Liberal Eye

We all know that British supermarkets are highly competitive and give outstanding value for money.  And how do we know?  We know because they told us so.

If you smell a rat you are right.

What we actually have are 4 near-identikit firms who maintain an illusion of competition but actually have no real interest in duffing each other up and every interest in maintaining a system that suits them just fine.  What they actually do is to use their size and power to roll over and squelch any upstart competition that emerges so ensuring that real competition is minimised and that they are left with free reign to beat up their suppliers and achieve ever greater margins.

As Cheshire dairy farmer Ray Brown told the BBC:

“If you [the farmer] are lucky you get 26-27 pence per litre, it’s the same price as we were getting 11 years ago.

 

“Supermarkets have a big score to settle there. The consumer then was paying 40 pence per litre, currently they are paying 57-58 pence.”

 

He’s absolutely right.  This means that consumers are being overcharged by a minimum 45% by the supposedly ‘competitive’ supermarkets (and that’s only using the reference point of 11 years ago).  Could there be any clearer evidence of market failure?  Could there be any clearer justification for a strong anti-monopoly response from Govt?

I think hard-pressed families (and farmers!) deserve some answers and some action.

In this context the publication yesterday of the latest investigation by the Competition Commission is yet another depressing example of the utter uselessness of the established system of regulation (see also Northern Rock etc).   Predictably, and in line with established form, the results will not worry the supermarkets.  Not that they actually wrote it as such but they do seem (as David Boyle suggested recently in this excellent piece on monopoly) to have successfully framed the issues in ways that play right into their hands.  It’s appears that in the rose-tinted World of the Competition Commission the supermarkets are basically virtuous and hence deserving of all possible support—which they are naturally pleased to give with just the lightest possible rap on the knuckles.

For instance a principle plank of the CC’s proposals is that planning applications for new stores or store extensions should be made subject to a ‘competition test’.  At first this seems reasonable until you stop to think that using Planning to address a Competition issue is basically barmy.  Moreover, it does nothing to address established local abuses—for instance Tescopoly reports that Tesco is the dominant retailer in 67% of postcode areas and has a greater than 50% market share in 5 areas.  (In contrast note that the CC had earlier concluded that over market shares of over 8% lead to abuse).

Another main plank of the CC’s proposals is that a supermarket ombudsman be appointed to oversee and where necessary enforce a stronger code of practice for dealing with suppliers.  Predictably the supermarkets are engaging in heavy breathing and talking ominously of costs of “hundreds of millions … which could be passed on to the consumer”.  To say this is a bit rich in view of their soaring margins on for instance milk is an understatement.

Actually, I too am opposed to the idea of a revised code of practice but for a very different reason.  It’s an administrative solution for a problem that requires a market solution and as such it simply won’t work for its intended purpose—although it might well provide lots of new civil service jobs!

David Boyle is absolutely right—Lib Dems should make this issue their own.

The mainstream media have been remarkably slow in understanding just how serious the Grangemouth strike could become and until today it has been treating the story simply as one of queues at filling stations.  It’s not.  The Oil Drum Blog has been reporting for several days that closing the refinery could close the Forties pipeline and this is now being confirmed by the BBC.

This will cost the UK around 700,000 bpd lost oil production and 70 million cubic meters per day of gas which is about 25% of our consumption.  Further, because the network of pipelines and refineries is all so interconnected it is even possible that in time other gas supplies could be affected.  Not surprisingly, gas prices have risen sharply (around +10% yesterday) and with gas accounting for around 40% of electricity consumers can expect further increases in both gas and electricity prices before long.

Successive Governments have bunked off ensuring that the UK has adequate gas storage capacity preferring instead to pretend that gas in situ under the sea counted—a strategy that is looking pretty foolish right now.  Moreover at this time of year stocks are seasonally run down.  There may be as little as 6 days reserves in the system before interruptible industrial users and eventually power stations have to start closing.  

When will this useless Government get round to developing a coherent energy strategy?

Normally driving through England in the spring is a delight with trees and hedgerows bursting into the delicate greens of new growth soon to be followed by the blossom of the early-flowering species.  But this year has been different—or at least I noticed it as different.

Plastic has taken over.  Even in deeply rural North Yorkshire the trees and hedges are festooned with the wretched stuff and the verges are a sea of abandoned crisp packets, cans and bottles.  More populous areas are even worse.  I stopped at one lay-by on the A1 in the East Midlands which can only be described as disgusting.  There was a small litter bin but it had clearly been full a long time and there was more rubbish round it than in it.

Presumably litter works like graffiti; ignore it and it becomes the norm dragging the whole area down into a slum.  Is that really what we want for England’s formerly green and pleasant land?  Will the tourist industry soon have to advertise “Visit our slummy Country”?

Coincidentally (or perhaps not) CPRE has just started a ‘Stop the Drop’ campaign.  Apparently the amount of litter has increased by 500% since the sixties and is 70% food-related; the general level has dropped from ‘satisfactory’ to ‘unsatisfactory’ over the last 12 months by the Government’s own measure and litter now costs over £500 million pa to clean up (not including public parks).  It is one of the public’s top concerns as evidenced by opinion polls and letters to councillors and MPs.

Picking the stuff up after the event is sadly necessary, but hardly sufficient.  Is it time to legislate for a (say) 10p deposit on convenience and take-away food and drink packaging (yes, including crisp packets) unless it is rapidly biodegradable?  And of course bring in that plastic bag tax the Government can’t quite seem to get round to.

One of the curious features of the sub-prime crisis is why no-one in authority seems to have spotted what was going on and stopped it before it got out of hand.   After all, it doesn’t take a financial genius to realize that something is wrong when loans are made with complete disregard for ability to pay - hence the description of some borrowers as “NINJAs” (No Income, No Job, No Assets) - coupled with widespread evidence of predatory lending practices ranging from gross misrepresentation to illegal kickbacks.

Whether the primary motivation is consumer protection or regulating the financial system the answer has to be the same: this is dangerous, possibly even criminal.

Now it turns out in an article written by Eliot Spitzer shortly before the events that cost him his job as Governor of New York State that the growing sub-prime scandal was spotted in good time.  In fact the authorities in all 50 states took action to curb predatory lending ranging from litigation to legislation but unbelievably were prevented from doing anything by the Bush Administration.

Indeed the Bush Administration went so far as to promulgate new rules based on old legislation enacted for an entirely different purpose to prevent states enforcing their own existing consumer protection against national banks despite determined opposition from state authorities.

In the final analysis government must be a deeply moral activity; amongst other things, it must protect the weak and not allow itself to become a tool of the rich and powerful.  Without a moral compass it will loose whatever mandate it might have started with AND will also screw things up for everyone - including the rich and powerful.

If you’re apartment-hunting in Paris “contre services” is what you hope not to see in an advert - especially if you’re an attractive female student.  It can be perfectly innocent, but all too often it’s a not-so-subtle code meaning that the rent will include sexual favours.

This is the iniquitous result of a housing crisis that the French Government admits is the worst since WW2 with money rents (never mind the ‘extras’) rising far beyond the reach of most ordinary people.  The BBC has more here.

No doubt many lessons can and should be drawn from this but what strikes me is what it tells us about markets.  All too often we forget that the undoubted beneficial power of markets is subject to some rather restrictive but crucial conditions like, for example, that there are ‘many willing buyers and sellers’.  When this is not so, when the one of the parties is not so much willing as desperate, then the balance of power becomes too unequal and the market becomes dangerously perverse.

In other words, a market can malfunction just as dangerously as the brakes on your car if they are not properly maintained.  Such maintenance is a core responsibility of government in a complex modern economy and it neglects it at the extreme peril of the more vulnerable members of society - the old, the young, the poor, the sick.  Labour is, of course, neglecting it which is why they are finding inequality, child poverty etc. so intractable.

Reform of political funding is very much on the agenda with the main parties deadlocked on positions that just happen to suit their traditional funding base – unions for Labour; big hitters for the Tories.  Here at last is a new idea (well, new to me at least) from the good old US of A.

It’s known as ‘Voter-Owned Elections’ or ‘Clean Elections’ and here’s how it works.  All supporters contribute an equal $5 – and only $5 – to their favoured candidate over an interval governed by the electoral timetable and up to the ceiling set for that election.

Result: no covert obligations to be paid back in government contracts or ‘difficult’ planning permissions awarded and, according to this account greater public engagement in the system.

Does anyone know more about it?

It seems that Bush has ambitious plans for, errr, change.  Click here to discover more.

Some industries (air travel or motor manufacturing to name but two) are intensely competitive – it’s in their DNA so to speak.  Others, like most of the formerly state-owned monopolies that have been privatized over the years, operate in markets where there is little or no competition and monopoly is the rule.  So, from Thatcher onwards, successive governments have invented a whole raft of regulators to represent the public interest and substitute for the discipline of competition when these firms were privatized.

Sadly, it is abundantly clear that this strategy has failed, that regulators have suffered regulatory capture and that the new private operators are up to their collective necks neck in rent seeking from a long-suffering public.

BAA was privatized in 1987 and since then there has been growing dismay among airlines about its poor service and lack of customer focus which continued after it was acquired by Spanish group Ferrovial in 2006 for £10 billion of which a whopping £9 bn was debt - apparently with the intention of refinancing the deal once the new Terminal Five was completed.  Unfortunately for Ferrovial life is full of uncertainties – in this case extra security measures have raised costs and the credit crunch has put paid to hopes of a refinancing on advantageous terms.

 Also infrastructure costs are proving problematic. As the BAA website rather plaintively puts it:

“BAA believes, however, the Review does not recognise sufficiently: the scale of the task we are embarked on; the pressures of handling such large infrastructure projects; the full cost of the increased security requirements; as well as the impact of the credit market turmoil.”   

Are we really to believe that when Ferrovial acquired BAA they didn’t notice the half-completed Terminal Five or the dilapidated and under-invested state of some of the other assets?  It must have been quite a shock to the poor dears to find out! 

Fortunately for Ferrovial shareholders all is not lost.  The Civil Aviation Authority (CAA) has, like the proverbial US Cavalry, come galloping to the rescue with a bail-out at public expense and BAA is to be allowed to raise charges by 23.5% at Heathrow and 21% at Gatwick.  Ferrovial will make a killing at our expense as much of this increase will inevitably filter down into ticket prices.

This is scandalous in every way.  Firstly, there is the little matter of moral hazard - that individuals and businesses  should take the rap for their own miscalculations.  Secondly, there is the cost to the public; multiply this around the economy and it soon adds up.  Thirdly, there’s what it tells us about running a business in Britain today; don’t bother with research and development or making widgets or whatever - the really juicy returns are to successful lobbying and getting the rules rewritten to order.

Labour may talk the language of commerce but they really don’t understand it.

Hello World!  Welcome to the first-ever post on my shiny new blog which comes to you courtesy of the good people at WordPress.

It took some time but eventually I settled on ‘Liberal Eye’ as my online moniker - casting my eye over things that interest me and commenting on them is a pretty good description of what I aim to do.

As for a slogan, ‘Power to the People’ neatly summarizes my political philosophy which is that people should be trusted and given control of their own destiny wherever possible and hence that both political and economic power should be devolved as far as possible.

Or, as Gladstone put it, “Liberalism is trust of the people tempered by prudence. Conservatism is distrust of the people tempered by fear”.