Category Archives: Competition

The Lessons of Carillion and Grenfell

Back in 1989, J K Galbraith addressed newly graduated women students of Smith College, Massachusetts. He was advocating the pursuit of simple truth and warning of the dangers posed by ‘institutional truths’. They were not truths at all, but overarching lies which had to be bought into if an individual was to survive and prosper in a particular setting.

Neoclassical economics was perhaps one of the most elaborate systems of institutional truths yet invented. Generations of dedicated economists have bought into it and then added further intricate detail of depth and breadth of institutional truth to the ideology.

The neoclassical foundation was built on simplistic assumptions of homo economicus, profit maximising business and a complete disregard for observed reality as well as for any wider context such as social and ecological systems. It also excluded any consideration of values and for the long term impacts of economic decisions. The maths simply was unable to accommodate such fundamental factors.

The generation of neoliberals associated particularly with Chicago University and in particular, Milton Friedman, added final touches to the ideology which was grasped by the Reagan and Thatcher administrations and has maintained its stranglehold on Anglo-America ever since. Those final touches include commitment to minimised flat rate taxation, minimised state involvement in the economy, minimised market regulation and the conversion of profit maximising business – which at least allowed potentially beneficial allocations of maximised profit – to shareholder value maximising which denominated everything, not just profits, as the property of shareholders.

The many institutional truths, that is lies, on which those various tenets of neoliberal economics are based have been well covered elsewhere on this website. Minimised market regulation doesn’t lead to competitive markets benefitting customers, but to markets regulated by financialised monopolists for their own benefit. Minimised government for the people by the people, doesn’t lead to freedom for the people, but to government by organised money for organised money. Minimised flat rate taxation doesn’t reduce the tax burden on the mass of people but on the rich monopolists who lead the self-perpetuating organised money establishment.
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Murdoch’s Sky takeover: another small step to control by ‘organised money’

Murdoch’s Sky bid is thought now very likely to succeed, despite most probably being referred to the Competition and Markets Authority. The previous bid, which was frustrated by the phone hacking scandal, was noted (10.7.2011) on this site as follows: ‘The Murdochs are clearly prepared to be as ruthless and dishonest as it takes, in pursuit of their own self-interest. Their dishonesty, now being revealed daily, was confirmed early on …’ Harold Evans, editor of the Times when the Murdochs took over, had confirmed that every assurance of editorial independence made as a condition of the acquisition, had been broken within a year. Evans concluded the Murdochs would ‘promise anything to gain control’.

That posting continued ‘The Murdochs’ utter ruthlessness is also being demonstrated daily by the continuing revelations of criminal activity sanctioned in their organisation, and not least by the abrupt closure of the News Of The World with the destruction of around 200 jobs, in some vain attempt to rescue vestiges of public respect for the family.’

Having been thwarted on that occasion, they are now back again. They still do not look like ‘fit and proper persons’ to own media companies, but Culture secretary Karen Bradley, is prepared to let those bygones be bygones.
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Energy, Competition and Pretence

One of the most important challenges of management in the real world is how they can make their businesses truly competitive. Competition drives firms to be efficient and effective and to invest in technological innovation to provide improved ways of satisfying customer needs and wants. Such progress depends on the continuing ability to make sufficient profit to ensure survival in the short term and to invest for greater success in the long term. That is what real business is about.

Economists, such as Michael Porter, influenced generations of the leaders of finance, industry, the media, academia and politics, with their theories of competitive strategy, which were based on the not very profound equation that sales revenue minus cost equals profit. Therefore the way to maximise profit – which, for these theorists, is the whole purpose of business – is to have the lowest costs or highest prices.

The way to achieve the lowest costs is to have the biggest sales volume and therefore the greatest economies of scale. The way to achieve the highest prices is to make the product different in some way for which customers were prepared to the highest premium. So long as these processes are not interfered with by government regulators, then, according to the theory, the rules of perfect competition will apply and the consumer will be the ultimate beneficiary.

How does all this apply to the energy supply market?

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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. Continue reading The Importance of Competitive Markets

Transatlantic Trade and Investment Partnership Revisited

The TTIP is a series of trade negotiations, being carried out mostly in secret, between the EU and US apparatchiks, acting for Trans-National Corporations (TNCs), intended to reduce the regulatory barriers to trade on big business. The powers being negotiated include the sovereign powers of individual nations which might be used to protect entities involved in such as the provision of education and health.

Six widely expressed objections are:
1. It threatens privatisation of the NHS
2. It will impose laxer US food regulations on the EU, eg allowing GM foods in EU
3. It will impose London’s lax banking regulation on the rest
4. It threatens to reduce personal data privacy (eg Anti-Counterfeiting Trade Agreement – ACTA being brought back by the back door having been democratically rejected in EU)
5. It will cause job losses as lower US labour standards and trade union rights applied in EU
6. It is anti-democratic – the Investor State Dispute Settlement (ISDS) arrangements, which are part of TTIP, will enable TNCs to sue governments if their policies cause loss of profits.

With TTIP being negotiated in secret, people do not have the opportunity to debate and vote. Once implemented, it will be extremely difficult to undo.

But it is much worse than that.
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TTIP – Plutocratic Victory

The Friedmanite Neoclassical Economic Belief System (FNEBS) now dominates the developed and developing world. It is taught across the globe in business schools and universities. It is the orthodox wisdom among the Self-Perpetuating Industrial, Financial, Media, Academic and Political Establishment (SPIFMAPE).

The SPIFMAPE is the shadowy presence in our economy which has the real power and resources to ensure its continued dominance. It includes those Industrialists corrupted by the pursuit of wealth, Financiers who pay the £billions of fraud fines as the necessary entry fee, the Media controllers who shape the news to their advantage, Academics who accept ‘research’ income for conformist enquiry and teaching, and those Politicians nurtured within the SPIFMAPE, warmly accepting the FNEBS, otherwise referred to as in the ‘Westminster bubble’.

Those who know the FNEBS appear to really believe in it; and those who don’t know it, accept it as a truth. However, J K Galbraith identified such matters as ‘institutional truths’: that is not a truth at all, but a downright lie that people must buy into if their careers are to progress within their chosen institution.

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UK ‘Open for Business’

In this election campaign, much is being made of whether or not the main UK Parties are business friendly. The fire sale of British owned assets, euphemistically nominated as foreign direct investment, is held to indicate that the UK is ‘open for business’. Over the past 35 years, company after company and industry after industry has been sold off to foreign ownership. The same has been achieved with the sell-off of public assets, the latest example being Eurostar, and public services and utilities which have been privatised and in the majority of cases sold to foreign owned entities.

It all has nothing to do with being ‘open for business’. The political motivation is to achieve a short term (ie relating to the next election) economic gain, completely ignoring the long term costs. The short term stats appear to be all that matters, so they can be quoted ad nauseam in media interviews.

Being seen as business friendly is clearly conceived as being worth either a lot of votes or a lot of money. So Parties shrink from confronting or challenging in any way what they conceive of as “business”. They appear ‘intensely relaxed’ about business people getting ‘filthy rich’. They seem tolerant of tax fraud on a massive scale. They shrink from regulation of markets. They are in awe of the financial sector. They talk about support for the SME sector, but do little. It seems they simply do not understand what business is about. Why should they? They’ve none of them been near it except for photo-opportunities.
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