ove directly to jail
Ross Clark says the government punishes innocent companies and defends its own monopolies
0 ne of the Official Monster Raving Loony party's most coherent policies was to break up the Monopolies and Mergers Commission, on the grounds that it was insupportable that such a body should be allowed to operate without competition. It has been left to New Labour to implement the policy. Following the Enterprise Act, which came into force suitably enough on 1 April, there are now three regulatory bodies involved in the business of making sure that little Johnny's mum doesn't have to pay too much for his trainers: the Competition Commission, the Office of Fair Trading (OFT) — which now becomes independent of the Department of Trade and Industry — and an entirely new organisation called the Competition Appeal Tribunal.
Never before has there been so much choice for aggrieved consumers, Think your DVD or hatchback cost you too much? In future you won't just be able to write reams of invective to your MP, you will also be able to claim compensation through a tribunal. And with hundreds of new lawyers and officials, the chances of a positive result are high, and the punishments harsh. Those accused of operating cartels — who now include the warden of Winchester School — are threatened with five-year jail sentences.
While the old Monopolies and Mergers Commission limited itself largely to takeover bids, its successors have assumed a far wider remit. The Competition Commission likes to use the expression 'complex monopoly' to describe the market for goods that it deems to be overpriced. Others might argue that the recent spate of cases against businesses supposedly cheating the British consumer amount to a hatred of profit. The sports chain JJB Sports and sportswear manufacturer Umbro were fined by the OFT £8.3 million and £6.6 million respectively for fixing the prices of replica football shirts. The Competition Commission forced mobilephone operators to reduce their charges on calls made from fixed lines to mobiles. With no sense of irony, the OFT fined Hasbro, the toy company that manufactures, among other things, the board-game Monopoly. £15.5 million for fixing the prices of its products.
The point is that none of these industries — sportswear, mobile phones or games — remotely resembles the kind of monopoly encountered by the poor bugger who has to mortgage his measly little house in Old Kent Road then lands on a hotel in Park Lane. I have a wardrobe full of shirts, not one of which was made by Umbro. There are four main mobile-telephone networks offering so many different pricing structures that it makes one's head hurt working out which is going to be the cheapest. As for toys, the high street is awash with choice — unless, that is, your sprog demands the fashionable toy of the moment and you are too feeble to tell him that he should be jolly grateful for what he has got and that when you were a child you didn't even have shoes, let alone toys.
Therein lies the reason for Labour's crusade against 'price-fixing' and 'profiteering'. While the government likes to brandish words such as 'enterprise economy', its policy on competition amounts merely to a series of populist gestures for the benefit of lowerincome groups who always spend and never invest. For anybody who does invest, the forcing down of prices by competition regulators is at best a double-edged sword. It might mean that you get a fiver off your Manchester United shirt; your pension fund, on the other hand, has almost certainly been damaged. On the day the Competition Commission announced its inquiry into mobile-phone charges, shares in mobile companies fell 6 per cent. When you read the Competition Commission's ruling on mobilephone charges, it is hardly surprising that UK share prices have remained so much more depressed than US share prices, even though Britain has so far avoided recession. The mobile companies, complained the commission, had been levying charges '30 to 40 per cent' above cost The Competition Commission was ruling, in effect, that prof
itability is unacceptable above a certain level. No matter how ingenious your product, no matter how much risk you have taken in bringing it to the market, take more than x per cent profit and you are deemed to be exploiting the British consumer.
That the government has become fixated on 'complex monopolies' which are supposedly being operated by private enterprise is an astonishing piece of hypocrisy, given the stubbornness with which it defends the state's own monopolies. What hope is there of the Competition Commission laying into the NHS or state schools? None at all. In spite of gross inefficiency, huge losses and the threat of strikes, the government has done nothing to remove the monopoly enjoyed by the Royal Mail. Even the European Union wants to see the back of the rule that prevents any private postal or courier service in Britain charging under a pound per item — a piece of price-fixing if ever there was one. Even where there is a bit of competition on the railways, the government is working hard to eradicate it. Thanks to the amalgamation of franchises, the few towns which do enjoy a choice of operator, such as Ipswich, will lose it — eradicating the very reason for separating the track authority from train operators.
Nothing demonstrates the absurdity of competition regulators better than the case of Coloplast International, a Danish company that manufactures incontinence pads and other medical supplies. The company recently took over a rival, SSL International, which meant that its share of the UK market for incontinence pads rose from 34 per cent to 92 per cent. This, naturally, caught the attention of the Competition Commission. After much investigation and negotiation, the Secretary of State for Trade and Industry, Patricia Hewitt, earlier this year placed a cap on the price which the company can charge for its incontinence pads. The irony, of course, is that the market for medical supplies is itself highly monopolised by the NHS. Ms Hewitt was using the full weight of competition law in order to drive down the price of a product for which an arm of government is by far the largest customer. When supermarkets are accused of behaving in such a way, all hell breaks loose. The message is that monopolies are quite acceptable as long as they belong to the state.
Given that the prices of consumer goods are already falling and that deflation now poses a bigger threat than inflation, it is far from obvious why we need a crusade against high prices. On the contrary, suppressing consumer prices — and therefore profits — is helping to depress share prices and therefore investment. One thing is certain: what we save at the shops we will end up paying in taxes. Last year, the Competition Commission nearly doubled its budget to /19 million to 'prepare for the Enterprise Act'. Then there is the cost of the new OFT and Competition Appeals Tribunal, both of which have yet to present accounts. It is just a shame that UK taxpayers have only one Treasury to choose from.
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