Why competition is the main issue

 By Gene Hunt

Originally posted at Liberal Democrat Voice.

One of the many frustrations with our dysfunctional banking system is that we have nowhere else to go unless we want to keep our money under our mattresses.

Yes, there are the ethical alternatives, like Co-op or Triodos. Yes, there are a handful of surviving building societies. But we don’t have what other countries have: an effective banking and lending infrastructure at local level.

So when World Development Movement nominates Barclays for the Public Eye awards for the worst corporation for speculating in basic food commodities – artificially pushing the price beyond what the world’s poor can afford – what can we do about it?

We can remonstrate pathetically, which is basically where Ed Miliband’s ‘responsible capitalism’ leaves us. What we can’t do, at least on the same scale as we could in other countries, is move our money, because we don’t really have much choice – or just a choice between a handful of identical options.

The narrowness of UK banking industry dates back more than a century, to the consolidation before the First World War, and explains some reasons why our infrastructure is so unfit for purpose.
The Big Five – Barclay’s, Midland, Lloyd’s, National Provincial and Westminster in those days – date back to the long reign of Montagu Norman over the Bank of England. It is peculiarly British and peculiarly anti-competitive, yet governments have colluded in this situation for most of the century.

Nor is it just banking. We have a dwindling number of public service contractors capable of delivering the increasing size of public service contracts (many public service commissioners will only accept the biggest companies is bidders, which makes matters worse). Monopoly or the tendency towards monopoly – which is what we are talking about here – inevitably means higher prices and worse service.

The same applies, as we know, to the supermarket sector. The extraordinary privileges given to Tesco and Asda, compared to their smaller competitors, has been justified on the basis that they lower prices. In practice, it is their poor put-upon suppliers which have kept the prices down, the struggling British farmers. What rises in prices there have been has been increasing profit margins.

The Liberal Eye blog makes a convincing case that the result has been ‘efficient’ only in the sense that it has been efficient at extracting money from customers and suppliers.

This blind eye is the British disease. The ultimate moment was the Office of Fair Trading decision in October to nod through the takeover by Amazon of the Book Depository, which is the only UK competitor capable of challenging Amazon’s creeping monopoly.

This is in some ways a symptom of the dominance of two political traditions which are neither of them interested in competition. Labour isn’t interested because they don’t believe in markets. Quite the reverse, Gordon Brown and Ed Balls encouraged oligopolies on the grounds that they seemed easier to control. But Conservatives are not, in practice, terribly interested in competition either – except using the rhetoric in the public service reform debate – because they don’t believe in restraining businesses, however powerful.

That leaves the Liberal tradition as the only potential defenders of open markets – not the kind of faux free markets peddled by American think-tanks, which basically means the right of the powerful to ride roughshod over the powerless. But tragically, competition has barely emerged in Liberal Party policy in the UK since the 1950s, and only under Vince Cable has the word undergone any kind of revival.

This is now urgent. Thanks to the way our toothless watchdogs have snoozed their way through recent decades, we now have a situation where three alternative business models are vying for the prize of total control.

1. There is the Tesco model where ubiquitous shopping outlet on every high street corrode the businesses around them by using market dominance to supply everything.
2. There is the Amazon model which does much the same, but does it online. The OFT should hang their heads in shame at their collusion in this.
3. Finally, there is the Virgin model, where by a brand and a vast database is leased out to businesses in every sector.

This is competition of a kind, but it is minor competition between would-be monopolies. Whoever wins, and even if none of them win, the public loses – and we lose all the advantages that open markets have given us over the past two centuries in choice, democracy and dignity.

The result of this will be rapid inflation, choice shrinking to a meaningless one between a handful of identical options, and service standards – including in public services – will become increasingly technocratic and faceless and poorer.

If we don’t tackle this problem now, we will wake up and find ourselves supplicants to a handful of global megacorps called Tesco-Virgin and Amazon Wal-mart. Then no amount of localism will save us. Let’s make 2012 the year we tackle the robber barons.