Month: August 2008

City Car Levy Is Just Another Taxing Burden

There are two basic tasks governments have historically been very good at – collecting taxes, and thinking of interesting new taxes to collect.

So it was heartening to learn that the Victorian Government has rejected a proposal by its own Department of Infrastructure to levy a tax on cars in the inner city.

Sure, the streets of Melbourne’s CBD seem to be getting more and more congested. The Federal Bureau of Transport and Regional Economics estimated in June that congestion costs us $3 billion a year. At least we don’t have as many problems as Sydney does, where congestion is so chronic that watching traffic slowly crawl through tunnels is fast becoming a popular tourist activity.

However, we should be a little suspicious when after public servants have completed a long, careful study of a problem, the only solution they can think of is to take more money from the public. As Mark Twain famously said: “To a man with a hammer, everything looks like a nail.” To a bureaucrat, every problem looks like an opportunity to raise taxes.

But should congestion just be taxed away?

In principle, charging drivers to use busy roads at peak time isn’t a terrible idea. Driving into the city is essentially free. (Well, it is free if you ‘assume away’ – as the economists and bureaucrats promoting these taxes like to – the cost of petrol, the cost of parking, the cost of toll roads, and the cost of the car itself.)

People tend to consume more free things than they would otherwise do if they were asked to pay for them. If the government started giving away free beer, then there really would be a widespread binge drinking epidemic in Australia.

This logic suggests that if we started charging cars to enter the city, those individuals who were unwilling to cough up the money would use public transport or avoid going into the city at all. Fewer cars on the road means a higher average driving speed in the city, and, presumably, fewer commuters going postal before lunch.

That’s the idea, anyway.

But a congestion tax in Melbourne is one of those ideas that’s great in theory, and not so great in practice. The state government has already imposed a form of congestion tax – the $850 per year charge on long-stay car parks which they originally hoped would reduce the number of people who drive to work.

But if driving to work is now a lot less appealing, then car park owners and their investors haven’t heard anything about it. There are now over 200 more car parks in the CBD than there were before the tax was introduced.

Nevertheless, the car park levy hands $40 million dollars to the state government every year, so, as Roads Minister Tim Pallas so eloquently put it a few days ago: “The government sees no reason why that levy can’t continue to operate.”

New taxes always quickly find comfortable positions in government budgets. After all, from the perspective of Spring Street, $40 million is $40 million – who cares if the car park tax has failed to do what it was supposed to do?

A very high congestion tax would, no doubt, reduce the number of cars in the inner city. But, as London’s experience has shown, a reduction comes at the expense of city retailers, who have seen a 25% drop in business following the introduction of a congestion charge in that city.

And it would also add to the many, many taxes and charges the government already imposes on motorists.

Driving is already one of the most highly taxed activities a modern Australia can pursue. Simply purchasing a car can subject you to up to five separate taxes – stamp duty, the GST, registration, and, for those with slightly more exclusive tastes, the import duty, and the luxury car tax. Car insurance gets its own separate taxes, with its own stamp duty and a GST.

Finally, drivers have to pay the petrol excise tax, the GST, and soon the cost imposed by the federal government’s new emissions trading scheme.

That’s nearly 10 taxes just to back out of the driveway.

No wonder the state government has hurriedly tried to reject the idea of burdening innocent motorists with yet another punitive charge.

Just because you can imagine a tax, it doesn’t mean you should impose it.

Battling Green Noise

“Beyond Petroleum” is a strange slogan for a company that sells mostly petrol. Is BP really that embarrassed by the 3.8 million barrels of oil they produce every day for grateful motorists, and presumably even more grateful shareholders?

If the amount of effort the petrol retailer is going to to promote its coffee is anything to go by, then it appears so.

BP has recently switched its entire coffee supply to “fair trade”. This switch has been matched by an ad campaign of billboards extolling fair trade’s social and environmental benefits.

Surely in the history of retail this is the first time that an oil company’s marketing department has decided to emphasise its petrol station coffee instead of its petrol. It’s an interesting strategy – come for the lattes, stay for the fossil fuels.

But BP is hardly alone. Corporations across the world are trying to squeeze into green clothes. Green is the new black. Apparently, environmentalism sells.

Traditional eco-activists describe all of this in the most disparaging of terms – “green wash”. But what did they expect? Years of environmental moralising has elevated eco-friendly products to the lofty status previously held by Chanel, Porsche and Rolex.

Would anybody really be surprised if in the next few years James Bond was driving a Prius? A licence to kill is not a licence to act irresponsibly, you know.

There are two characters in this story. The first is the usually well-meaning, if naive, environmental activist who seeks to activate green consciousness in the masses. The second is the entrepreneur who has figured out that consumers might pay just a little bit more for products described as “eco-friendly”.

We’ve seen the relationship between these two characters play out before. A few years ago, when “corporate social responsibility” was all the rage, businesses started filling their marketing departments with social activists and scheduling meetings between non-government organisations and CEOs. Both usually left these meetings either annoyed or just disappointed that they didn’t speak each other’s languages; businesses aren’t charities, and charities aren’t businesses. But everybody got to shake hands in front of the company photographer, and the photos were successfully reproduced in annual reports across the country.

But corporate social responsibility was so 2003. Activists and marketing departments are working together again – this time for the environment.

As a result, products claiming that they are environmentally conscious have flooded the market. Certainly, there’s nothing wrong with trying to be environmental or ethical when you shop. And there’s nothing wrong with businesses trying to market their products according to contemporary fashions.

Nevertheless, remember the good old days when products were just either “biodegradable” or “not biodegradable”?

In those simpler times, products either decomposed quickly, or survived 60 ka-trillion years in a landfill.

It is all getting a little bit silly now. Publicists pile adjective upon adjective, desperately trying to beat the competition – eco-friendly, environmentally friendly, renewable, sustainable, recyclable, reusable, natural, organic, low-footprint, low-carbon, low-impact, or just clean. How can something be “100% earth-friendly”?

Green products and services have multiplied. Should we buy new organic jeans?

Across the world, real estate agents have started marketing themselves as “EcoBrokers”. And the idea of “sustainable graphic design” would sound like a parody if it wasn’t for the dreary earnestness of its advocates.

This isn’t green wash, it’s green noise. Claims that products are sustainable are more often than not confusing and contradictory. Those organic jeans rely on dyes and finishing agents that should chill the environmental heart.

And most of the time, labelling a product as “eco-friendly” is as meaningless as labelling a product as “great”. Think back to your childhood – just because tiny chocolate bars are described as “fun-size” doesn’t mean they are any more fun.

It seems that in 2008, no self-respecting marketing department can avoid pointing out just how environmentally beneficial their new range of shampoo is. (Marketing seems like a fun job: “New slightly thicker shampoo bottles can now be refilled with water for your convenience – and the planet!” or “Now dolphin free!”)

But there is evidence to suggest that all this green noise is leading to green fatigue – everybody is just getting a little bit eco-exhausted.

In a recent survey conducted by the Shelton Group, a Texas-based ad agency, 49% of US consumers said the environment was an important consideration when they purchased a product. But only 21% said that environmental considerations had led them to choose one product over another.

That’s right – less than half of the people who said the environment was a significant factor when choosing products had ever chosen a product because it was better for the environment.

So either a quarter of consumers are deliberately choosing the most environmentally damaging product in a manic desire to destroy Mother Nature, or people are just buying what suits their needs – environment be damned.

And the survey found that in 2007, 20% fewer consumers deliberately bought an environmentally friendly product than in 2006. Consumers seem to be figuring out that most eco-friendly claims are just a lot of marketing bluster.

Environmental groups find green fatigue frustrating, but they have been encouraging the overmarketing of sustainability. Greenpeace enjoys putting out press releases disapproving of new products – when Apple’s iPhone was launched, it was greeted with a barrage of overexcited condemnation for its lack of green features.

In the face of these sorts of campaigns, it is no wonder that marketing departments are trying to play catch-up.

But for a lot of businesses, the environment is just another publicity stunt.

Memo Starbucks: Next Time Try Selling Ice To Eskimos

Globalisation has pulled millions of people in developing countries out of poverty. It has sent goods, services and people around the world, linking humanity into a vast network of communications and commerce that has ultimately benefited everyone.

But, still. In the case of one American coffee giant, globalisation deserved to fail. Starbucks makes really bad coffee.

Starbucks is almost entirely pulling out of Australia – closing 61 of its 84 stores. In Melbourne, just five of the 16 stores are tipped to remain.

Sure, the company is closing stores across the world. But while the closure of 600 stores in the United States sounds like a big deal, it is trivial when you consider that there are nearly 12,000 Starbucks outlets in that country.

The demise of the coffee giant’s Australian ventures speaks volumes about the challenge of globalisation.

The lesson of Starbucks’ Down Under fiasco is simple. Globalisation is a bit overrated. It’s much harder than everybody seems to think.

So why has Starbucks worked in the US but largely failed in Australia? The secret of the company’s success in the American market wasn’t that it sold coffee. It sold coffee culture.

It is remarkable how alien quality coffee was to US consumers. As late as the 1980s, the National Coffee Association was producing advertisements just trying to convince people that coffee could keep them awake. And what small prestige the drink held in the US was occupied by the old “cup of joe” – cheap, stale and reheated sludge poured from a pot.

No wonder that when Starbucks came on the scene in the 1990s, Americans eagerly embraced it. Starbucks coffees may be weak, poorly made and overly reliant on syrups to mask their flavour, but they are certainly better than what had previously been available.

The other aspect of Starbucks’ appeal in the US has been its establishment of the cafe as a social hub. From a Melbourne perspective, the typical Starbucks may seem somewhat sterile and too over-eager to appear “comfortable”. But it is one of the peculiarities of the US that the idea that a cafe could be a social venue was quite new, at least outside the circles inhabited by the cultural elite. Comfy chairs and pleasant, if bland, music have been just as important a part of the Starbucks product as its coffee.

But when Starbucks came to Australia to bring coffee and the cafe culture to the masses, it found that we already had it. Particularly in Melbourne, we have better coffee and more relaxing cafes than anything that Starbucks brought with it.

Undeterred, the firm simply dumped what seemed to work in America into this country. When Starbucks opened an outlet in Lygon Street – a store that has since sat empty surrounded by bustling cafes – it became an amazing example of just how comprehensively a company could fail to understand its target market.

The inability of Starbucks to adjust its product to local conditions is illustrated even more clearly when we compare it to the international strategy of that other evil American behemoth – McDonald’s. Where Starbucks offers almost the same products around the world, McDonald’s varies its menu depending on local culture and local tastes. In India, they sell the McCurry Pan. In Japan, the “Ebi Filet-O” is available – a shrimp burger. In Turkey, McDonald’s offers kebabs. Some of these products may sound stupid – and Canada’s “McLobster” sounds filthy – but their existence shows that McDonald’s understands the importance of understanding its regional markets, and tries to understand the peculiarities of local culture.

The failure of Starbucks in Australia tells us a lot about globalisation too. It isn’t enough – as some anti-globalisation activists seem to assume – for an American company just to blanket a foreign market with a mediocre product.

Multinational corporations actually have to offer something better than the local alternatives if they want to succeed.

This is true as much for products such as films and television as it is for syrupy coffee and fast food. Clearly, Hollywood films are better than Australian films on some level.

Audiences flock not just to the high-cost blockbusters but also to independent American movies well before they consider seeing a local production. Hollywood knows that a movie has to be entertaining before it can be successful.

If Starbucks can teach us anything, it is that in the global marketplace, turning up to compete just isn’t enough. You have to be really good.