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Is 1p too low for 'The Next Generation'?

Ed Miliband yesterday offered membership to the Labour Party for a penny to anyone under the age of 27. This is apparently part of Ed’s firmly-held belief that young people should have a political voice, as part of his “Speak out for your generation” campaign. The membership offer for the smallest subscription rate possible will last for just one year. This article looks at whether 1p is too low. It is beyond the scope of this article to consider whether it’s too high! I have discovered, in a totally non-scientific way, that non-Labour members overall reckon it’s a terrible idea. On the other hand, people who are Labour supporters think it’s terrific.

One of my Twitter followers said (in less than 140 characters),

“It is good.. we need a mass membership party and I hope many will take up the offer”

Another provided,

“Absolutely excellent idea. Encourage young people to join but must make it relevant to them when they”

Whilst elsewhere the well-known contrast between cost and value has been discussed, offering membership for 1p only threatens to send out the message that being a member of Labour has both low cost and low value. This is not a particularly desirable message.

The Labour movement doesn’t just want eligible voters, although that, of course, is a major ambition! Labour, as a large members’ organization, wishes to empower individuals with the shared values as Labour to contribute to future policy. However, appealing to young voters with a relatively low cost product is pursued as a successful business strategy by IKEA.

To put a downer on all this, one is forced to acknowledge that the problems with such ‘discount retailing’ are well known in the different worlds of economics and commerce. For example, the 2001 Nobel Prize winner in economics Prof. George Akerlof, from the University of Berkeley in California, has illustrated a key problem with a simple thought experiment.

Imagine that a carton of ‘real’ milk wholesales for £1, but that a carton of watered-down ‘subnormal’ milk wholesales for 60p. A typical buyer might willingly pay up to 80p for the subnormal milk, but £1.20 for the real milk. Mutual gains are made from the transaction by both the customer and the buyer. However, Akelof argues that, if the buyer is unable to discern the quality, both grades of milk must eventually for the same price – about 90p. He concludes, under this system, honest retailers of real milk go bankrupt, while retailers of subnormal milk flourish. The problem with the relevance of this example is that the low price Labour membership is of lower quality, for which there is absolutely no evidence.

Furthermore, more fundamentally, discounting may imply that a product is not particularly desired in the marketplace at full price. The price of discounted products is what economists call “elastic”. Price elasticity of demand is a measure of how much the demand of a product varies with price. A product is very elastic if a small change in price leads to a massive change in demand. It remains to be seen whether the price of Labour membership in young voters is at all elastic. That sort of data genuinely would be interesting.

Finally, Ed Miliband early on in his leadership has made it clear that he will support something he believes in, such as the ‘Yes to AV’ campaign. Economists have previously observed that low price is only made possible in the modern global world because of massive innovation in the information technology industries. In practical terms, given that computer wizardly is so cheap (and social networking through Facebook and Twitter is currently free), it would make no sense to offer a product for a much higher price than your most immediate competitor. The opposite argument is, if the price or cost is too low, then motivation for improvement of the actual product, in Labour’s case the development of policies fit to govern the UK, is poor.

It will be evident therefore from this short article that the issues concerning ‘discount retailing’ are potentially complex. Whether lessons from economics or marketing should be brought to the political world itself is a thorny issue in itself. However, when you consider voters or political parties as buyers and suppliers, you’re on a slippery slope? Of course, you’d never tolerate a “Vote one party – get one free”, or would you?

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