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A&P, I-1183 & Economic Disruption

November 14, 2011

I'm part way through Marc Levinson's book -- The Great A&P and the Struggle for Small Business in America -- which chronicles the company's rise from small tea dealer to retail giant with 16,000 stores and over $1 billion in sales.  As A&P expanded during the 1920s and 1930s, small grocery stores -- like the one where my grandfather worked with his father, uncle, and brother -- closed.  Even though the Diers Bros. Grocery in Gresham, Nebraska, survived the Depression and competition with chain stores, A&P was an economically disruptive force in hundreds of communities across the country.  I thought of that economic disruption while reading about last week's passage of Initiative 1183 in Washington State.  [Hat Tip to John Taylor of Tertium Quids for the article.]

While it brought lower prices to consumers, A&P also forced less profitable and noncompetitive retailers out of business.  As a result, there was a significant pushback against A&P and other chain retailers during the Depression.  States tried to impose taxes based on the number of stores that a retailer operated.  The federal government tried to outlaw the bulk purchasing discounts that large retailers received from manufacturers and tried to prevent retailers from selling items below cost as loss leaders.  All of this was done in the name of preserving local jobs, even though it meant higher prices for consumers.

Last week, Washington State voters decided to get their state out of the liquor business.  I-1183, which was supported by Costco, succeeded just a year after a similar Costco-backed initiative failed at the polls.  Much like A&P, I-1183 will be an economically disruptive force.  Washington state residents can expect liquor prices to fall as state-run stores are closed and private retailers open shops.  However, 900 or more state employees will lose their jobs.  This, obviously, doesn’t sit well with those employees.  From The Seattle Times:

Tom Geiger, communication director for the union representing more than 700 workers in state-run liquor stores, said he thought the results raised questions about democracy itself.

"If a private company decides to spend tens of millions of dollars to pass a new law, to buy an election, can they do it?" Geiger asked. The results in this case, he said, suggest they can.

Putting aside the issue that Geiger seems to be ok with Costco spending millions and losing last year's ballot measure, his reaction is similar to the anti-chain advocates of the '30s:  preserving jobs is more important than any of the benefits that customers might derive.  Actually, I-1183 looks like a win-win for consumers and taxpayers.  Consumers will see lower prices, and the state is expecting to collect $80 million more in revenue over the next six years.  Bottom line:  economic disruption can be good for consumers but bad for the status quo.

Speaking of disrupting the status quo, I bought Levinson's book via the iTunes bookstore, and I'm reading it on my iPad.  No printer.  No wholesaler.  No shipper.  Just a little economic disruption and a lot of customer satisfaction.


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