JIM COOMBS. Electricity and Banks.

Aug 18, 2017

A belief, without foundation, that “the market” is the best way to deliver any product, has our politicians gibbering, when the provision of Public Goods (see my previous article) is properly to be determined by the principle of universal access, not some illusion of competition providing it.

The current disaster that is the Commonwealth Bank is due, in part, to Paul Keating being persuaded by the then “new breed” of economists that selling off the Commonwealth Bank (then the largest savings institution in the world) and deregulating the banks would bring in an era of price competition between banks (the more the merrier, he seemed to suggest) which would make it all cheaper for consumers, and the discipline of the market place would keep the banks honest.  We lost a government-owned market leader, the number of banks did not increase, but shrank to a “big four” and a few littlies, who somehow (?) managed to charge the same fees more or less and guarantee themselves profits, and allowing CEOs to be given huge salaries  beyond their deserts, one used to say “beyond the wildest dreams of avarice”; but now , it seems  that’s OK.  Banks are very nearly the type of the Public Good, everyone needs them and access should therefore be equal to all, at the same price.  So what have we got?  Special deals for the rich, bad service for the rest, uncontrolled money-laundering for drug dealers and terrorists, and because they were just obeying the “laws of the market”, they seem to think that’s all right, then.  Have they lost sight of any moral principles at all?  Some of us older people remember banks being bastions of respectability, stability and community service.  Your local bank manager  was a trusted adviser.  Well, the unregulated oligopoly think only of profits for their shareholders and high incomes for their executives; or at least that is how it looks.

If we must have a market for banks, then it should be regulated.  Schemes that provide special deals for the rich should be outlawed.  Fees and charges should be subject to external regulation, no more of the “commercial in confidence” stuff, as it is clear that oligopolistic collusion is what the present not so free market delivers.  Paul Keating may have been told by fresh faced “neo-liberal (what that?)” economists in the Treasury that he was the best Treasurer Australia had ever had, but look what he gave us.  But, then, they told Billy McMahon the same thing.

The other, perhaps more obvious Public Good is Power.  A civilized society has to provide it to all equally.  It is instructive to note that around Sydney there are electricity sub-stations in the name of long gone companies.  These were of course nationalised so that energy would be available to all, not just those who paid the most.  The idea that a public good which is most efficiently produced by a natural monopoly should be privatised is simply reversing the process in favour of the rich.  To then divide it up into a number of supply (and generating) companies in the hope that competition would keep prices down, not only flies in the face of reason, but turns out to be factually not the case.  Ditto even more absurdly for telecommunications.  The number of new entrants into the market for internet and mobile phone services, with the uneconomic spectacle of duplication (and now threatened triplication) of the basic supply system, suggests that the price of delivering these services is way below what we pay.  So we now have the spectacle of the governments, state and federal, blaming “market forces” for their incapacity to deliver the public goods which are ultimately their responsibility.

The belief that surrendering to “market forces” relieves government of its responsibility to maintain the foundations of civilized life (water, sewerage, power, police and criminal justice, a fair and impartial court system, telecommunications, public transport, clean air, safe and secure aviation, a secure and safe land titles system, and so on, all of which must be based on universal access, not just the play of market forces, which inevitably favour the strong over the weak, the rich over the poor) is mistaken

. Those of us who have actually operated in the market, whether it be for fruit and veg, or legal services, know that very few markets are free or competitive.  As every entrepreneur (French for middle-man) knows, the way to profit lies in making the market slant in your favour and eliminate your competitors.  The most successful capitalist is a monopolist, someone who has  no competition.  If we must have capitalism (and so it seems), we should ensure that it is strictly regulated to provide for us all and not just the generators of capital and the manipulators of markets.

Jim Coombs is a retired magistrate and sometime economist and barrister.

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