My old friends and colleagues at the CMA could be forgiven for feeling bruised at the moment. They heard the government announce that their Chairman was being replaced. Voluntary redundancies are underway because of an historic budgeting error. And ministers suggest they worry the CMA is more of a blocker than an enabler of economic growth.
For public servants who are committed to their jobs, to the role of competition in driving growth, and to the independence of their decision-making, these developments are inevitably unsettling.
But I want to explain why I am more optimistic and why I think there is a path forward for the CMA here.
On the reasons for optimism, I was reassured to read Doug Gurr’s first op-ed as interim Chair. Although he thinks the CMA needs to do some things differently, this is not about a handbrake turn. Many of the changes he wants to see are already in train and their benefits will become more visible in the year ahead. He also made clear that he wants to work with – not against – the CMA’s leadership team, praising the great start made by Sarah Cardell. And he made no suggestion that he wants to interfere in individual case decisions that are supposed to be taken independently of the Chair.
On the path forward, I think there are steps the CMA can take to address ministers’ (legitimate) concerns, while protecting the institution’s operational independence and playing an important – I would say indispensable – role in promoting economic growth over the next few years.
The first step is not about whether the CMA’s decisions are too ‘tough’ but about how it interacts with businesses during the course of its cases (i.e. not just as part of its broader stakeholder engagement or its new Growth and Competitiveness Council). And this is one of the things that has struck me most since leaving the CMA for the private sector.
If you are an international company buying, say, a UK water supplier, you know you are going to have to deal with Ofwat. You have made a conscious decision, after an awful lot of thought, to take on UK regulatory risk. But for many international companies doing mergers, the UK may be a very small or non-existent part of the market and it may be no part whatsoever of the deal rationale. An unexpected CMA review may well be the only interaction the CEO has ever had with the British state, and they can sometimes find it more frustrating and adversarial than their experience in other countries. That is why Sarah Cardell was right to emphasise last year the “4Ps” of proportionality, predictability, process and pace.
Whatever decision the CMA reaches at the end of its review, I think it is entirely reasonable for ministers to want the company’s experience along the way to be a positive one. The CMA decision-makers should make the right final call, without fear or favour. But as they launch a case, make requests and answer queries, everyone involved, right down to the most junior case officer, should also see themselves as ambassadors for the UK.
The second step is more about the actual decisions that are made, particular in mergers and the Digital Markets Unit. In recent years the CMA has been willing to block international mergers that would otherwise have gone through if the decisions had been left only to the US and EU agencies and courts. The most notable examples were Sabre/Farelogix, Cargotec/Konecranes and Microsoft/Activision (round one).
The CMA is unusual in this respect. From Australia to Brazil, Canada to South Korea, there are sophisticated competition authorities who take a robust approach in their domestic markets but who are highly unlikely to try to block a global deal in which their country plays a very small part. Even the European Commission thinks very carefully before blocking a deal between two US companies. On an issue affecting multiple countries, the CMA needs to consider whether it is the most appropriate authority internationally to take action; and it should take close account of the position of other authorities looking at the same issue. And again, there is already evidence that the CMA recognises this.
If the CMA does these two things, it need not mean a rolling back of competition policy or enforcement more generally. Far from it. In his recent comments on regulation and growth, the Prime Minister invoked the spirit of Margaret Thatcher. And what was Mrs Thatcher’s approach to competition policy? Here is the account given by her Trade and Industry Secretary and close political supporter, Nicholas Ridley, of the policy they pursued in the 1980s (1):
A vital element in supply-side policies is to increase competition. Competition policy was progressively tightened. Competition was given a higher priority than company size. The concept of allowing large industrial companies to form so that they could become successful competitors on the world industrial scene was abandoned. What such companies actually did was to merge with all their domestic rivals, and then seek to exploit the British market from a monopolistic position. In theory international competition was available, but it was hard to mobilize it because political lobbying was employed to prevent an overseas company securing a major British order. ‘British jobs are at stake’ or ‘We cannot buy foreign-made defence equipment’ were telling pressures, especially when the order came from the Government or a nationalized industry. Most large companies did not prove themselves to be star performers on the world scene.
Ridley went on to talk about some individual merger cases:
The policy of maintaining as much domestic competition as possible was not always achieved. GEC (General Electric Company) and Siemens were eventually allowed by the Monopolies Commission to take over Plessey, and so was British Airways allowed to take over British Caledonian Airways. Both these decisions were wrong, in my view, but it was not possible for the Secretary of State at the time to go against the decisions of the Monopolies Commission whose job it was to arbitrate in such matters.
So a Thatcherite approach to competition policy is not a soft one.
If I look across the CMA’s work, it has a crucial part to play in driving growth – and it will do so by fulfilling its statutory duties, not downgrading them. In mergers, it looks at the companies’ incentives to invest and innovate. In enforcing against cartels, it protects the interests of fair-dealing businesses. In using its new consumer protection powers, it should give consumers greater confidence to buy. In its advocacy, it will give much-needed advice to government on how to ensure its industrial strategy is pro-competitive.
All of that is good for growth and it is core to the work of a competition and consumer authority. By focusing on the areas where it is best placed to act, and by behaving as ambassadors for the UK in the process, the CMA can deliver on its duties, protect its independent decision-making and make a real contribution to driving growth.
(1) Ridley, N., 1992. My Style of Government: The Thatcher Years. London: Fontana, pp. 55-5
