flight with a toddler was fun too.) No complaints from me then, but was it really worth the price? I’m not sure because I don’t know what the price was. I picked British Airways because I wanted the air miles. I accepted their bribe in return for carelessly throwing my employer’s money at the company that bribed me. For some reason, when it comes to air miles this behaviour is not only legal but makes acceptable dinner-party conversation.

Both of these perks produced economically inefficient results. The obvious economist’s solution is that I should simply have been given cash and paid for my own removal company and my own air tickets. But there is a reason why human resources departments choose the removal company: their employees do not move frequently enough to make informed choices.

Business class air travel, meanwhile, seems to have arisen as a stable social institution that gives roughly appropriate incentives to both employer and employee. Business class air travel is not so wonderful that employees will invent their own reasons to experience it, but neither is it so cheap that employers will demand journeys for trivial reasons. Like democracy, it is the worst possible solution except for all the other ones that have been tried.

It is refreshing to return to the everyday world of my own way. I couldn’t help noticing that the movers in Washington who packed my possessions did a splendid job – for which I rewarded them with a tip of a size chosen and paid for by me.