GOODS AND SERVICES

One of the problems of living in a rich country in an increasingly globalised world is that although many goods are getting ever cheaper, many services are getting outrageously expensive. Take haircuts, the archetypal domestic service. My daughter had her hair cut yesterday in a small, rural town - just cut, not washed or styled or anything else - and it cost kr.340, or about £40. Since I can't afford these prices, I either have to wait until I get to the U.K. and have it done for under £10 in one of those walk-in-off-the-street places in London, or get my sister-in-law to do it for free (well, for the price of sharing a bottle of wine). 

So what, you may ask? The division of an economy between goods and services is irrelevant, what matters is the total level of output. Countries generally go through a development process, whereby manaufactured goods begin to take over from subsistence agriculture. At a certain point the share of manufacturing in the economy starts to decline again (even though it is still growing in absolute terms) as services become more and more important. More than 60% of modern, rich economies' output comes from services.  

However, although the above is true, the relative cheapness of goods pushes us in directions which are not necessarily healthy. I give an example. I can buy a Bosch washing machine on the internet and have it delivered to my door within 3 days for kr.1.965, roughly £230 (I know, since I have just checked). Because of E.U. consumer protection laws, the machine comes with a 2-year warranty; so if anything happens, the manufacturer has to come and replace or repair it. At the end of that 2-year period, the machine ought to be still usable for a number of years. But, like a car, it is still a machine, and so can go wrong from time to time. The problem is that if it did go wrong, it would not be worth trying to have it repaired. It costs a minimum of kr.1.000 for a serviceman just to come and have a look at it; and that's before he starts sourcing spare parts and/or repairing the thing. It makes much more sense to take the old machine to the dump and buy a new one. Judging from our local rubbish collection centre, plenty of people do just that, it is full of newish-looking fridges and washing machines and dishwashers. A perfectly rational decision for the individual, but a huge waste of resources for society as a whole.

Nowhere is this more true than in my building project. Cement costs kr.50 for 25kg, and mortar about the same. Gravel from the local pit is kr.60 for half a tonne, almost - literally - nothing. The bricks themselves are free, since I am using old ones from other parts of the barn. What costs in building is labour. If I had to get someone else to do it, then I would have to pay them kr.500 an hour including VAT; and to generate that under the Danish tax system, I would have to go out and earn closer to kr.1.000. If I didn't build myself, I couldn't afford it.

In the old days, people used to make, mend, and maintain virtually everything they used. I am not suggesting going back to those times. But I am not at all sure that the current differences in the prices between goods and services are sustainable. Something will have to give.

Walter Blotscher