FT Comment: Free lunches always leave a bad taste

24th March, 2005

It may seem easy to give things away, but it is not. The more attractive the gift, the more damage people will do to themselves, and each other, trying to get hold of it.
If that idea seems counterintuitive, it is nevertheless true, as the managers of Ikea, the furniture giant, can testify. They opened a new London store recently, offering opening night discounts of nearly 90 per cent on a limited number of leather sofas. The store closed 40 minutes later after 6,000 people tried to force their way through the doors; several had to be taken to hospital.
The press immediately blamed either the boorish stupidity of the British public or the hypnotic influence of the wily Swedes. But the ill-tempered scenes are not unique to Britain: at the grand opening of Jeddah’s Ikea last summer, two people died in the crowds queuing to get hold of $150 vouchers. Nor are these incidents the result of some quasi-religious shopping frenzy. The curse of the free lunch is at work.
If I were to announce that next Tuesday I would stand in Times Square handing out $100 notes, the result would be pure social waste, even if New Yorkers inexplicably decided to form an orderly queue. That queue would get longer and longer until latecomers decided that it was not worth camping out all night to get $100.
The man at the back of the queue would be spending $99 worth of his time to get hold of $100. In other words, it would cost me $100 to give this man a net gain of $1 – and on top of that I would have to worry about potential casualties. If instead I were to hand out $200 to each expectant New Yorker instead, the problem would get worse, not better.
This scenario may seem far-fetched, but the world is full of attempts to give money away. For obvious reasons, the generous donors are usually not companies such as Ikea, but governments.
Many of us are involved in a situation analogous to the queue in Times Square twice a day, when we commute. Almost everywhere, governments have decided that roads should be free or heavily subsidised – much like a leather sofa on opening night at Ikea. Since everybody gets to use a valuable product for free, the resulting congestion and road rage should hardly come as a surprise. The “free” roads of the big cities of every developed country in the world are choked with cars, and bumper-to-bumper traffic is already a problem in many cities in the developing world.
London is a partial exception, after Transport for London, the government agency in charge, decided to stop the free lunches. With rather more wisdom than the management of Ikea, it levied a “congestion charge” of £5 on any driver wishing to cross central London. In doing so, TfL demonstrated the inefficiency of road use up to that point: although traffic levels only fell by 15 per cent, delays caused by congestion decreased by nearly one-third.
Motorists are not the only ones suffering from the curse of the free lunch. It also torments parents trying to place their children in the limited number of high-quality “free” schools. They pay for the right to attend those particular schools not by having to queue, but through the housing market: the better the local school, the higher the property values. At least these payments, unlike the cost of queues or traffic congestion, are transfers from buyer to seller rather than pure waste. Yet it would be more sensible if the money were spent on better schools instead.
Government policies to subsidise important services such as roads and education usually make no more sense than Ikea inadvertently organising an opening-night riot. Sometimes the benefits are dispersed by overcrowding, as happens in the case of the roads. In other cases, as with education, the benefits are simply misdirected, going not to poor parents but to homeowners selling property close to good schools.
This is not to say that subsidies must be abolished. With real political leadership, it is possible to direct them fairly accurately at the poor. In many instances, the right way to do this would be for the government to let competing companies charge what the market will bear, and give cash or vouchers only to those who cannot afford the fees. Such schemes are transparent and trust the poor to make their own decisions; political elites therefore view them with suspicion. The free lunch remains popular, partly because it can be aimed at favoured constituencies, and partly because queues are simply seen as a sign that we need more subsidies for more roads and more schools, not fewer. It is time we started paying our own bills.

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