Archive for the ‘Markets’ Category

Energy market fail – the case for ordoliberalism

For once David Cameron has done the roughly right thing in restricting the energy companies to only four tariffs although I would have liked to see even fewer.

For years the received wisdom has been that competition – not just in energy, but generally – is a Good Thing; any evidence of that a market isn’t working properly is routinely greeted with calls for more competition.  It’s become so ingrained that almost no-one stops to question why it don’t always work as it’s supposed to.

Unfortunately for market fundamentalists, a growing pile of evidence suggests that their economic theory is wrong because it’s simply not an accurate description of how the real world works and ‘free market’ competition isn’t delivering the goods.  How this has been working (or rather, not working) was discussed on last week’s edition of ‘This Week’  with  guest Martin Lewis of Money Saving Expert (starts at 5:15).  His site has done a survey of its 14 million users and found that 80% don’t want the present system so this is political dynamite.

Martin Lewis pointed out that the energy market works as a regressive tax; affluent, middle class internet users pay the least while those in fuel poverty, disproportionately the poorest and oldest pay more, often substantially more.  He said that, whether or not Cameron really meant to say what he said on the subject recently, what he actually said is exactly what the public want, namely regulated prices.  For consumers competition has failed.

Michael Portillo reflected the uncertainty of many politicians.

“I think politicians reaching the point where they are beginning to lose faith in the ability of competition to produce the best deal for consumers but I think that is a big psychological and, kind of, philosophical moment if that’s what you actually conclude because, you know, for the last 20 years it’s been based on the idea that competition was going to give people a deal and in most things in life that’s exactly what happens. If you go to shops, telephones, if you fly on airlines, competition has brought down prices”

Note the positively baroque construction of his opening,“reaching the point where they are beginning to lose faith …“.  You can almost hear the gears shifting.  Whether he realises it or not he is calling the end of the era of neoliberal belief in the infallibility of free markets which Thatcher ushered in with her general election victory of 1979.   The old paradigm still rules by default in the absence of a better replacement but it’s mortally wounded and can’t stagger on much longer.

Portillo still clings to faith that competition reliably delivers in sectors other than energy.   However, here too evidence is piling up that not all is well with the received wisdom although, inevitably, the picture is complicated so no simple statement suffices.  I see at least three main problems (there are others but that would involve a book, not a blog post).

The first is the problem of ‘market failures’ including that markets don’t factor in externalities and that they reflect short-term supply and demand which makes them terrible where the long-term is important like planning for transport infrastructure or energy.  Market fundamentalists typically claim that market failure is rare and exceptional.  Indeed the whole basis of their faith is that ‘free’ markets (i.e. free of any government regulation) deliver optimal outcomes.

In reality, market failure is the norm.  To result in anything like a good outcome that is stable over time requires a long list of tightly specified preconditions which never, or almost never, occur in the real world.  For instance, any business sector with economies of scale (i.e. almost all) will tend towards concentration and oligopoly until the point is reached where competition is no longer effective.  The board game of Monopoly is a familiar example of how an early advantage drives growing concentration of power and inequality until it’s game over.

The second problem is that ‘free’ markets rarely exist – and then only briefly.  It doesn’t take long for oligopolistic businesses to work out how to influence the levers of power.  It helps the influencers that too many politicians are horribly star-struck and easily succumb to the glamour of money.  It can be revolving doors between companies and government, informal understandings with senior regulators and politicians, participation in standards-setting or even writing legislation.  The ways commercial power wins are limited only by human imagination – which is to say almost unlimited.  The result is the emergence of an interconnected elite.

Moreover, power abhors a vacuum so when government is weak the private sector quickly seizes an opportunity to fill the void.  If government decides not to regulate as a matter of either policy or weakness someone else will step in and the ‘law’ becomes whatever the new Mr Big says it is.   The law ran thin on the frontier of 19th century America so the theme of many westerns is the story of a big rancher employing a gang of thugs to enforce his own self-serving version of the law.  Much the same is true of Wall Street today thanks to the gutting of effective regulation as a policy choice.

The third problem is that real full-blooded competition is simply TOO effective for firms to survive it.  They must find ways of reducing the pressure on them.  The easiest way to do this is to merge with or take over rivals until the market is an oligopoly.  Hence the small numbers of serious players (typically 4 – 6) in a whole range of sectors from banking to supermarkets to energy.

It’s not that I’m against competition, far from it, but left to their own devices markets aren’t stable and won’t deliver the public policy goods.  Like advanced fighter planes the trade-off for high performance is that they are unstable.  The solution for planes is fly-by-wire systems that react faster than any human pilot ever could.

The solution for markets is the equivalent.  It’s a constant battle to keep them ‘open’ (subject to challenge) and keep them working for the public good.  This is a very different from what neoliberals advocate.

Equally, because full-blooded competition is ruinous it means that government should arrange things so that it is muted, so that there is a gentle pressure to improve and to innovate but not the imperative to eat the seed-corn to survive until next week.  That in turn means limiting pricing ‘freedom’ (aka anarchy) in sectors like energy.  And that is why I think Cameron, for once, is on the right track except I would like it to be even simpler – allow only one fixed and one variable tariff for each company with premiums and discounts for dual fuel or direct debit etc. expressed as a percentage.

This is ordoliberalsim and is the approach of most German liberals.  It’s worked rather well for them.

Retail rip-off – what the milk market should teach us about regulating the marketplace

Dairy farmers are back in the news; the processors who buy their production to sell on to supermarkets and food manufacturers want to push through a substantial price reduction that will see most farmers getting paid well below their cost of production.   Clearly this is not sustainable; if the processors succeed many farmers will be forced out of business, inter alia increasing our trade deficit in dairy products despite our having one of the world’s best climates for it.

To the extent that imports are involved I would bet a substantial amount that they are driven by lower welfare standards overseas and/or devious transfer pricing schemes whereby most of the profit ‘just happens’ (/sarc) to arise in subsidiary companies based in tax havens that provide a ‘service’ but never actually handle the milk at all.   Clearly, this is enormously beneficial to those involved but, equally clearly, it’s not in the public interest.

The problem is not that milk is ‘too cheap’.  Rather it is because well over 100% of the profit in the industry that should be equitably spread through the supply chain has been appropriated by the buyers.  (It’s over 100% since the farmers’ loss adds to the buyers’ profits).   They are able to do this because the supermarkets at the top of the food chain have the power to dictate terms so forming an effective oligopsony as described in an earlier post.   This has enabled them to pump up gross margins year by year; they rip off consumers while pretending to be their friend.

On the figures provided by the BBC adjusted to a single litre (and which are consistent with the time series included in my earlier post – see above link) supermarket make a gross profit of around 15 pence/litre which is nearly 30% of the selling price.   The BBC lamely ducks the issue of how much of this makes it to the bottom line as net profit but we can make a reasonable guess.  Logistics, store overheads etc. will all be minimal as it’s handled in bulk and sales are predictable.  Also we know (earlier post) that in the mid 1990s supermarkets got by on gross margins of only 1 or 2 pence.  So we can be very sure that the vast majority of the gross profit translates into net profit meaning that the supermarkets are achieving a ‘economic rent’ (roughly the excess profit above what they would get in a genuinely free market) of at least 12 pence per litre or around 25% of the selling price.

That is HUGE; if the margins on other goods are broadly similar (and I think many are) then this is a big part of the cost of living – especially for those on limited incomes.

So what is to be done?  If you are a plutocrat then nothing; for everyone else reducing prices raised by oligopoly is an even bigger prize than increasing personal allowances for the low paid.   Getting retail right also has a very direct bearing on other issues including Clone Towns and Mary Portas’ Review of the future of high streets.  But what can be done?

Any solution must start from the fact that the core issue is an imbalance of power.  So, for instance, suggestions that producers should differentiate their product miss the point – some limited differentiation around the edges may be possible but milk is fundamentally a commodity product.  Ditto an ombudsman or Food Market Regulator: having someone looking over the supermarkets shoulder, so to speak, may lead to limited interventions but it leaves the bad dynamics in place.

The first thing to say is that size is a problem in itself.  Retailing is a complex and demanding business but not exactly rocket science.  Nor does it require global companies with the resources required to design a new jetliner or get a new drug to market.   But it does benefit from economies of scale – largely (though not entirely) because the bigger you are the easier it is to bully producers – which means that the big get bigger and the small go extinct unless they can hang on in some niche.   Therefore left to its own devices a retail sector will evolve into an oligopoly where a small handful of large firms, all with similar cost structures, dominates the market.  In effect, regulation of the marketplace becomes privatised for the benefit of the biggest participants and freedom to evolve without limit in response to the market’s internal dynamics eventually ends in a market that is neither free nor fair.

So, the first conclusion is that the size of retailers should be limited.  This could be done in several ways, for instance by legislating that retailers must divest operations above a market share of, say, 20% in any one local authority area or 5% nationally.

The other way that retailing has traditionally been regulated is by mandating an equal price at either the wholesale level (US practice) or the retail level (UK practice).

The US Robinson-Patman Act  (and see also here) prohibited price discrimination by, in simple terms, requiring that the same price and other terms be given to all purchasers of goods for resale except insofar as the cost of supply is genuinely different.  The effect is to put all retailers on a level playing field with respect to their purchases.   The most obvious consequence is that large and small retailers can coexist which means that they are all kept honest by competitive pressure; many corner stores would think themselves in heaven to get ADSA’s margins and would gladly undercut them to increase sales – provided they could buy competitively!  A less obvious consequence is that producers who depend in large part on selling to retailers are not under the bully pressure that has characterised the UK in recent years; there is no particular advantage for a strong retailer to beat them into the ground as the retailer gets no advantage from so doing – any lower cost they negotiate has to be given equally to other retailers.  Another result is that it helps maintain a reservoir of small firms – and small firms are almost always the most innovative.

One of Reagan’s first actions on becoming President was to eviscerate enforcement of antitrust (i.e. anti monopoly) legislation to allow brute force to rule in the marketplace.   The fallout from this has been one of the biggest drivers in the subsequent growth of inequality.

In the UK regulation was accomplished by Retail Price Maintenance (RPM) until the 1964 Resale Prices Act which made most such agreements illegal.  (Libertarians ought to – but mostly don’t as far as I know – object to the RPA’s  flouting of privity of contract.)   RPM put the onus on producers to set competitive prices vis-a-vis their rivals while helping preserve a diverse retail scene but large retailers can still get better terms.  Absent RPM producers have no control over price which compromises their marketing and puts most on the back foot.   Interestingly, RPM survived for books until 1995 since when its demise has helped drive a huge concentration in retailing matched by a corresponding defensive concentration in publishing despite which most publishers are over a barrel, held to ransom by the few surviving retailers.

So, we face a stark choice; if we want a competitive market in goods we have to legislate to create and maintain a competitive marketplace.  If we don’t restore effective competition in the marketplace we can’t have a properly functioning market in goods.

 

High branches should be breezy ones

I for one welcome the High Pay Commission’s new report looking at the quite extraordinary remuneration enjoyed by UK executives.  For Directors of FTSE 100 companies pay soared by an astonishing 49% over the last year but just 2.7% for the average employee even as the companies involved have mainly delivered distinctly pedestrian results.  Click here for the report and here for a BBC story).

The traditional justification is that remuneration has to be “internationally competitive” to attract the best talent but this is a theory constructed out of wishful thinking; the notion that there is a liquid market for chief executives is pure self-serving fantasy.  As the High Pay Commission itself notes the importance of global mobility is largely a myth and that, “only one successful FTSE chief executive has been poached in the last five years – and even this person was poached by a British company“.

My own experience leads me to believe that most people can only have one major goal – money or results but not both – after I had the doubtful privilege of working for a chief executive who was transparently only interested in himself.  Under his ‘stewardship’ the company could have gone to hell and would have done repeatedly so were it not for the work of a handful of good people who averted the worst outcomes his negligence might have caused.  At another time I worked in a company with a chief executive who was quite simply out of his depth; every time things got sticky (as they periodically did) he would find it necessary to take an extended tour of our international operations leaving others to sort things out.  Yet he still drew an immense salary and decorated his office with imported handmade wallpaper.  His talent was not executive genius but knowing the right people to get himself appointed.  Plus ça change!

Anecdotes do not aggregate to data, but it is surely significant that, co-incident with the HPC’s report, we get a damming leak on England’s poor performance in the Rugby World Cup.   According to the BBC, “A number of England’s World Cup players were “more focused on money than getting the rugby right“.   Exactly my point!

The bottom line is that many executives are getting paid too much and delivering too little which is perhaps inevitable when they sit in judgement on their own rewards.   I have no objection to high pay per se when it is earned (Steve Jobs for instance) but the quid pro quo for sitting on a high branch should be that it’s a breezy one and easy to get blown off.  It’s time the ground rules were changed to bring order to this non-market and the HPC has some good suggestions to build on.

 

Welcome to the two tier NHS

How long will it be before the Conservative’s plans for the NHS turn it into a two tier system?

No time at all seems to be the implication of the news that Care UK has won the contract to provide health care to prisoners in the North East.  Which is fine except that the NHS bid was better on every single metric except one – price.

So, the long and short of it is that prisoners are to get a second class service and price trumps all other considerations.

Will this survive a determined political and/or legal challenge?   I don’t know but even if such a challenge emerges and is successful, I suspect that all that would happen is that such decisions would be driven underground while preserving some fig-leaf of transparency and accountability.   Will savings be due to genuine efficiency gains made while preserving or improving services or only down to surreptitious cost-cutting to provide a lesser service with no efficiency gains?  And how will anyone outside the system ever know which is which?

The Coalition likes to foster the impression that the NHS will be safe in the hands of people like the GPs that we all know and trust.   But will it?   That trust derives in large part from GPs being on the patients’ side, a medical but not a financial gatekeeper – our guide into the labyrinth of the NHS.   Most of us are in no position to exercise knowledgable “choice” so we rely on our GPs for good and unconflicted advice.   But if the Conservatives are following the sort of salami strategy they’ve used before, then it’s only a matter of time before targets for cost savings are added to the mix.  They will presumably be spun as “efficiency targets” or some such, but either way GPs will be forced to choose – good advice or higher pay.

Moreover, it’s unlikely to be your friendly GP that’s calling the shots.   It’s a pretty safe bet that established firms like Care UK will be quicker off the block to elbow themselves into pole position in the Conservative’s new system than the average group of GPs in a busy practice (a process possibly helped along by a few strategic donations).   As their homepage explains they are, “… a leading independent provider of health care and social services. … These services include the operation of NHS walk-in centres, GP surgeries and treatment centres …”.    And the prize is huge, nothing less than substantial influence over the direction of a big slice of government spending; someone is going to get very, very rich on the back of this but it’s hard to see that the quality of care will increase.

Bottom line; market, or more accurately faux-market structures are just don’t have the universal applicability of Conservative fantasy, and are certainly not suitable in health care.

Economies of bullying

The government has belatedly reacted to the long-running scandal of the supermarkets’ treatment of their suppliers by announcing that it will establish an ombudsman to enforce a new code of practice.  Unfortunately, it misses the point, is the wrong solution and won’t work.   The Lib Dem plan is little better.

Something certainly needs to be done; the market may perhaps have been competitive 20 years ago but it’s evolved into a very unhealthy oligopoly where a tiny group of companies sit astride the route to market for a significant fraction of the nation’s primary output.  As the supermarkets diversify this increasingly includes manufactured goods, not just food products.   Like medieval robber barons they are making a good living off their control of vital trade routes.  

What they say goes and they have become notorious for their high-handed treatment of suppliers; they long-since moved from the economies of scale to the economies of bullying.   The supermarkets justify their behaviour by saying that they merely aim to get the best price to pass on to their customers.  Like hell they do!   If you think you benefit just look at how, for instance, milk margins have changed over recent years.  

 

(If the details are hard to read click here for a link to the original.  Blue is farmgate price, red is processor gross margin and green is retail gross margin.  The timeline runs from Jan 1994 to Jan 2009)

Retail prices have risen by around 50% over the last 15 years and this is almost entirely due to a massive increase in retailers’ gross margins – the difference between their buying price and their selling price.  Over the same timespan farmers have done a splendid job keeping prices roughly level despite high cost inflation; the only substantial uptick in farmgate prices in over ten years was in 2007 as a result of soaring fuel prices.  The only winners in this business are the supermarkets; consumers are emphatically not winners.

This has come about because in the ‘markets are God’, ‘deregulated’ world we have lived in since Reagan/Thatcher, size is hugely important in retailing.  Of course, size isn’t the only thing that matters (and the big retailers are pretty smart and well-managed companies by any standards) but, other things being equal, if you are bigger than your rivals you can screw your suppliers for better prices leading to higher gross margins.   It may be only a few percentage points advantage, but in retailing that is a LOT; if maintained over several years it amounts to an unbeatable advantage and before long the bigger players are in a position to squelch and/or buy out some of their competitors and tighten the noose on the rest.  In simple terms that is why the two biggest firms, Tesco and Asda, have captured so much of the growth in the market.  The others struggle to keep up.

Moreover, the established players face little threat of competition from innovative new entrants or rivals with a different proposition – for instance higher quality or local produce or pack sizes tailored for one person households etc.  (There is a partial exception to this; foreign firms like Aldi and Lidl that are already powerful players in their home markets can make some inroads but I would like to see home grown competitors given the same opportunity).

So at one and the same time we have a market that is highly competitive in some ways and highly uncompetitive in other ways.   The big firms constantly push against each other – but only within limits; one firm might win customers by slashing the price of, say, milk, but they know that their rivals, with similar cost structures, would simply retaliate.  The end result of any such plan would be to shoot oneself in the foot so it rarely happens.   Instead what we get is a follow-my-leader situation where the biggest player, the one with the most buying power (Asda by virtue of its Wal Mart link), sets prices just a fraction lower than its rivals to keep the high ground while simultaneously maximizing gross margins.  The other players match prices where they can but commonly resort to confusion marketing – deals designed to obscure the actual price.  Hence Asda advertising tends to emphasis ‘everyday low prices’, the others tend to advertise ‘offers’ and ‘deals’.

For suppliers the impact is life-defining, often life-threatening, so they have been the source of most complaints.  Customers are less aware; retail spending is only a part of their total spend, confusion marketing is a powerful weapon and supermarkets constantly advertise what good value they give while discreetly endorsing the notion that the alternative (and hence the benchmark) is the corner shop even though this is patently nonsense.  The debate is framed as suppliers (and small shops) wanting to push prices up while the (virtuous) supermarkets struggle to keep prices down.   

Progressives have made a huge error in not challenging this framing head on.   It has allowed the supermarkets to inflate their margins at the expense of both suppliers and the public.  They are protected from real change as long as the public believes that they are a ‘Good Thing’ because in a world of focus group-driven politics what masquerades as political leadership is actually just following public opinion. 

How much might the public benefit if the competition was working properly?  Aldi and Lidl claim to be around a third cheaper which is co-incidentally (or perhaps not!) exactly the same saving that customers would make on milk if gross margins returned to their former level.  The biggest winners of a more competitive market would be those on low and fixed incomes  because food is a bigger percentage of their disposable income.  These are the very people we should help most.  (A rhetorical question:  are trends in retailing part of the reason that inequality has increased so much over the last 30 years?)

Despite the failure to push back against the oligarchs’ clever framing, a background of mounting complaints has at last forced some action.  There have been several investigations since 2000 leading eventually to a referral to the Competition Commission and a report by them in 2008 recommending the establishment of an ombudsman to resolve disputes between supermarkets and their suppliers.   Just months before an election the Conservatives, followed by Labour have come out in support of an ombudsman, a move Tim Farron correctly dismisses as a “fig leaf solution”.  

Indeed it is.  It completely misses the point about retail margins and selling prices and there is no reason to think it will be an effective mechanism even on the supply side; the farming community is distinctly underwhelmed.   

Regulators, whose task it is to intervene in the market, are a poor tool at best especially when confronted by powerful and politically-connected regulees.   They are at perennial risk of regulatory capture and/or being neutered by a nod and a wink from government that itself has been captured by vested interests and only wants only ‘light touch’ regulation (despite what it may say for public consumption).   We have seen just how badly this can all go wrong with the financial meltdown; why would this case be any different?

The BBC reports (via the first link in this post) that the ombudsman is to have a budget of just £1.3 million per annum, only enough for a staff of perhaps 15 or so plus a modest amount of consultancy.   While I do not believe that size equals efficiency (often it’s the opposite in fact), this is simply not credible as a team to monitor thousands of suppliers and tens of thousands of products.   Moreover, even if suppliers’ complaints are initially anonymous, the ombudsman cannot investigate far without it becoming obvious who the complainant is and so risking retaliation by the supermarkets.  

The most we can expect is a handful of high-profile cases to ‘prove’ the ombudsman is effective while real change is deferred for another ten years.

Unfortunately, Tim Farron’s proposal is little better; his call for an ‘Independent Food Market Regulator’ is just a toothier version of the ombudsman and would suffer all the same drawbacks except that its very existence would imply a government more committed to action. 

Does that mean that the situation is hopeless?  Not as all; only that it requires a different approach but unfortunately this post is already too long so it will have to wait for another day.  (Hint: the root of the problem is that size is an important determinant of competitiveness – the large get larger and the small get smaller – until the market degenerates into an oligopoly that it no longer serves the public interest).

Fee and dividend – LVT for the environment

Just occasionally an idea comes along that is simply too good not to pass on.  So it is with James Hansen’s proposal for a ‘fee-and-dividend’ solution to controlling carbon dioxide emissions; it’s remarkably similar in concept to Land Value Tax.

Hansen points out that a successful approach must recognise a fundamental truth; that as long as fossil fuels are cheaper than alternatives their use will increase.  Lobbying against them may have some limited effect at the margin but in the scheme of things it amounts to shovelling fog. 

Hence the failure of Kyoto after which the global rate of increase in carbon dioxide nearly doubled according to Hansen.  In Europe the Emission Trading Scheme has been branded a scam after companies profited but emissions have not reduced while in the US Wall Street played a large part in devising the cap-and-trade scheme which is their equivalent and the big banks expect to make billions of dollars trading carbon permits.  These billions (plus the costs of operating the scheme) have to come from somewhere so in effect this is a tax on energy that will redistribute income from ordinary people to inflated City bonuses.  Great!

With the traders in charge its a racing certainty that the US market will prove as volatile and subject to political meddling as it already has in Europe; traders profit from volatility not from stability.  Yet individuals and companies need stability if they are to make sensible plans to reduce their emissions.     Moreover, many of the supposed benefits are illusory; manufacturers can evade the costs by simply moving production to developing countries while ‘offsets’ – alternatives to emission reductions – are often imaginary or unverifiable.  Hansen also argues that, in practice, cap-and-trade actually sets a floor on emissions; if they fall beneath the cap the carbon price collapses removing the incentive for further reductions – which is just what has happened in Europe.

All in all it’s quite unsupportable, especially when there is an alternative which is simple, elegant and avoids these pitfalls.

This is the ‘fee-and-dividend’ approach.  It works like this: the government collects a carbon fee at the mine or wellhead or port of entry for imports for all fossil fuels;  it is a simple, single amount – £x/tonne based on the contained carbon.  The whole of the fee income is then distributed to the public as a citizens’ dividend.  The price of goods would rise in proportion to how much carbon their manufacture, shipping etc. entailed so the public would pay, but only indirectly.    Companies would gain by the certainty and stability of the extra costs they would face and could plan accordingly.   A family with exactly average carbon consumption would net out, their dividend income exactly covering the higher cost of their energy intensive purchases.   Prudent people would gain at the expense of more profligate types by adjusting their lifestyle, choice of car and other purchases.   However, falling carbon consumption would reduce the dividend year by year so even the most prudent would have to keep cutting to stay ahead of the game. 

Hansen calculates that if the US introduced such a scheme and set the fee for contained carbon at $115 per ton it would increase the price of petrol by $1 per gallon and of electricity by 8 cents per kWh yielding a dividend of $3,000 per year to each adult citizen and that around 60% of voters would emerge as winners.  In practice it would be introduced gradually, with the fee escalating each year over perhaps 15 or 20 years so allowing utilities and others time to change their behaviour, build new plant etc. without causing too big a shock to the system so costs and dividends would never reach anything like these levels.

An obvious objection is that in the hands of Labour fee-and-dividend would mutate into just another stealth tax.  This must not be allowed to happen, nor should it be used to reduce National Insurance as some have suggested because this would only muddy the water.  I would even say that government should absorb the administrative costs from existing resources so that, quite literally, 100% of income would be paid out in dividends.  That would be refreshingly transparent!  

Under fee-and-dividend fossil fuel consumption and carbon emissions would fall as fast as new technologies were developed and deployed but there are other advantages that deserve a mention.

Firstly, many of the early winners would be the very people who most need help.  In effect, high consuming, 4×4 driving types would directly help those whose carbon footprint is limited by their poverty.  In other words, it would be a significantly redistributive measure.

Secondly, the certainty of a known and escalating carbon price would incentivize companies large and small to develop innovative low carbon solutions with the winners then ahead of the curve in developing export markets.  Ministers (and their shadows) love to talk airily of how they plan to promote ‘green jobs’ but it’s strictly BS;  laissez- faire policies have failed.  By contrast Germany, which was an early mover in pushing its industry in the right direction, has already got lots of green jobs – for instance the turbines for the London Array will be German while we struggle to persuade foreign firms to set up here.

Thirdly, although the climate change argument has provided the primary impetus towards carbon reduction, not everyone is convinced by it.   As it happens, we must in any case reduce our addiction to fossil fuels because of the looming threat of peak oil quite independently of any belief about climate change and this provides the basis for building a broader coalition in favour of action.   Fee-and-dividend will push the economy in the right direction.

One for the FPC I think.

Pain on the Train

One might suppose that the market fundamentalists who have been running successive UK governments since Thatcher would know a thing or two about markets.  Specifically one would think that they could ensure that a given market was reasonably efficient and competitive.

Unfortunately this is clearly not so in relation to the railways as a small piece in yesterday’s FT reports:

The Competition Commission has found that conditions imposed by the government on companies that lease carriages to the train operators are stifling competition…  [This] will come as a blow to the government’s management of the private rail network.

The Dept of Transport has apparently complained that overcharging costs as much as £177 million pa out of rolling stock leasing costs of circa £1 billion much of which is funded by taxpayer subsidies.

This really isn’t good enough