The world according to the statistics fetishist
Wednesday 06 September 1995
Yet today's World Competitiveness Report is the kind of document that will get most economists hot under the collar; many would dismiss its rankings as utter nonsense. Certainly a lot of the assumptions used to draw up the rankings can be challenged. The report assumes that more even income distribution and bigger newspaper circulation make for greater competitiveness. Maybe, but there are dozens of contentious assumptions like these. For the train spotters, Britain fares badly on the former, coming 38th out of 49. On the latter it is high up the league.
Why bother to process and merge this mass of detail when there are some perfectly straightforward economic measures of competitiveness? Any of the productivity growth, comparative costs, direct overseas investment and export growth measures would give a clearer and more meaningful picture.
Paul Krugman, the controversial MIT economist, has an even deeper problem with the league table. He argues that the language of competitiveness misleads people into the belief that trade is a pitched battle with winners and losers - or, as an economist would put it, a zero-sum game. If newly industrialising countries are winning, the old guard must be losing. And if that is what they think, these countries are more likely to give in to pressures to subsidise national champions, protect declining industries and block imports. The expansion of international trade - the one completely unambiguous engine of economic growth - could be damaged if such pressures prevail.
There's no denying the basic pleasure in looking at a league table, or even the more exotic delights - for some - of the statistical detail. But competitiveness rankings should not be taken more seriously than that.
British Gas seizes a last chance to make hay
Another fine mess British Gas has got itself into, with its 10 per cent rise in servicing and repair charges. Politicians and consumer groups were yesterday back on the attack while in the City the controversy helped to revive rumours that Cedric Brown, the hapless chief executive, is about to be chopped by Richard Giordano, the chairman.
There is, however, rather more to the price rises than meets the eye. Servicing and repairs are not regulated like gas prices. This is a market that - unlike domestic gas supply - is already open to competition and in principle ought to be left alone, because consumers should be able to vote with their feet. British Gas itself was taking the line that with a market share of 25-30 per cent and 50,000 competitors, any customer who does not like the price rise has a free choice.
But nothing with British Gas is ever as straightforward as it sounds. The company bases its market share on the fact that it has service contracts for about 3 million of the country's 11 million central heating systems. It turns out, however, that little more than a third of the total - about 4 million systems - are serviced with regular contracts, so the company's actual market share of the business on offer is more like 75 per cent. Even if you include another couple of million homes that have informal rather than contractual service agreements with a local gas fitting firm, the market share is still about 50 per cent.
In theory, the price rise ought to be an opportunity for these competitors to grab a larger slice of the business. In practice, it will probably be nothing of the sort. British Gas is the only nationally known brand name, which gives it a great deal of muscle. Green Flag - formerly National Breakdown - the AA and a number of insurers are moving into the business, but they are at an early stage, and most competition is from small local and a few regional firms.
However, critics cannot have it both ways. A key reason British Gas has kept such a dominant market share is that it has underpriced. Charging economic rates is essential to encourage competition, which as it develops will curb prices far more effectively than any kind of regulation.
The domestic gas supply market will also open to competition from next year onwards. The real reason so many big brand names, including insurers, are suddenly taking an interest in entering the servicing business is the scope they see for teaming up with new gas suppliers to offer package deals. These price rises, opportunist as they are, could prove British Gas's last chance to make hay while the sun shines.
Deregulation key to fighting Murdoch
The BBC has just published one of the more helpful and constructive contributions to the debate on media concentration and how to regulate it - a collection of essays under the title The Cross Media Revolution; Ownership and Control. This is not without irony, for almost alone among British media companies, the BBC is barred from participating in large parts of the revolution going on before its eyes. As the world changes about it, the BBC must stand on the sidelines, its revenue base predetermined by a licence fee that becomes harder to defend as its ability to compete diminishes.
While the BBC must cope as best it can, the rest of the world moves on. What rules, if any, should limit further concentration among commercial players in this industry? The Government has already taken a stab at it, but as its own white paper admitted, this doesn't constitute a long term solution.
All the writers in the BBC pamphlet back some form of regulation; plainly there have to be safeguards to guarantee fair and equal access to technologies and means of distribution. But beyond that the case for limiting Britain's budding media tycoons looks more questionable. Artificial rules to protect plurality of content look increasingly unnecessary provided open access is protected.
Equally, rules to prevent the big daddy of the British media, Rupert Murdoch, from further advancing his position - other than normal competition and merger law - seem a lost cause, even if politicians had the guts to implement them. When it comes to regulation, Mr Murdoch is a master at the art of circumvention. Yet something plainly needs to be done. At his present rate of progress it will take him less than 10 years to match in British TV the monopoly he already has in the national press.
He took big risks getting himself into this position and there is a case that he should be allowed to enjoy the rewards. If there is to be a convincing challenge to Mr Murdoch, therefore, it needs to be a commercial one. And for an adequate commercial challenge to be mounted, Britain's other media companies need a freer reign than they are getting. Less regulation, not more, is the way to guard against growth of monopoly power.
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