Blind faith is destroying British industry
Peter Mandelson, writing in the New Statesman (‘Mind the gap’,20.2.2012), expresses the problem for the UK left in one plaintive sentence: “We still have to have faith in the basic model of an open and competitive market.” Well, no we don’t! Misplaced faith in such broad generalisations is what got us into this mess and is still keeping us there. Mandelson sounds very like Transport Secretary Philip Hammond proclaiming his fervent belief in “free trade and open markets” when he announced the award of the £1.4billion Thameslink contract to Siemens, rather than to Derby’s Bombardier, UK’s last rail producer. Blind commitment to such generalised dogma has led us into all sorts of destruction from which it will be difficult to escape. German and French politicians aren’t so naïve. Nor, when push comes to shove, are the Americans – ask General Motors!
The combination of ‘open’ and ‘competitive’ is itself problematic. ‘Open’ suggests a minimum of control and regulation, but for a market to remain ‘competitive’ requires specific control and regulation. This is because the natural unregulated outcome of competitive markets is for the most successful competitor to become dominant. The natural outcome of competition is monopoly, and vice versa. Competitive markets used to be protected by the Office of Fair Trading (OFT) and the Competition Commission, acting to prevent the establishment of dominant market positions, for example, a merger or acquisition which would result in a market share of 20% or more warranted their consideration . The current legislation specifically allows the creation of dominant market positions. The only restrictions apply to the abuse of a dominant position, or the operation of a price fixing cartel.
Thus monopolistic positions are enthusiastically created through mergers and acquisitions, motivated by the share price movements involved which trigger the payment of enormous share bonuses. Of course, UK’s permissive governance regime is appreciated by the monopolists, market fixers and exploiters who come to London to ply their trade. Like Glencore’s acquisition of Xstrata. We know Glencore’s methods because they were well publicised in the Financial Times when Glencore floated on the London market last year (see http://www.gordonpearson.co.uk/28/glencore-and-their-ilk-are-screwing-the-world/ ). Their modes of doing business do not exclude the fixing of markets, the starting of rumours with the aim of making speculative gain at the expense of the starving millions, and the exploiting of their monopolistic position. But under the law as it is, it has become impossible to stop them taking over Xstrata so as to establish a stranglehold in a score or more international markets.
No one would expect them not to use it for their best advantage. What would be the point of building a dominant position if it was not intended to use it? In fact it is more or less impossible for a for-profit firm to have a dominant position and not to exploit it for gain, and under the currently dominant ideology that means shareholder gain. That was, of course, well understood when the OFT was established, and also when the competition law was relaxed. The only reason it was relaxed was to allow dominant positions to be developed so as to maximise shareholder value.
Mandelson’s simplistic faith in open and competitive markets, shared by all the current ‘madmen in authority, is the superficial trash that his destroyed so much of British industry. They seem to have a handle on broad generalisations, but nothing of any substance when you get down to the nuts and bolts. They see the alternative to open and competitive markets as an equally simplistic faith in protection which is obviously not a workable alternative. Some protections may be essential to the preservation of, for example, a working skill-base, as in rail production. Other protections are clearly not justifiable.
What is needed is a degree of understanding which seems to be beyond our politicians. The most effective policies are not founded on the basis of sweeping generalisations, as Messrs Lansley and Gove are finding out. Hopefully, Cameron and Clegg will also learn before it’s too late. It’s a lesson the left shouldn’t need to learn.