INSIDE OUT: The pendulum has swung so far from the Thatcherite '80s that Corporate Man feels he can moan in public about too much competition

INSIDE OUT: The pendulum has swung so far from the Thatcherite '80s that Corporate Man feels he can moan in public about too much competition - In 1994, Gordon Brown had a characteristically elliptical phone conversation with Jack Cunningham, then the Lab

by ROBERT PESTON, editorial director, Quest (www.csquest.com)E-mail: rpeston@csquest.com.
Last Updated: 31 Aug 2010

In 1994, Gordon Brown had a characteristically elliptical phone conversation with Jack Cunningham, then the Labour front bench spokesman on trade and industry. Cunningham thought they were having a general chat about the merits of competition, but the shadow chancellor believed he was alerting Cunningham to an imminent and dramatic shift in the party's industrial policy.

A few days later, Brown nailed Labour's colours to the mast. The party that had for decades believed in giving state aid to ailing companies and in industrial interventionism to create national corporate champions had gone all liberal. From now on, the most important role for a future Labour government would be to prevent big companies from abusing their market power.

The most trivial aspect in this was that Cunningham believed he hadn't been consulted, whereas Brown felt he could prove he had kept Black Jack in the loop. So began years of miscommunication between Brown and his colleagues, which camouflaged his steady and inexorable accretion of responsibility for vast swathes of domestic policy-making.

Anyway, the politics of being in favour of competition were great for Labour. It was a natural extension of its abandonment of the party's commitment to nationalisation, reinforcing the break with old-style socialism.

Blair and Brown wanted to prove they were pro-business. They knew that no business person, however much they loved being a fat-cat monopolist, would dare say that competition was a bad thing. And since one clear benefit of competition is lower prices, Labour could claim to be on the consumer's side - which warmed the electorate's cockles.

There was an unseemly aspect to the populist side of all this. It gave respectability to Labour's public evisceration of British Gas's Cedric 'The Pig' Brown over his generous remuneration. But mostly it was good, honest politics and pretty good economics.

I say pretty good economics because economists have never been able to prove beyond doubt that competition leads to increased levels of productivity and therefore raises the growth potential of the economy.

There are many sensible reasons why it should be good for productivity. You would expect management in a competitive industry to assess potential investments in a more rigorous way and to be less wasteful, for fear of being driven to the wall by rivals.

But there are credible economists and politicians who believe that too much competition shortens the planning horizons of companies in a damaging way. Companies may be frightened away from valuable research and development or investment if returns from that expenditure will be long in coming.

I'm with those who favour competition that is red in tooth and claw. The economy with the toughest competition policy in the world, the US, is also the economy that has given us Microsoft, Oracle, GE, Cisco, and so on. As competitiveness guru Michael Porter has shown, the Japanese firms that have been most successful are those exposed to the most intense international competition.

Brown, too, is a bit of an Americanophile. So when Labour took office, he moved quickly to give additional resources to the Office of Fair Trading, to turn the Monopolies and Mergers Commission into the more powerful Competition Commission, and to introduce new fines for companies engaging in price-fixing and cartel-like behaviour.

Yet at times the Government has strayed from the straightest of pro-competition paths. And it is disappointing that it has had so little success in persuading the EU to press ahead with the liberalisation of energy markets. It's unfair that huge continental authorities, operating in protected domestic markets, can snaffle up UK rivals, but that there is almost no ability for the smaller yet more competitive British firms to acquire significant market positions in the eurozone.

In the UK, however, Brown's competition crusade goes on. After this year's election, the Government published a white paper proposing to toughen up competition laws, less than two years after the last Competition Act came into force. It recommended that consumer groups be able to bring actions against companies on behalf of consumers generally, rather than just harmed individuals, and that price-fixing executives should face imprisonment.

And guess what? The pendulum has swung so far from the Thatcherite '80s that Corporate Man now feels he can moan in public about too much competition. Recently, there was a complaint by the CBI about the latest competition reforms. Apparently, CEOs have so little faith in the judicial system that - although adamant they would never be guilty of price-fixing - they are terrified of miscarriages of justice that would see them behind bars.

The protests pose the first test of the competition agenda, since Blair hates it when big business squeals. We will soon know whether the Government's attachment to competition is deep-seated and genuine or pragmatic and cynical.

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