It was a pleasure to take part in the recent symposium in Oxford chaired by Professor Ariel Ezrachi on the balance between competitiveness, growth, consumer welfare and other societal goals.
The event began with a keynote address by Andrew Tyrie, the former Chair of the CMA, and I was then part of a panel responding to him. This was followed by some fascinating panel discussions (for which I was in the audience rather than a participant) on competitive dynamics in retail markets.
In this post I want to focus on a theme that Andrew and I each explored in our contributions: what is the proper public-facing role for competition authorities and regulators? (The event was held under the Chatham House Rule so I won’t quote the rest of the participants, and where I quote directly from Andrew it is from his published remarks on the topic, mainly here, here and here.)
The growing legitimacy deficit
Andrew has argued that competition authorities face a “growing legitimacy deficit” and I think he is right about this.
Voters tend to be neither very interested in competition policy nor very much aware of the work of the competition authorities. The last time the UK government asked about it in a public attitudes survey, only 20 per cent of people were aware of the CMA.
The public’s elected representatives in Parliament do not take much of an interest in competition policy either. I can count on one hand the number of MPs and Peers who follow it closely. And insofar as there are political divides on the issue, they tend to run within parties rather than between them. On the left, there are some who would give competition a back seat to an active industrial policy, while others favour vigorous competition law enforcement to protect vulnerable consumers. On the right, there has often been a divide between those standing up for business and those wanting to open up markets to more competition, such as the “Khanservatives” in the US.
This combination – very few politicians being interested in competition policy, and those who are interested being at odds with colleagues in their own party – makes it hard for one political party on its own to push forward a competition policy agenda.
Plus, competition policy and enforcement have become much more technical in the past thirty years, with a greater focus on economic analysis and increasingly subject to complex and lengthy legal appeals. Even if politicians wanted to, this makes it harder for them to engage effectively in policy debate. It is much easier to leave it to the technocrats.
If you put all these things together, you can see why competition policy over the past few decades has been shaped more by the permanent bureaucracy than by the politicians, and this has been true in the EU and the US as well as the UK.
This does not mean that officials at DG COMP, the FTC, the DoJ or the CMA have operated entirely in a vacuum. But insofar as their work has been subject to external influence and scrutiny, this has come much more from the academic and business worlds than from Louise Weiss, Capitol Hill or Westminster.
And when politicians do get involved, it tends not to be as part of a broader discussion about the aims and practice of competition policy but about its application in a specific live and controversial case. For example, when I was at the CMA, each year when we published our Annual Plan we would write to the Business Select Committee offering to give evidence about our work and each time they would thank us but point out their agenda was currently very busy. Indeed, our Chair and Chief Executive went four years without appearing before the Committee – but as soon as the CMA prohibited Microsoft/Activision they were summoned at short notice to explain themselves. That level of political involvement provides suboptimal conditions for making good policy.
In response, some would say, “This is exactly why politicians should be kept out of competition policy and enforcement.” But I don’t think that is right. Competition policy cannot be left entirely to the technocrats.
First, as I have written elsewhere, the past few years have shown that the technocrats themselves disagree, sometimes forcefully, over whether competition is weakening, what has caused it, how worried we should be, and what the authorities should do about it. This means the job of enforcers is not merely to apply an agreed upon set of rules to individual cases. There are important policy judgments to be made about an agency’s enforcement stance and these judgments can change over time, sometimes abruptly. Even if these judgments are going to be made by the agency itself rather than by elected politicians, its leaders need to set out clearly the policy they are pursuing so that it can be properly understood by the businesses, consumer groups and other stakeholders that interact with it.
Second, the enforcement stance of an agency can have an impact on an elected government’s broader policy objectives. For example, the CMA’s State of Competition work has found that weak competition tends to hit the poorest households hardest because they tend to spend more of their income in some highly concentrated markets. This means an elected government committed to tackling inequality may well want its competition agency to take a tougher approach to enforcement, as the Biden administration did in the US. Another example is that today the UK government (at the very highest levels) is having to deal with unprecedented threats to the post-war alliance system, and one angle of this is the concern of the Trump administration that “American” firms are being regulated by foreign governments. In that context, it is impossible for the UK government to ignore the geopolitical implications of the CMA’s enforcement stance.
A common retort to this is that if wider public policy issues are raised by a CMA merger case, the government has the power to intervene under the Enterprise Act, either under one of the existing “public interest” grounds for intervention or by creating a new one, which it can do in a live case, as it did for example in Lloyds/HBOS. However, if ministers are going to start intervening more in individual merger cases, this will encourage exactly the kind of corporate lobbying that ministers, the CMA and competition lawyers all want to avoid.
A far better approach is that, where the government is concerned that enforcement could come into conflict with other aspects of government policy, it should give some overall policy direction to the CMA (as in the recently published Strategic Steer) and then leave it to the CMA to take its individual case decisions independently.
Competition authorities and the crisis of capitalism
In addition to the above, Andrew has also made a wider argument. He has referred to a “growing discontent about capitalism” and argued that the CMA can either be part of the problem or part of the solution. He thinks the CMA needs to “address public scepticism about the benefits of markets”.
I think this is a tougher task. It is one thing for the CMA to seek to strengthen its legitimacy with legislators and stakeholders. But for an unelected and little-known organisation to go further and seek to change the way the British public thinks about markets and capitalism is a far more ambitious undertaking and I think there are three reasons for caution.
My early career, before working in competition policy, was in political strategy and campaigns. I can tell you from bitter experience that getting the public to notice something and to change their minds about it is very difficult indeed. In a general election, the main political parties spend tens of millions of pounds on campaigns headed by some of the most recognisable faces in the country and, if they are lucky, they might shift voting intention figures by a few percentage points.
Research from the Reuters Institute at Oxford University suggests that people on average spend barely an hour a week following the news, and that most of them do not trust it anyway. The CMA could increase its communications budget tenfold and it would still be very poorly placed to effect a change in public attitudes.
But let’s say for a moment that the CMA manages to get the public’s attention and convinces them it is doing everything it can on the issues of most direct relevance to them. It is by no means clear that this would change how they think about capitalism.
There are widespread and heated academic and political debates about the extent to which people are disillusioned with markets and capitalism and about what has led to the growth of support for populist parties and protectionist policies. The kinds of themes explored are the respective roles of trade, technological change and immigration in depressing wages; issues of intergenerational equity around housing and pensions; and cultural divides between young and old and graduates and non-graduates. Competition policy is not wholly irrelevant to all these issues but it is, as Olivier Guersent has said, a “side dish”.
This leads to the third challenge, which is that it is quite dangerous for the legitimacy of competition authorities if they raise expectations which they are not then able to meet. For example, I worked for the energy regulator, Ofgem, at a time of rising energy prices and I learned very quickly that the public do not care whether the energy market is competitive. They care whether their bills are going up or down. If a regulator sets itself up as helping to keep prices down, and prices then go up because for example a power plant has gone down or a war has started, it does not matter what caveats you gave about your role. The nuance is likely to be lost on the public, who will assume that neither the market nor the regulator is working as it should.
What can be done?
Although I am sceptical about the ability of competition authorities to change public attitudes, and about the wisdom of trying, there are four areas where I agree with Andrew.
The first is on the need for greater clarity and accountability in how policy is made. There are important policy judgments and trade-offs in competition policy; and the democratic legitimacy of the regime requires an open conversation about which policy judgments are to be made, by whom and on what grounds. After a period of turbulence, I think the UK is beginning to moving in the right direction here, with a clearer strategic steer from government and more explanation from the CMA of how the steer is going to be applied.
Second, the overall policy stance then needs to influence which cases the CMA decides to launch. Andrew has made a fair criticism that historically the CMA’s case selection process was quite disconnected from its strategy-setting process. That has changed a lot in the past five years, and my sense is there is now a much more effective cross-office effort at identifying which consumer harms the CMA should seek to tackle; which of the CMA’s tools is/are likely to be most effective at tackling each harm; and which cases it should therefore launch.
A third area – and one that I think still needs to be resolved – is about how the CMA explains publicly its decisions on individual cases, especially those that are taken by independent Inquiry Groups rather than by the CMA Board or staff. When an Inquiry Group makes a decision on a Phase 2 merger, it does not have a mandate to make new CMA policy or to bind future Inquiry Groups, so in its announcement it sticks to the facts in the case before it and refuses to be drawn on what the decision may or may not mean for future mergers. But that is often the question that businesses and their advisers are most interested in. If the CMA cannot say whether, for example, the final report on Vodafone/Three or the updated interim report in GBT/CWT has any wider policy significance beyond that individual case, that is great news for people like me who can charge for our advice on the topic, but it is not so good for the regime as a whole. It is worth exploring what else can be done to explain whether individual case decisions have any broader policy significance.
Finally, the CMA has a particularly important outward-facing role through its campaigns, especially those aimed at businesses to encourage compliance with competition and consumer law. The CMA will never know precisely how much impact these had, because businesses do not tend to report that they were planning to engage in a cartel until the CMA warned them of the risks, and consumers will not be aware of the exploitative behaviour that they would otherwise have suffered if a business had not changed its practices. But even if the CMA never receives the thanks of a grateful nation for its compliance activity, and it doesn’t show up in the annual enforcement rankings, this is one of the most important ways in which it protects consumers.
