The Importance of Competitive Markets

The general purpose of all business should be to innovate and grow, developing technologies, employees and products, delivering value to customers and shareholders as well as for the common good (which includes for future generations living on this planet), through their operations in competitive markets. This is a worthwhile aim from which the economy as a whole and the general population should benefit. That is the arguable aim of ‘light touch regulation’. It is ‘light’ so as to avoid the bureaucratic strangulation of competition and the benefits that flow from it.

But there is a huge flaw in this reasoning. The basic assumption is that unregulated markets are competitive. But the reality is somewhat different.  While most markets are competitive when they first emerge, as they mature, the most successful players achieve greater market shares and in due course become dominant. Such markets are not at all competitive, but are in effect controlled by monopolistically empowered leviathans.

This process is accelerated by merger and acquisition (M&A) deals which used to be regulated by the Office of Fair Trading (OFT) which prevented the establishment of dominant market shares (25% and above) by referring such deals to the Monopolies and Mergers Commission (MMC). While cartels are still illegal, monopoly is now allowed, only its abuse against the public interest being technically not allowable. But that is now rarely challenged because the bodies empowered to do so are inadequately resourced.

The consequence is that most mature markets are now dominated by the ‘too big to fail’, ‘too big to manage’ and those with the market power to influence and control prices, the ‘big four’, ‘big six’ etc, whose anti-social and criminal activities have been recorded many times on this site. Their main aim is to maximise the wealth of their shareholders, ignoring the ill-effects for other interested parties, so long as they are either legal, or there is every prospect of avoiding consequences from illegality. That aim also necessarily emphasises quick returns and the avoidance of long term risk investment (eg in new technology or fundamental R&D).

In the 1930s aftermath of the Wall Street crash, when similar processes were in train, the lessons about protecting competition were well learned and action was taken to break up the most obvious abusers of monopolistic power. Though, with internet enabled globalisation, that process will be more difficult to repeat, it will in the end be unavoidable. The negative impacts of monopolistic abuse, legal and illegal, are recognised as unsustainable in terms of the rapid growth in inequality and the consequent break-down of society – (there is such a thing!), the careless waste of earth’s finite natural resources, and the terminal damage to earth’s climate. All these effects are multiplied by the explosion in global population.

The longer action is delayed, the greater the damage that will be done and the more traumatic its rectification. The regulatory powers need to be restored and resourced adequately so decisive action can be taken NOW. Break-ups should start with those markets where there are clear conflicts of interest, such as professional services (audit, accounting and management consultancy) and banking (retail and investment).  Additionally, former publicly provided services (eg health, education and social services) and utilities (eg energy, water etc), where competition is purely imaginary, should either be made genuinely competitive or returned to public operation. Such initiatives would be a huge gain for the economy and for the common good.

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