Undercover Economist

Schoolboy error

My school used to offer two varieties of food. There was canteen food, which was inedible, and there were chocolate bars from the tuck shop. For two years, I had four chocolate bars for lunch every day.

These days schools are trying to outlaw the unhealthy options, but some markets are irrepressible. William Guntrip is a 13-year-old boy whose Northamptonshire school banished vending machines and tuck shop food in favour of nutritious offerings at the canteen. Guntrip spotted a market opportunity and has been buying soft drinks and sweets and reselling them in his school playground. The school is trying to stop him and claims that most students are happy with the new regime, although if that was true then Guntrip wouldn’t be making £50 a day.

Suppressing a market is a bit like squeezing a balloon – the trade will usually pop up somewhere else. The Soviet Union was full of markets. The factory in north Vladivostok would be allocated too much sheet metal but not enough coal. The factory in south Vladivostok had the reverse problem. Both factory managers would ask for extra resources but in the command-and-control system the incentive was to ask for more of everything, with little hope of success. So the managers would quietly, and illegally, do a deal with each other. Professional expediters would be sent out to barter for scarce inputs and the informal market reached a high level of sophistication.

According to the iconoclastic economist Mancur Olson, there were seven levels of Soviet disapproval of these markets, from black through grey to off-white. In China in the early 1980s, the government officially sanctioned this sort of side trade as part of the process of moving from a planned economy to a market one. Nowadays we realise it is insanity to suppress markets for coal and steel, but we are still tempted to try the trick on the markets for sex, drugs, rhino horn, football tickets and, apparently, Mars bars.

These efforts usually fail. Football tickets for big events such as the World Cup or the FA Cup are a bit like Soviet coal. They are supplied in a non-market system or sold at below-market value for political or ideological reasons. Although touts perform a social service by getting tickets to those who value them most, nobody likes them because they are bearers of bad news: these events are popular, supply is limited and consequently the price is high. Markets are good at telling us this sort of truth, and the ticket agency Ticketmaster is starting to use online auctions to beat the touts at their own game.

Markets for prostitutes and for rhino horn are suppressed for a different reason: they are thought to be bad for prostitutes and rhinos, respectively. That is obviously true for individual rhinos and is true for unwilling prostitutes too, but just banning something does not prevent it from happening. Julian Morris, now director of International Policy Network, a free-market think-tank, studied the rhino ban and concluded that it had reduced rhino numbers by discouraging sustainable management of rhino herds in southern Africa, while doing nothing to prevent poaching in east Africa.

Heroin is banned because the government believes heroin users do not make sensible decisions about it. Toblerones are banned because Guntrip’s school believes the same is true of pupils. The bans will almost certainly cut consumption – their main aim – but the side-effects can be serious. In any case, all these are examples of what Olson called “irrepressible markets”. Most irrepressible markets – such as those for tickets and Soviet coal – should not be stifled because they help the world go round. The rest should not be stifled because they cannot be.

First published at ft.com