Outlook: These old City ways are an economic liability

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The Independent Online
THE PROVISIONAL set of proposals published this week by the Monopolies and Mergers Commission for tackling the City underwriting cartel has received an astonishingly mixed press (some of it downright hostile) for what, on the face of it, seems a considered and entirely reasonable response to a very clear and old-established abuse - that of fixed commissions for an usually exclusive group of City cronies.

Denise Kingsmill, the lawyer chairing the inquiry, must be wondering what she did to deserve the scorn being poured on her, especially since, in a rare display of glasnost, the MMC is breaking with precedent to publish its provisional findings so they can be properly debated publicly before a decision is made on whether to act.

Admittedly, the underwriting cartel is a problem largely in abeyance right now. In part this is because City practitioners have responded to the threat of action by reforming their ways, but it is mainly to do with the fact that there simply aren't many rights issues of size being launched these days. It may well be that even if they were to return in a big way - which doesn't look likely given the present trend among companies to redeem their capital - things have moved on and the old system would have broken down anyway. All the same, we can't rely on that happening.

No anti-competitive practice of this type deserves any kind of place in a modern free market economy. There are obviously much deeper and more important causes for Britain's post-war industrial decline than the City underwriting cartel, but it may have been a minor bit player in the sorry roll call of vested interest which has so severely stunted our economic progress. Certainly, the system has not generally been in the wider interests of the British economy and, by encouraging wasteful and inefficient allocation of capital, it is not entirely clear it has acted in the interests of big institutional investors either.

That these vaguely corrupt, cronyish, City ways should continue to find their supporters, not just among those who benefit from them, but in usually right-thinking politicians and commentators too, is indicative of just how much remains to be done in preparing the British economy for the 21st century. Outside the Chancellor's office, which seems to recognise the importance of these things, there is little evidence of the new Government pursuing reform with the vigour and urgency required. The Competition Bill is obviously an important advance on what went before, but the Government has pulled its punches on a range of issues (predatory pricing being just one), thereby wasting the opportunity for root and branch reform of competition policy.

The contrast with the United States Justice Department, which is turning on two of the country's most successful companies - Microsoft and Intel - in pursuit of its trust-busting traditions, could hardly be greater. Would the competition authorities here in Britain have acted with the decisiveness of yesterday's action by the US Justice Department to block Rupert Murdoch's sale of satellite capacity to cable TV operators? Now why does that seem so unlikely?

Repeatedly, the US has waged war on its dominant suppliers and cartels. It has broken up its monopolies and banished its price fixers. Meanwhile, the US economy has not only survived these onslaughts, but it has prospered and flourished. Might there not be the tiniest, weeny bit of a connection between these the two things?

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