The San Francisco Controller’s Office released a report last week suggesting chain stores’ lower prices offer positive benefits to the city’s economy. But if San Franciscans made consumer choices based on lower prices, many would be living in Daly City.

Economic analysis of social policies can be helpful, but it can also miss the forest for the trees. That’s a good way of describing the new report from the SF Controller’s Office, which looked solely at price in assessing the value of chain stores.

The report noted, “local retailers may spend up to 9.5 percent more within the local economy than chain stores, but charge prices that average 17 percent more. On balance, the economic benefits of greater local spending by non-formula retailers are outweighed by higher consumer prices.”

By that logic, Wal-Mart is great for cities because of its low prices. That it destroys downtown shopping districts, requires many of its workers to live on food stamps, and fails to provide health care to all employees is not part of the “economic” analysis.

I don’t fault the Controller’s Office for doing the analysis it was tasked to perform. But chain stores must be viewed through a much broader lens than low prices.

Deterring Future Regulations

The report comes as several supervisors, including Eric Mar, seek legislation expanding restrictions on new “formula retail” (i.e. chain stores). Mar told the SF Examiner that the report was flawed because it was “not looking at displacement of small businesses that make up the character of The City and that many people come to The City because of the unique neighborhood business corridors.”

Mar added, “residents are asking for more controls over the business makeup of their neighborhoods. Many people expressed to our office that they won’t want our neighborhood corridors becoming strip malls, overwhelming neighborhood districts with chain stores.”

Well said. And I think Mar’s colleagues hear the same concerns from their constituents.

As I wrote in October, San Francisco is distinguished from New York City, Los Angeles and other major cities by its disdain for formula-retail. San Franciscans pay significantly higher housing costs than in nearby cities and most are not driven by lower prices in their retail and restaurant choices.

Opposition to chains among San Franciscans is nearly as universal as support for the Giants. It is an issue that unifies “moderate” and “progressive” supervisors, neighborhood merchant groups and bicycle activists who otherwise disagree over parking, and residential landlords and tenants.

The only pro-chain San Francisco constituency is commercial property owners who profit from chain’s ability to pay higher rents. But I suspect that even many in this group realize that too many chains bring down values for an entire corridor, as consumers and foot traffic moves to shopping areas with more independent businesses.

Low Prices: Amazon’s Cautionary Tale

The power of this “low prices are best” analysis is captured in the February 17-24 New Yorker, in which George Packer describes the efforts by Apple and five big book publishers to challenge Amazon’s control of digital books. Amazon had 90% of the digital book market in 2010, and was charging such low prices that it put the future of the hard copy publishing industry at risk.

In response to Amazon’s near monopolistic market domination, Apple and the publishers joined together to create a new model for digital books. Their arrangement secured higher prices for the digital books, a not surprising fact considering that Amazon’s predatory pricing strategy was designed to drive competitors out of business.

In response to the publisher’s agreement with Apple, Amazon filed a complaint with the Federal Trade Commission charging the group with conspiring to raise prices. And a federal court judge agreed, in a chilling logic that also underlies the SF Controllers report on chain stores.

As Packer put it, “the court’s decision reflected a trend in legal thinking….that looks at anti-trust cases from the perspective of consumers, not producers; what matters is lowering prices, even if that goal comes at the expense of competition.”

The belief that “lower prices” is the greatest good explains why most apparel worn in the United States today is made in overseas sweatshops. It also explains why millions of middle-class American manufacturing jobs were moved to low-wage nations, contributing to the nation’s economic inequality.

Economists have their job to do, but elected officials have to look at the bigger picture. Supervisor Mar is right to move forward on increasing common-sense regulations of formula-retail despite the Controller’s report, and his colleagues should join him.