Market failure exists when the competitive outcome of markets is not
efficient from the point of view of the economy as a whole. This is
usually because the benefits that the market confers on individuals or
firms carrying out a particular activity diverge from the benefits to
society as a whole.
With Sainsbury's already closing on its prey and Asda prowling, Felicity Lawrence was surely right to oppose the sell-off of Safeway (Not worth a hill
of beans, January 13). She argued that if the consolidation of the
supermarket sector continues, this will be evidence of market failure.
We need to be clear that there is a policy choice here about what we
mean by a market. Are markets local? Regional? National? European?
Global? Market share depends on the boundaries. With the gradual
definition of markets as European, with powers wielded more strictly by
the EU than our own government, the growing concentration is soothed
away. Fear not, this view of economics tells consumers, you can always
turn to Aldi or Carrefour. This is years away from the view of markets
espoused by Adam Smith or David Riccardo. Food shoppers are rapidly
being locked into the fiefdoms of particular food barons.
We have passed a threshold by allowing Tesco to take more than 25%
market share. This used to be a trigger for monopoly investigation. The
good news is that opposition to untrammelled retail power is growing,
not just on economic grounds but on social and health grounds,
concerning access to shops, reliance on cars, framing of civic life, the
malling of urban space. Public discourse on this is essential; people
are beginning to feel trapped (if only in their cars in the jams en
route). The advantages brought by supermarkets when they took on food
manufacturer power back in the 1960s have maybe peaked. It might be time
to plan their demise in turn.
The issue for public policy is what can be done?
First, the
competition commission needs to be given social criteria not just
narrowly defined economic criteria by which to judge the public
interest.
Second, we need to reintroduce more local criteria for
defining a market.
Third, those outside government need to treat this as
a vitally important public test of what sort of market economy this
government wants: a real market economy (remember markets?) or a
hypermarket economy?
Fourth, we need to re-empower the planning process
to put transport congestion at the top of retail viability.
Fifth,
we all need to support local shops and make the connection between
quality of life and paying more. Sixth, there needs to be more creative
campaigning by consumer, environment and health organisations; they need
to employ competition lawyers and enter the "foreign" territory of
competition policy and create a citizens' agenda.
Read more
