I am addicted to coffee.
I’ve given it up for short periods of time. The periods of detox have begun with substantial pain. On one particular occasion I was racked by cramps in my legs and stomach aches. I could not sleep. I lay in bed wondering at what point it would be acceptable to wake my heavily pregnant wife and ask her to get a coffee for me. Fortunately, I fell asleep and got over the worst of it.
But I can’t sustain the absence. I need coffee. But it’s not instant I crave. I need a properly and carefully made flat white. Being in London, as I am at the moment, makes this difficult, though not nearly as difficult as it once was. Across London new cafes are making flat whites with an increasing degree of competency. Sometime this morning I will walk 800m up the road to try another attempt.
But for most Londoners and nearly all Britons, coffee at cafes remains bleak. Not that they seem to care. Starbucks, Costa and Caffe Nero continue to grow, create stores and produce profits.
Why is this? Let’s examine a post-capital explanation.
Making good coffee
Good coffee is not about the capital, it’s about the labour. The balance is in providing the labour with the conditions it needs to work well. These include the right machine, the best beans, a good location and a share in the business’ success (that is, some control over the coffee).
A barista is crucial to a cafe’s success in Australia. As such their incentives should be aligned with those of the business. A study, I can’t find it, showed Sydney had better coffee than Melbourne because Sydney baristas were more likely to be paid higher market rather than award wages. If I have a bad coffee at one place, it is unlikely that I will return. A barista should be incentivised to make good coffee through ownership in the business. The failure of Starbucks in Australia highlights the point.
Making consistent coffee
The problem in the UK is that, generally, providing a barista with a good location and so ownership of the business is difficult. Rents are high. The value, therefore, is the location rather than the quality of the coffee. To make these locations work, businesses have had to create scale benefits. The big chains remain competitive, not because they produce great coffee, but because they are able to produce consistent coffee at a good price. This model can also be applied to the chain also British pubs and their food.
The strength of the chains, capital creating scale, precludes offering baristas the types of incentives required to make anything more than a consistent coffee. Incentives would only lower the return to capital without a noticeable change in the revenue.
Australia’s cafe industry is post-capital, the value is largely in the barista, not the machine or location alone (though there are some exceptions). The UK, however, remains relatively more constrained by capital, most specifically land. The high cost of land in the UK, particularly in its biggest cities, makes it difficult for labour to benefit.
In the cases where these barista driven coffee shops do exist in London, it is generally on the fringe of the cities rather than in the best locations. Furthermore, I suspect someone is paying a subsidy to the general public and I doubt it’s the capital owner. Instead, I think the labour genuinely enjoys working in these places and so accepts a lower wage than its talent, but most measurably the rent it pays for its own accommodation, would demand (they’re students, travellers living in central and relatively expensive apartments.)
Capital still matters a lot in the UK
I’ve argued that capital matters less in Australia. Job creation since the 1980s has been focused in the services sector where capital demands are more limited. This has also been the experience in the United Kingdom where services also dominate job creation. But this crowded isle puts a much greater premium on capital. Land’s extraordinary cost has put a premium on efficiency, particularly regarding distribution. Partly this has been created by the public sector, particularly the rail and road network. But primarily it is created by the private sector.
The supermarkets, the coffee and pub chains, the clothing retailers such as Primark, have all invested heavily in distribution networks that have allowed them to become very profitable while creating substantial positive externalities for the economy and its citizens. Despite high land costs, living costs in other areas are considerably lower. There’s also been some considerable innovation. My sister, for instance, auctioned off a delivery she needed made from Edinburgh to London, via the I Move It website.
This is capital deepening. I invest heavily in my own capital base to make me more efficient. If that also makes someone else more efficient a positive externality can be achieved. A more satisfactory process would be capital broadening. By substantially increasing the stock of public capital, land prices could fall (or values become shared more evenly) and labour would become more efficient. Being a good barista might be better rewarded.
Who can deliver a capital broadening?
But Britain’s incapable of achieving such a broadening. Applying physical capital to Britain in such a way that would properly achieve such a broadening would require a fundamental change to the character of the country. The sort of overhead and underground expressways used by China to improve efficiency, for instance, would destroy so much of what makes Britain truly great.
This suggests Britain will struggle to achieve faster labour productivity growth in the future. The only part of the UK’s capital stock that can increase rapidly is financial capital. It also suggests scarcity will drive positive capital returns in the UK for some time to come. Britain seems left with its Victorian era town planning.
Perhaps the challenge really rests with Australia. If the barista is a metaphor for other parts of the Australian services labour force, where labour not capital is the driving force behind productivity, then this must surely one day change. Australia is becoming more expensive and much more crowded. To retain the competitiveness of labour requires more capital to be invested. The political challenge is making sure the base is broadened rather than deepened.
http://flatwhite.org/?page_id=39
http://www.standard.co.uk/lifestyle/aussie-rules-coffee-in-london-6416986.html
