Competition is King, or rather should be... We need to do more to enforce Competition.
I've just read John Clancy's brilliant blog on the mess-up that was the OFT challenge to unfair bank charges. If that wasn't enough for Britain's beleaguered competition authorities, this week BAA won its appeal - on a purely technical point - against the Competition Commission's ruling that BAA should be forced to sell off three airports.
Of course, the key cause of the huge market power that BAA still enjoys in its (alleged) dominance of the airport business in the UK goes right back to a botched privatisation that failed to inject sufficient competition into the market by breaking up the firm in the first place.
That privatisation (stemming from the 1986 Airports Act under Margaret Thatcher) arose because the government wished to maximise the proceeds from the privatisation by selling off a monopoly position intact and/or because it caved in to the demands of incumbent management at the time.
We need to remember that this was a general trend - and critical weakness - in Thatcher's privatisations; incumbent managers didn't want their lives made more difficult by having to get their hands dirty by actually having to compete. A key academic article by Kay and Thompson as far back as 1986 made exactly this point; the opposition of senior, incumbent managers was the real obstacle to promoting competition when sectors were privatised.
Agencies like the Competition Commission are still trying to pick up the pieces as a result. Indeed, the Commission spent a good two years and probably lots of taxpayers' cash in investigating BAA's firm grip on Britain's airports before deciding that BAA should be forced to sell off three airports.
That was, in my view, very much the right thing to do in trying to force more competition and to benefit the consumer. However, the Commission effectively messed up by being exposed to the accusation of possible bias. Make no mistake, this should never have happened, and does represents another high profile failing by the Commission.
But we do need to keep this failing in perspective against what was the right economic decision by the Commission. The latter was trying to enforce this against a powerful private firm which no doubt devoted considerable resources in an opportunistic legal bid to derail the decision.
What we need to remember is that separate ownership of London's three main airports (and in turn some competition between them hopefully) could well benefit the consumer by improving quality, reducing price and increasing capacity. That will all now have to wait until the tribunal decides what should happen next. It also means that Ferrovial (the Spanish owner of BAA) gets more time to sell off airports and will probably end up with a better price.
And meanwhile, BAA is not likely to invest any more than it needs to when it knows it will anyway sometime offload the assets, which in turn means that we as customers have to wait longer for service improvements at our crowded airports.
BAA has already sold off Gatwick. Although the firm said it wanted to make the disposal regardless of the outcome of the competition inquiry, it might still be able to argue that it was forced to sell off Gatwick quickly and received an inferior price as a result.
All this could have been avoided if the Commission had done its job properly. Of course, BAA's appeal was a technical exercise to slow the process down so as to increase its profits. I struggle to see how its behavior is in the public interest.
In fact, it looks like the Commission was caught out on a technicality, in that one of the six panel members looking at BAA's market position had also been acting a strategic adviser to the Greater Manchester Pension Fund. The latter joined a consortium bidding for Gatwick with Manchester Airports Group.
Nobody claims that this potential conflict actually affected the end decision. But the Competition Appeal Tribunal (CAT) accepted BAA's claim of an apparent bias, noting that: "there was a real possibility of bias affecting the deliberations, thinking and ultimate outcome of the investigation." The same panel member had been 'quarantined' from an earlier Competition Commission investigation.
It should be stressed that no fault should in any way be attached to Professor Peter Moizer, who is a Professor of Accounting and Dean of Leeds University Business School. He rightly declared his interest at the outset. Rather, officials at the Competition Commission will have to carry the can for permitting the appointment when it should have spotted the potential for problems to arise.
The case caps an 'annus horribilus' for the Competition Commission, following defeats by both Tesco and Barclays bank. Certainly it should have seen possible trouble ahead and lined up as strong a case as possible without exposing itself to the possibility for appeal on technical issues.
But, it needs to be remembered that for years the UK had some pretty ineffective competition authorities. These were rightly beefed up by Labour and the Commission is now trying to take on big private players with lots of resources which invest in defending their market positions. And in the BAA case the economic logic of the Commission 's argument is not being challenged.
So what will happen next? The tribunal didn't say whether the investigation into BAA's alleged monopoly will now be re-run, but this does now seem likely. That could mean another two years of investigation, at the end of which I would expect exactly the same decision.
I suggest that this is not necessary. Whilst there was the potential for bias, no one is actually suggesting the wrong decision was made. All we are actually doing here is feeding lawyers big fees to debate technicalities so that effective competition can be delayed to the benefit of BAA.
Assuming that the Commission doesn't appeal the decision, then there should be only two outcomes from this fiasco. Firstly, the Competition Commission should be quickly reviewed to make sure it has the proper legal skills and resources to properly line up its cases against monopolies.
Secondly, the Government should anyway pass legislation to break up BAA. That would be the ultimate demonstration to firms that the government will not put up with technical appeals designed to thwart otherwise sound economic judgements, and would probably avoid a lot of legalistic nonsense in the future.
Why have the pretence of a market without real competition? Competition should be King. At the end of the day there has to be the political leadership to take on firms with monopoly power. Does Labour have it?
Professor David Bailey works at Coventry University Business School.