Self-Service Gas as an International Development Indicator?

Robert D. Atkinson July 29, 2019
July 29, 2019

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On a recent trip to Mexico City, I noticed that Mexican gas stations were full service; drivers were not pumping their own gas. Given that Mexico’s per-capita GDP is just 15 percent of the United States’, such inefficiencies are puzzling.

It turns out that a law in Mexico prohibits self-service gas stations. And Mexico is not the only country with such a ban. A somewhat cursory examination based on one web survey for travelers finds quite a few nations banning self-service gas stations besides Mexico, including Belgium, Brazil, Chile, China, Egypt, India, Indonesia, Morocco, South Africa, Thailand, Turkey, and Uruguay.

Anything striking about this list? With the exception of Belgium, all are developing nations, whereas developed nations like Canada, Germany, the United States, and the United Kingdom allow self-service. In fact, some quick math shows there is a significant positive correlation of 0.56 between GDP per-capita and self-service (in my calculation, nations score a 1 if they only allow full-service, 2 if they have both, and 3 if they only have self-service). In other words, lower-income nations are more likely not to let their consumers use the more productive and money-saving method of pumping gas.

One might argue this is because self-service gas pumps cost more than those operated by an attendant, but that can’t be the reason since self-service pumps pay for their higher costs very quickly by saving labor costs. Maybe it’s because few consumers in these nations have credit cards. But self-service pumps can easily be designed to accept cash. Besides, in many of these nations, national laws prohibit self-service.

We should be clear: This imposes costs on consumers. In most U.S. states, a driver pays a premium at a gas station for an attendant to provide the service, which is another way of saying that a driver receives a discount for pumping her own gas, because it is more efficient. The Federal Trade Commission finds that consumers pay between 2 and 5 cents more per gallon in states with bans on self-service than in those without. This means that the average driver in New Jersey (the only U.S. state that still bans self-service stations) pays almost $30 more per year just so several thousand people can be employed pumping gas.

So why do many developing nations do this? I am sure there are a variety of reasons, including crony capitalism (gas station owners and workers lobbying for protection), but the largest reason is likely that policymakers in these nations cling to the lump-of-labor fallacy. This is the fallacy economists note when people believe there is only a fixed amount of work to be done—a lump of labor—and once a job is lost due to automation, trade, or some other factor, the economy ends up with one less job. Given that U.S. productivity has grown every year for two centuries, if it was true that productivity led to fewer jobs, the U.S. economy would have almost none. Instead, we have one of the highest standards of living in the world and an unemployment rate of less than 4 percent.

But despite the fact that it is a fallacy that higher productivity—like that generated by self-service gas stations—means fewer jobs, policymakers in many nations remain stubbornly attached to the notion. I remember giving a speech in India few years ago in which I spoke about why India needed to embrace technology and productivity—after all, its per-capita GDP is less than $2,000 per year. After my talk, the CEO of one of the largest Indian companies came up to me and said, “Rob, you don’t understand. India can’t afford productivity; it needs the jobs.” Classic lump-of-labor thinking. I responded that India can’t afford not to; it needs the productivity. I had the same experience once in Delhi when we rode an elevator in an office tower where an elevator operator pushed the buttons for us. Same response when asked about it—we need elevator operators or else the worker would be out of a job.

So, why shouldn’t these nations worry about running out of jobs? The simple reason is that when companies invest in robots, they usually cut costs and pass a significant share of the savings to consumers in the form of lower prices (with some going to workers as higher wages and some to shareholders in the form of higher profits). But these savings are not buried; they are recycled as added purchasing power, which is spent or invested, creating additional jobs.

So perhaps the most important step developing nations need to take is throw lump-of-labor thinking overboard and embrace productivity growth, including from technology like self-service gas stations. But this is advice not only for developing nations, but for developed ones, because lump-of-labor thinking has become much more widespread in many developed nations and regions, including Europe and the United States. Increasingly, any push toward automation, self-service or otherwise, is opposed because a worker might get laid off. America didn’t get to be one of the richest nations on Earth fretting about a worker losing his or her job to a machine; it got rich precisely because we embraced automation. If developing nations ever want to get out of their poverty traps, then embracing automation is the only path forward.