It's time to put a stop to shunting in the bus lane
City & Business
Sunday 06 August 1995
So when Brian Souter took out a series of full-page ads in the Scottish press in April, I was sceptical. Mr Souter is no Hollywood actor, but a former bus conductor turned accountant who heads Stagecoach, which has grown from nothing to be Britain's biggest bus operator. He is personally worth well over pounds 50m.
His grouse was an uncomplimentary BBC Scotland documentary about some of the company's anti-competitive practices. His ads lambasted the producer's methods as questionable, accused a former employee of bias and dismissed the programme as sensational and tabloid. He concluded piously: "The most offensive aspect of the programme was the attempt to imply that our business practices were inconsistent with our Christian faith."
The programme had every right to question Mr Souter's business practices. The Monopolies and Mergers Commission ruled last week that the company's behaviour was "predatory, deplorable and against the public interest". Strong stuff.
The MMC inquiry was into Stagecoach's operations in Darlington. The competition watchdog found that Stagecoach had acted to put a smaller, weaker rival out of business. It went on a recruitment drive to poach the rival's drivers, offering them pounds 1,000 bonuses to jump ship. It ran free services on its rival's routes. Sure enough, the rival went bust.
The funny thing about capitalism is that while it is generally good for the consumer that businessmen should strive to put each other out of business, it's usually bad for the consumer if they succeed. Ongoing battle means keen prices and good service. The end to war means higher prices and lower service as the victor basks in cushy monopoly.
Forget the friendly local image. The bus industry is a hotbed of anti- competitive behaviour. The Office of Fair Trading received 569 complaints about anti-competitive practices by bus companies between 1986 and 1994. It has carried out eight formal investigations. Fifteen cases have been referred to the MMC.
What is it about the bus industry that encourages the worst excesses of tooth and claw capitalism? The main reason is that bus companies find it hard to differentiate their services enough to influence customer choice. Passengers board the first bus that comes along, regardless of whether there might be a more comfortable or even cheaper bus along in a minute. Small, under-capitalised operators with old buses can successfully poach passengers from bigger rivals offering a comprehensive service with modern buses. The larger companies take the view that the only response is to put them out of business. By its very nature, bus operating encourages bad behaviour.
Does this matter? Yes. The British make five billion bus journeys each year. Many of the poorest people rely on a cheap, reliable bus service. And predatory behaviour in the short term often leads to congestion, pollution and sometimes compromised safety. In the long term it raises fares. Our inadequate competition rules do little to deter predation. Stagecoach, for example, is merely being asked to give undertakings not to engage in future predatory behaviour. This isn't enough. Culprits should be heavily fined. Even the bus operators' own association, the Confederation of Passenger Transport, wants fines brought in. And the industry needs a single, speedy, no-nonsense regulator. An "Ofbus" couldn't cost more or be more bureaucratic than the current set-up where four different organisations - the OFT, the MMC, the Department of Trade and Industry and the Traffic Commissioners - unsuccessfully try to curb the industry's excesses.
Too many sweets
EVERYONE is trying to claim credit for persuading Siemens to choose Tyneside for its new pounds 1.1bn microchip plant. It beat off challenges from Austria, Portugal and Eire to win the prestigious project, which will create 1,800 jobs in a region devastated by industrial decline. Much has been made of the grants offered by the Government. These include pounds 30m in direct assistance plus other unspecified sweeteners. Estimates of the total package range as high as pounds 200m.
Was this really necessary? Only Siemens can tell us for sure, and they are hardly likely to. But nowadays grant assistance comes way down the pecking order when multinationals make investment decisions. Quality and availability of the workforce is much more important. Low wage levels, good transport and infrastructure and minimum red tape all weigh more heavily than sweeteners.
Siemans would have chosen Tyneside long ago as its preferred site. Its manoeuvrings over the last few days have just been to wrest the highest possible grants from a government desperate to announce some good economic news.
It would be churlish to knock the Tyneside deal. But there remains the suspicion that taxpayers have unnecessarily lined the pockets of shareholders to secure a deal that was already secure. The sooner the world ends inward investment grants - the ultimate zero sum game - the better.
Jordan's ego trip
WESTINGHOUSE'S $5bn agreed bid for CBS has been overshadowed by Disney's moves on ABC. As we report on page 3, the Disney deal may or may not work out, but at least there is logic to it. By contrast, the Westinghouse deal looks driven wholly by ego.
The aim is to transform Westinghouse from a heavy industrial conglomerate into an entertainment group producing TV programmes and software. A radical change, and rather a costly and pointless one.
If Westinghouse's chief executive Michael Jordan wants to run a media group, surely it would be easier for him to seek a new job. If shareholders want to be TV proprietors surely it would be simpler for them to switch investments.
The transmogrification will be wonderful for corporate advisers, who will advise on asset disposals and acquisitions. It will be exciting for Mr Jordan. I can't see anyone else benefiting much.
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