It is often said – somewhat cynically, admittedly – that all businessboys are starting to get fidgety. But, says Roger Trapp, an end to cartels and the like has to be good news for Britain. favours a monopoly. But such a view – if it ever really existed – must surely be out of date by now.
Certainly, there has, over the years, been extensive legislation and litigation around the world aimed at outlawing such institutions. And, while Britain has traditionally had rather more faith than most in the effectiveness of market forces, the recent publication of the long-awaited Competition Bill suggests that here, too, the days of being able to rely on cosy agreements and dirty tricks to stay ahead are soon to be over.
Since the bill largely introduces to UK law what has long existed in continental Europe, it should not make a lot of difference to large companies with active operations in the European Union and further afield. They will already be attuned to the requirements and will no doubt have been running their operations accordingly. But to others less familiar with other countries’ ways of doing things, it will represent a sea change.
For the first time, the UK competition regime will have some bite to it.
If, as seems likely, the bill becomes law in anything like its present form, the Office of Fair Trading will have powers to fine companies up to a tenth of their turnover, raid premises and remove documents from companies suspected of operating cartels. Moreover, there will be a blanket ban on abuse of a dominant market position by large companies and consumers will have the right to claim for damages against companies engaging in anti-competitive behaviour.
All this amounts to a clear shift in the initiative away from the company to the authorities. Hitherto, knowing that the wheels of administration worked slowly and not always that effectively, a company could basically elect to take a calculated risk to either abuse a dominant position or enter into a cartel and so fix prices. It would, it could figure, either not be brought to book at all or, even if it were, the process would take so long that the damage to the consumer or less powerful company would already have been done.
Doubtful? Then consider this example of Stagecoach, the bus operator that has lately moved into running trains as well, in one of its many brushes with the competition authorities. In a district of Yorkshire, it took on the local municipal bus company by offering free transport and hiring the other company’s drivers with the lure of significantly higher wages. The Monopolies and Mergers Commission found the actions “deplorable”, but by this stage the municipal bus group had been destroyed.
It was also somewhat reminiscent of the saga of the ready-mixed concrete cartel, which dragged on for well over a decade. In the end, 17 companies were fined a total of #8m in 1995 for contempt of court in persisting with an arrangement after being told not to. But proceedings had first been brought against them 17 or 18 years before.
As Lord Borrie, former director general of the OFT, said: “It was apparent that secret cartels could operate for years to the detriment of business, private customers and the economy as a whole because the law was slow to operate, the investigative powers in the OFT were extremely limited and the sanctions were so mild as to constitute nil deterrent.”
As if this were not bad enough, the situation was made worse through the MMC being able to come up with findings that, in the view of certain practitioners, brought UK law into disrepute.
One of the most notorious examples of this was the investigation earlier this decade of the ice-cream industry, in particular the arrangements under which manufacturers equipped retailers with freezer cabinets. The matter had been a source of grievance to Mars for some time. It took legal claims and complaints to the competition authorities in a variety of jurisdictions accusing Unilever of abusing its position. Only in the UK – where the MMC conducted a lengthy investigation – did it fail to prove its case.
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Bringing UK law into line with the rest of Europe and closer to the regime in the US should help prevent a repeat of that episode, argue competition specialists.
Not surprisingly, perhaps, the Confederation of British Industry has criticised aspects of the proposed legislation as being “extreme” and draconian. But some of its members have been quick to see that being big would not necessarily stop you benefiting from the change in the law.
Lord MacLaurin, the suave chairman of the England and Wales Cricket Board, is not an obvious advocate for the poor and downtrodden, but in his more familiar guise, as former chairman of Tesco, he knows a thing or two about challenging branded goods companies’ determination to keep their products out of supermarket chains or at least require that they be sold at premium prices. The company has, for example, recently had a notorious run-in with the jeans manufacturer Levi-Strauss over just this matter.
In what, admittedly, looks a little like special pleading, he claims that “the right competition policy” can help the private sector take some of the burden away from the government when it comes to the task of trying to make society more equal. Pointing out that the more goods that were allowed to be sold by a diverse and large number of retailers – ie, presumably, supermarkets – “the more you will improve the quality and standard of living of the population as a whole”.
It is doubtful whether Lord Simon, the former BP chairman who is now competition minister, had social engineering of this sort in mind when framing the legislation. But it is certainly true that a tougher competition policy could do much to boost industry as a whole – through making it harder for established companies to keep new players out of their markets and so encouraging the generation of the new ideas that are crucial to Britain’s future.
Roger Trapp is management editor of the Independent and Independent on Sunday.