Competition chiefs must not bow to demands of mob

Regulator should focus on investigations that affect customers directly and use its powers sparingly

In a competition like the 100m sprint, there is only one winner. In the market economy, however, there are many. Businesses motivated by the bottom line have to provide quality products and services at a reasonable price to prosper.

No one is firing a starting gun, or holding a red ribbon for the company that sells the most products to burst through. Instead, firms must strive for continual improvement. Those that do will profit the most.

Yet economists and regulators often worry that markets will go awry. Though consumers benefit enormously from the competition, elected representatives and unelected regulators frequently assume that any market deviation from a model of perfect competition is a “failure” that requires intervention to fix.

These fixes often have unintended consequences. Wherever rent controls have been tried, they have caused more problems than they have solved.

In the market economy many imperfections and inefficiencies are slowly corrected by the actions of businesses and individuals within it. Regulators are not only at risk of blocking this, but also of being captured by vested interests that use official intervention to enrich themselves.

Yesterday it was announced that EX-BCG partner Marcus Bokkerink is the new preferred candidate to become chairman of the Competition and Markets Authority (CMA).

It will not be an easy role to assume. In January, the CMA’S chief executive Andrea Coscelli announced that he would step down amid frustration among ministers that he failed to take advantage of Brexit. The boss of the UK’S Open Banking unit, which falls under the CMA’S purview, quit last year after an independent investigation found that he oversaw a culture of bullying and intimidation.

Management is one issue, but the CMA’S policies have been little better. Under former chairman Lord Tyrie, who left in 2020, the body pursued a populist agenda that sought extensive powers to bypass courts to fine firms for what he viewed as bad behaviour.

It suffered a setback when the Government decided not to bring forward its plans for a Digital Markets Unit (DMU), which would have imposed a binding code of conduct on companies with “strategic market status”. Such a proposal would amount to handing bureaucrats control over, for instance, how Google designs its search results page. The Government is still pursuing the DMU; some merger proposals have been dropped but the ex-ante conduct regulation is planned “when parliamentary time allows”.

Because the CMA can notionally intervene in any market, unlike sector bodies such as Ofgem or Ofwat, it is the most powerful regulator by far. And while it has always had a consumer protection mandate, along with the Government it is increasingly taking the view that it should determine what market outcomes look like, rather than simply ensuring that the rules of the game are fair.

Consider this quote from Paul Scully, the consumer minister, after the regulator’s announcement of reforms to shield the public from rip-offs: “No longer will you visit a five-star-reviewed restaurant only to find a burnt lasagne.” How exactly would Scully or the CMA judge – or enforce – this?

In one sense, the CMA is merely responding to the mood music of the day. Politicians have barely concealed their hostility towards “big tech”, with Nadine Dorries, the Culture Secretary, steaming ahead with an Online Safety Bill that will damage competition and innovation.

Two thirds of young people now want a socialist economic system. Conversely, antitrust populists are arguing there is more to life than prices and that, while competition policy had until recently focused on consumer welfare, competitors should be considered, too. This is incoherent – competition must entail “harm” to rivals by any normal definition – but it makes for a neat soundbite for the opponents of big business.

Under its new chairman, the CMA should focus on investigations that will affect customers directly, and avoid creating speculative theories of harm. The current bout of inflation has underscored how important it is to focus on low prices and market efficiency, and to acknowledge that competitor welfare is often directly in tension with the welfare of consumers.

But most of all, it needs to be humble. Regulatory failure is often worse than market failure, because it lacks the built-in self-correction and discovery process that markets have. Its attention needs to be squarely on competition and the lower prices, greater innovation and improved service that this can deliver. The CMA should acknowledge that regulation is almost always a barrier to competition and innovation, and use its powers sparingly.

And it ought to realise that, while monopolies are the enemy of competition, the biggest ones are in the provision of public services such as health and education. Are these receiving adequate scrutiny? And how does government action, especially in relation to regulations such as land-use planning, impede competition? Ultimately, the CMA should rediscover its core mission, embrace raw competition, and in doing so perhaps help restore our faith in the free market.