For sale on the Fourth of July

In 1776 the US was born, dedicated to `life, liberty and the pursuit of happiness'. By 1997, this has come to mean `deregulation', but, says Mary Dejevsky, Europeans should be wary of following them down this particular path
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The Independent Online
Say what you like about the free market, but it delivers: cheap housing, cheap food, cheap cars, cheap utilities, cheap services. Strip off the layers of state regulation, and all that liberated competition just beats down those prices for the benefit of you, me and everyone else. That is the picture of the United States, as consumer paradise, that American boasts are made of.

So successful is the US, according to conventional economic indicators, that its brand of deregulation took Britain by storm more than a decade ago (with a little help from Margaret Thatcher) and - if Brussels gets its way - is set to triumph across the rest of Europe.

Was it not in the cause of deregulation that the hapless Alain Juppe took on the French lorry drivers and the pilots of Air France? Was this not why Helmut Kohl risked the wrath of German steelworkers, and why both found themselves having to placate unhappy telecoms workers? Is the US not the shape of Europe's future?

Well, after three months as a "consumer" in the land of deregulated abundance - and one of the most die-hard opponents of old-model Communism you could expect to meet - my faith in American-style laissez-faire is being sorely tested. It is not that the United States economy is not booming - it is; nor that many consumer prices are not lower than they are in most European countries - they are.

It is rather that there are significant areas of activity where, despite ruthless competition, there is no benefit to consumers whatsoever. On the contrary, we are at the mercy of highly secretive and defensive businesses in which information is a deadly commercial weapon.

Consider the following:

For my first weeks in Washington, I needed a hotel while looking for a flat and I set off to examine the options. At the first hotel, no one seemed to understand my question, let alone be ready to give an answer. For all the help given, I might have been soliciting the Lubyanka for one of the KGB's precious pieces of intelligence. In a way, I was.

What I wanted was a commercial secret - the price of a room. Not immediately for an emergency booking, you understand, but to compare it with prices and facilities elsewhere. Oh European innocence! This is something the system is specifically designed to keep from all but the cognoscenti.

In almost every marble-clad reception area, someone smart-suited had to be fetched from an office far away - the "marketing manager". The counter staff had no access to such sensitive information; they might, at a stretch, know what a room would cost for that very night, but they were rarely trusted with more. Price depends on demand, real and anticipated. It varies not just from day to day, but from hour to hour, depending on when a magic bar is reached that triggers a rise. There is no "standard" price for the ordinary consumer without the clout of a group, nor the possibility of negotiation.

The system has some perverse results. At one hotel, the price for one week was actually more than the price of one day times seven. "That can't be right," said the "marketing manager" when I queried it, but it was - because the end of the week was going to be busy, so the prices had been jacked up.

Now pricing according to demand is an unimpeachable principle of the free market. But the drawback here is that you and I are not privy to the information we need to make a free choice. This is effectively classified, held in the deep recesses of the company computers. We have no opportunity to compare, nor even to judge the approximate price bracket we are in.

These practices, it is true, are the preserve of big-city chains. Smaller, privately run operations outside prime areas retain their charm and accessibility. But they are not in the big money stakes and it may be only a matter of time before many of them, like the few privately run high-street stores, are swallowed up by the big boys.

Something similar applies to hire cars. You can call around as many offices as you like; you may chance upon someone with a special offer, or you will not. Each operates the "bar" system, with rates that change from hour to hour according to market conditions.

The rate you were quoted at 9am for two days hence may be different from the one you are quoted at 11am when you have called three or four others to compare. As with hotel prices, you the consumer are excluded from a tightly closed commercial loop.

Which brings us to the iniquitous price of air travel in this consumer heaven. Do you remember when deregulation of the American skies was going to lead to low fares and higher quality to most destinations across the US - and the world. Well, it did - for a while, and optimists think that it may do again.

For the moment, though, it will cost you three times more to travel two- thirds of the way across the US (Washington to Albuquerque, New Mexico, or El Paso, Texas) than to travel from Washington or New York to London. Absurd though it seems, travelling from Washington to Boston via London may be a money-saver.

If you really have to use a domestic route, the only way to reduce the price is to book several weeks in advance, and not change your mind or requirements. A Saturday-night stay may bring the price down a little, but not significantly. We are again in the land of the magic computerised bar, where prices are adjusted to the market - except that no one sells off last-minute seats cheaply. Less than one week before the flight, it is full price or nothing on most routes.

Two factors have brought US air travellers to this pretty pass. The Valujet crash in the Florida Everglades made cheap flights by new no-frills companies suspect and boosted the more established companies. (The crash of TWA 800 off Long Island a year ago did not have the reverse effect.)

The other was a bout of route-consolidation among the bigger companies which has left many major routes with no competition. Where there is competition, prices may be 50 per cent less than on routes where there is none. But the number of those routes is still in decline.

Deregulation or no, affordable air travel is no longer a feature of American life. In Europe, where airline deregulation is gathering pace, the trend is the other way - but for how long?

A fair objection would be that hotels, cars and planes are the concerns of a minority, even in America's highly mobile society. Competition (and market size) have brought cars for the masses; competition (and vast space) have permitted cheap housing, compared with Europe. But consider the humble telephones. Even the most bargain-hungry of America's compulsive telephone- talkers are starting to grouse. The "downside of telecoms deregulation" is becoming to middle-class dinner tables what house prices or builders are to their British counterparts.

The complaints are legion: repeat calls, usually at dinner time, from companies wanting you to "switch" to them on the basis of a "special offer" for one or other service; clogged long-distance and toll-free lines because companies have expanded their number of customers without sufficient lines to cater for them; directory inquiry services sited thousands of miles from the locality whose numbers are being dispensed - leading to recurrent and improbable errors.

But the biggest complaints relate to the complex and confusing tariffs: it is virtually (deliberately) impossible to compare like with like, or even to obtain accurate information. Imagine the maze of mobile phone rates in the UK applied to your home telephone line, and you will glimpse the problem.

My attempts to persuade companies to fax me their rates failed at the first hurdle. "We can't fax." "But you are in the telecoms business." "Yes, but we can't do it from our computers." As with hotel chains, counter staff are not entrusted with this commercially sensitive information. You have to penetrate several layers further - and even they can't fax.

The awful prospect, however, is that the next stage of "deregulation" could make things even worse for consumers. The present telecoms chaos may leave gaping holes in customer service, but the cheapish tariffs for major trunk destinations are of some benefit. Now, a number of the companies that were privatised and divided are trying - like the airlines before them, and the privatised utility companies - to get back together.

Recent reports that the former monopoly and still largest US telephone company, AT&T, was planning to merge with SBC Communications to provide local and trunk phone services, for instance, aroused a mixed response: the tariff structure might become simpler and more open, but prices could rocket. My feelings on learning earlier this week that the deal was off were just as mixed. The two companies could not agree terms and were worried about regulatory approval. So the price war continues, but so does the chaos.

Since then, a US judge has prevented a merger between the two biggest US office supply companies, Staples and Office Depot, on competition grounds. But unconditional approval has been granted to the takeover by the giant aircraft company, Boeing, of the only other US aircraft manufacturer of any size, McDonnell Douglas - a merger which the European Commission is currently questioning on its own account.

Watching the consequences of deregulation American-style as a "consumer", I find it hard not to conclude that, while the early effects of competition are highly beneficial (the service in the still highly regulated US banking sector is considerably more expensive, less efficient and less consumer- friendly than in Britain), the advantages can soon wear off.

The pressure on companies to keep prices low and turn a profit can reduce service and quality. Low-paid junior staff - the ones who face the customer first - can be ill-informed, sullen and reluctant. Bigger companies, moreover, will use their market position to minimise the effects of competition. They track other people's prices in secret so as to raise their own to the maximum that this (artificial) market will bear. They strive - through buyouts, mergers, or restricted information - to gain as near a monopoly position as possible.

It is not true that the interests of big companies and small consumers are equally served by competition. The instinct of America's big companies, no less than that of Europe's state monopolies, is to stifle it. The market may rule, but without rules to foster continual competition, it seems to degenerate, sooner or later, into a dog-eats-dog struggle for survival.

Some years ago, a journalist travelled to the post-revolutionary Soviet Union and reported, famously, that he had seen the future and it worked. I hope I have not seen the future here in the United States - because it does not always work, at least not for you and me. Until then, anyway; best wishes for a Happy Fourth of July.