LAST week found me in a holiday cottage in Dorset with my wife and two of the boys. We stayed in Winfrith, once a name to conjure with in the world of civil nuclear power along with those of Windscale and Dounreay and now reverted once more to being an agreeable little village.
While there, I found my thoughts drifting to Swylam. Before you ask, Swylam is not a neighbouring rural community. Indeed, as an acronym it ought to be written SWYLAM. Neither is it a scientific research facility or sinister government department “that doesn’t officially exist”.
Instead, it is the one-time all-purpose prefix for those of a Conservative disposition about to discourse on political matters. It stands for: “Say what you like about Maggie…”
During the Eighties and Nineties, any number of statements would then be bolted on: she put this country back on the map/cut the unions down to size/gave British industry a good shake-up/won the Cold War…and so on.
Those of us outside the circle of true believers kept our Swylam list fairly short, in my own case replacing Polaris, getting some of our money back from Brussels and forcing the trade unions to abandon their “long arm” doctrine under which firms unconnected with a particular dispute could be dragged into it through secondary picketing and secondary blacking.
I may also give an honourable mention to the Housing Act 1988, which replaced a well-meaning but counter-productive set of tenant entitlements with a straightforward contractual relationship between landlord and occupant. This pretty much singlehandedly revived the private rented sector
Anyway, my Swylam-related musings were prompted not by a piece of political history or a learned article about economics, but by an obituary in The Daily Telegraph on July 13 marking the passing of Juli Sole, owner of the El Bulli restaurant near Barcelona.
It contained the following passages. First:
“For some two decades before it closed in 2012, for €350 a head El Bulli served a 35-course menu…More than two million hopefuls would bid for the 8,000 places available during the restaurant’s annual six-month season.”
With me so far?
Then, a little later, this:
“[W]ith just 15 tables and one sitting a day, six months a year, El Bulli lost money hand over fist, and
in 2011…Soler announced its closure the following year.”
Got all that?
Now, “Swylam” (although I am not sure how much credit the lady can take for this) but there was a considerable improvement during the Thatcher years in what may be called economic literacy. It is hard to remember just how bad things used to be. I can recall, in a pub discussion in the early Eighties, being told in all seriousness, as if this were a triumphant ace in the argument, that putting adverts on the BBC would be a bad idea because even ITV doesn’t want it to happen. No kidding? An industry would prefer not to face new competition. Extraordinary.
At about the same time, the regional newspaper for which I worked discovered that railway fares to (let us say) Birmingham were more expensive than those to (again, let us say) Manchester, even though the first destination was much nearer than the second. As the paper’s business correspondent I played a key part in the major piece we wrote on this topic, ribbing British Rail for its inability to figure out distances.
A fellow reporter pointed out that rail fares reflected supply and demand, not distance. He was right, of course. But given he had been one of those suggesting ITV’s opposition to adverts on the BBC was the clincher, I think it is fair to say that nobody was perfect in this regard.
The last hurrah of a certain type of gross economic illiteracy came in the late Eighties, when Euro-phoria was in the air and banks started offering mortgages denominated in deutschmarks. This, many supposedly intelligent people enthused, was a sure bet because German interest rates were so much lower than our own! I forget the number of times I had to deflate such statements with a gentle enquiry as to which currency was used for the payment of my interlocutor’s salary. The answer, invariably, was Sterling, meaning that any interest-rate gains on a mark mortgage would be cancelled out by exchange-rate losses.
Back to El Bulli. What, as Sherlock Holmes may have said, do we know?
First, demand outstripped supply by at least 250 to one.
Second, that at about £250-plus per head, they were not exactly giving the food away.
Third, there were just 15 tables.
Fourth, there was just one sitting a day,
Fifth, the place was closed for half the year.
Points three, four and five are irrelevant. Point two is relevant only in that it shows that a charge was being made for menu items. That this charge was €350 is not relevant. It could be one euro or a million, because point one – the only fully relevant point – shows that whatever the charge it was too low.
When two million people want 8,000 places, the only way to lose money it to under-price the product or service concerned. Everything else – the number of tables, the opening times and so on – is just idle conversation. I don’t blame the Telegraph’s excellent obituary writers for trotting out the “explanation” for El Bulli’s closure. It is doubtless the received wisdom in the restaurant trade, which may explain why (I think this figure is correct) four out of every seven eateries close within two years of opening.
I’m off for lunch at a chop house in Swylam.
Thanks again for reading and enjoy the weekend.
Going South: Why Britain Will Have A Third World Economy By 2014, by Larry Elliott and Dan Atkinson is published by Palgrave Macmillan