There was quite a lot for UK competition nerds to enjoy at yesterday’s BVCA summit.
Sarah Cardell said some things which, on the face of it, sound quite unusual coming from a CMA chief executive. Before this year, I think the CMA would have been very unlikely to use the language below in public:
Consolidation between competitors (which is where most competition concerns arise) can, in theory, help firms achieve the scale to compete globally. And that scale might unlock benefits for the UK: growth and investment, enhanced strategic resilience, stronger global influence.
Nor would the CMA have invited the investment community to discuss the following question:
“what role might domestic consolidation play in supporting UK scale-ups to hold strategic positions in global markets, and how should this be considered within the UK merger regime?”
That kind of language would have been thought to be just too big an invitation to merging parties and their lobbyists.
So does the change suggest that those who predicted the end of UK merger control have been proved right?
In a word, no. I think what is going on here is quite different.
There are two benefits for the CMA in starting this dialogue.
First, there needs to be a much better and more evidence-based policy debate on the relationship between competition and investment. Until now, as Sarah said, it has been too binary. CMA speeches would imply that more competition always spurs more investment while merging parties would imply that tougher enforcement always deters it. In reality, of course, neither of those extremes is true. Policymakers need a better understanding of where the trade-offs really are; and businesses need a better understanding of what the CMA’s developing thinking is. The research being published by the CMA’s microeconomic unit later today and the ongoing programme of engagement which the CMA announced yesterday are intended to contribute to this.
Second, the CMA knows that for all its efforts to align with the UK government’s growth and investment agenda, it will still have to take the occasional decision that is very unpopular with the companies involved. And it knows that when this happens it will face allegations that is anti-business. What can the CMA do to help protect itself from that criticism?
In a democratic society, even independent regulators need to preserve their stock of political capital over time. They can build up this stock of political capital by doing things within their mandate that help achieve the government’s objectives, and then can then draw down on that stock when they need to do something in support of their mandate that is more politically controversial. As I wrote previously. “this does not mean that controversies never arise, but that they do not do so routinely. One reason we still talk about the prohibition of Siemens/Alstom six years later is that there has not been a comparable case since then. An independent competition authority can survive periodic controversies if it then has long periods of stability in which to build its democratic legitimacy and its reputation. But what it cannot survive is being routinely the subject of political controversy…”
The more that the CMA can show it is not reflexively anti-business – and that it is doing all it can within its mandate to help the government to deliver on its growth and investment agenda – the greater the chance it will be given the benefit of the doubt when it has to make an unpopular decision.
If that is the strategy, how likely is to be successful?
It is still early days but there was one positive sign for the CMA yesterday. Rachel Reeves also took part in the BVCA summit and she said, “I personally feel that since that happened in January [i.e. the replacement of the Chairman] there’s been a massive step change in the CMA.”
She went on to say, “Previously businesses, all the time – especially in tech – had been raising concerns about the CMA. That has changed a lot.”
That would suggest that the strategy Sarah Cardell set out in her Chatham House speech last year, and the package of changes that she and Doug Gurr announced in February, is at least beginning to pay dividends.
