At a meeting of the Standing Committee on Agriculture and Agrifood last week, lawmakers asked business and industry executives, including Loblaw (which owns grocery chain Loblaws) and Empire Company (which owns Sobeys and other brands), to: I questioned them about their company’s supposed role. with food price inflation. Summing up the proceedings, MPs generally behaved like inexplicable economic ignorance. The management team deftly fought off a ridiculous attack on the business and industry.
That the Commission held such a meeting highlights a fundamental misunderstanding among politicians about corporate purpose and basic economics. The social responsibility of Loblaw and other companies is to increase profits. No company has a social responsibility to curb inflation. Governments can also centralize the economy to improve consumer welfare by questioning business executives about profit margins and corporate strategy, implementing regulatory initiatives and special taxes, and coercing the industry. can’t plan. A free and competitive market creates consumer surplus. Government planners are always guided by ignorance and perverse incentives to subvert it.
Liberal MP Ryan Turnbull said during questioning that he was “surprised” that Roblow’s net income was “a significant amount.” Thus, in his question to Loblaw Senior Vice President Jodat Hussain (his company includes not only grocers but also banks and pharmacies: as a beauty segment), he said, “In that case, distribute some of them. So, can’t you afford to tell the average Canadian citizen who is a regular customer of your store every day about the cost savings?” , that there is some kind of social obligation to offset increased earnings in some business segments.
Of course, this is silly. Turnbull then argues that when pharmaceutical companies increase profits by bringing new life-saving drugs to market, they distribute those increased profits to consumers by selling other products below cost. You might see them claim to get social obligations. Or that banks that have made credit card businesses more profitable through effective management should become better corporate citizens by offering low-cost auto loans to riskier borrowers. There may be. Or that hotels, whose restaurants have improved profitability through menu improvements, have a social obligation to return profits to tourists by lowering room rates. Of course, the reality is that business interests are not public property. They belong to the owner who invested in the business.
Loblaw’s Hussain responded very thoughtfully that his company’s job is to offer consumers the lowest possible prices. If a customer finds a grocery store that serves him better than his Loblaws, the business will be destroyed. Mr Turnbull responded by complaining that Loblaw’s food prices were too high. , launch your own grocery store chain, and charge as much as you want. If the Canadian really prefers the way he runs his grocery store over Rob Brows, he could get ridiculously wealthy while greatly improving consumer well-being.
Contributed by politicians of all kinds, the nonsense lasted about two hours. NDP’s Alistair MacGregor complained that Loblaw has not raised workers’ wages quickly enough in the past few years. In a follow-up question, Liberal Rep. Leah Taylor-Roy called Roblow for unexplained reasons for the supposed corporate policy of denying bonuses to store managers for failing to sufficiently cut employee wages. accused of Mr. Hussain of Loblow denied the existence of the policy. Bloc Québecois MP Yves Perron then asked Pierre St-Laurent, chief operating officer of the Empire Company, why grocers were raising prices faster than restaurants.
A common theme in the Grocery Inquisition, which also included Conservatives, was profit margins in the food divisions of Rob Rose and The Empire Company. The answer is that, for record, profit margins in the grocery business have remained fairly flat over the long term, in the low single digits. This is to be expected in a highly competitive industry. Unfortunately, as Karl Littler of the Canadian Retail Council told a parliamentary committee, “There are people who are ideologically suspect of some benefit and I don’t think I am going to dissuade them. But, as Littler explained, rational people should “reject the idea that profits in the 2-5% range are somehow abnormal” as absurd.
Well said! Three toasts to business and industry executives who have the patience to defend their business and industry from pointless political attacks and try to explain the economics to congressional blockheads.