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Wednesday 9 July 2008

Gordon is right about one thing

Guess what? Gordon has done something right

He is spot on about anti-competitive practice in business

Brown might consort with businessmen for political reasons, but he is deeply suspicious, as well he should be, of their devotion to a competitive enterprise system. He believes that fellow-Kircaldian Adam Smith had it right when he wrote, ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’ Such conspiracies, he believes, are bad news for the British economy and for its society.

He is convinced that competition, at least in the private sector, performs an important function: by giving consumers a choice of suppliers, it forces producers to compete for their custom by offering higher quality goods and lower prices. This creates pressures to increase the efficiency of operations, raising the rate of growth the UK economy can achieve without triggering inflation, and is essential if British industry is to compete in an increasingly globalised world. As he put it at the time, he hoped to ‘achieve what I believe is now the prize within our grasp — US levels of productivity and thus long-term prosperity for all’.

Brown also is fully signed up to the proposition that if Britain is to prosper, it must encourage the sort of innovation culture that he has seen in action in the United States. So he wants to eliminate conspiracies by incumbent companies to prevent the emergence of new firms with new technologies and new ideas about how to do business.

Even more important to Brown than the economic consequences of a vigorously competitive regime are its social consequences. In an economy in which incumbent firms cannot create artificial barriers to entry, either by deploying their own market power or by colluding with others, fledgling entrepreneurs are likely to flourish. This is important not only to maintain a high rate of invention and innovation, but to increase social mobility, and ease the upward path of fledgling entrepreneurs.

For all of these reasons, Brown-as-Chancellor championed a new, vigorous competition regime. He became persuaded that fines, often paid by companies with shareholders’ funds, are an inadequate deterrent to anti-competitive behaviour. So he agreed to the criminalisation of cartel behaviour. It is one thing to pay a fine for agreeing with your competitors to take unfair advantage of consumers; it is a deterrent of an entirely different order to face time as a guest of Her Majesty.

More articles from: Irwin Stelzer | this section

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