Would Corporations control World’s Opinions?

 

Perspectives on North Indian Agriculture

 

Economics for Non Economists 1: What is a free market economy?

by Girish Menon

Suma, you have asked a really fundamental question and I will try to answer it in two parts viz;

-         What is a market economy?

And

-         What does free mean in the context of free market economy?

So let’s start with the first aspect – What is a market economy?

The activity of buying or selling a good is called a market transaction or a market activity. Thus a market is a set of arrangements where goods are exchanged for money.

Today most countries in the world adopt the market model for the production and consumption of goods and services. They believe in the Adam Smith quote, ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.’

Google Dictionary defines self interest (own interest) as ‘one's personal interest or advantage, especially when pursued without regard for others.’ Some economics texts assume that the self interest of a goods producer is to earn profits whereas the self interest of a consumer is to maximise her happiness by paying for goods she requires.

Adam Smith’s theory expects citizens in an economy to be both producers and consumers of goods. As a producer you are expected to generate a profit from your toils. You, as a consumer, are expected to use the profits to buy other goods to live your life.

Based on the above logic, market theory predicts that if all the citizens of an economy are left to pursue their self interest then it will result in the automatic production of all goods and services that citizens require in order to be happy.

Though Adam Smith preferred the word ‘invisible hand’, I have used the term automatic. Google dictionary defines automatic as ‘working by itself with little or no direct human control’. In other words producers make and sell goods which they think will be demanded and hope to profit from it. There is no authority other than their anticipation of consumer needs that guide their decision to produce and sell goods. Similarly, consumers pay for a good because they think it will make them happier and there is nobody telling them what to buy and consume.

Thus, a market economy would be an economy where the production and consumption of all/most goods and services is determined by the self interest of its producers and consumers. This system is also known as capitalism.

 ----

So, what is a free market economy?

These days it’s not only the UK, USA etc. but many other countries who call themselves free market economies. But are they truly free market economies where the production and consumption of all goods are determined automatically with its citizens unabashedly following their self interest?

I notice that you seem to be shaking your head. Especially in this Covid climate you will have noticed the role that the UK government has played in your life and the way it has affected your pursuit of self interest and happiness. So what I will now do is list the conditions necessary for Adam Smith’s theory of the invisible hand to work:

1. There are many buyers for a good in the market and no buyer is large enough to get a discount on the price.
2. There are many small sellers of a good in the market and no seller is large enough to set its own price.
3. The goods produced and consumed are identical or homogeneous. In other words a consumer cannot recognise the producer of the good.
4. There must be freedom of entry to the market – or no barriers that prevent a potential producer from entering the market.
5. There must be freedom of exit from a market – if a producer wishes to quit a market then s/he should be able to do so freely and without any sunk costs.
6. There must be perfect knowledge. Producers must have full knowledge of the technologies used by its rivals and consumer preferences. Consumers must be aware of the short and long term benefits and costs from consuming a good.
7. The factors of production must be mobile. It means that the land, workers, machines used for producing a good should be easily redeployed to producing any other good when demand changes,
8. There must be no transport costs.
9. There must be independence in decision making. No external forces affect the decision making ability of producers and sellers.
10. No externalities. The act of production and consumption based on self interest should not result in benefits or costs to third parties.

I am sure that after you have read the above conditions you will agree that neither the UK economy nor for that matter the Indian economy is anywhere close to being a free market economy. I don't think there is a single economy in the whole world that satisfies most of the conditions of a free market.

I will now let Ha Joon Chang have the final word on free markets:

“The free market (economy) does not exist. Every market has some rules and boundaries (by governments) that restrict freedom of choice. A market looks free only because we so unconditionally accept its underlying restrictions that we fail to see them. How ‘free’ a market is cannot be objectively defined. It is a political definition. The usual claim by free market economists that they are trying to defend the market from politically motivated interference by the government is false. Government is always involved and those free-marketeers are as politically motivated as anyone. Overcoming the myth that there is such a thing as an objectively defined ‘free market’ is the first step towards understanding capitalism.’

@@@@@

• When I presented this article to Suma she said, 'Girish, you have not understood my question. I meant where can I find the free goods that should by definition be there in a free market?' 

Why Sabarimala is surprising even Kerala, and why it is an opportunity

With all the claims of literacy, good healthcare system and the resultant general progressiveness of Kerala, it largely seemed like a reasonable expectation that women would just start going to the Sabarimala temple writes N P Ashley in The Indian Express

I find surprised, and even flabbergasted, Malayalis and non-Malayalis around me on the Sabarimala issue.

Even though a lot of people had reservations about the Supreme Court verdict which lifted the ban on women of menstrual ages from entering the Sabarimala temple, it was largely expected that, like the famous declaration of the Temple Entry Proclamation which allowed the lower caste groups temple entry in Kerala in 1936, women would just start going to the temple by and by. With all the claims of literacy, good healthcare system and the resultant general progressiveness of Kerala, it largely seemed like a reasonable expectation.

But events unfurled in quite a different way: the televised break down of law and order in the area, the rule of fear and insecurity that hovers around the state on this issue and the unending high-voltage discussions on mass and social media gave a sense of a state at siege. Though all parties are oath-bound and duty-bound to endorse the Constitution of India, and even when most parties at the national level have taken the official national position that there should be no ban on women only because of they are of the menstruating age (this includes the RSS and the Congress), their state leadership got so scared of the sentiments of their supporters and decided to resist the implementation of the court order through campaigns or even physically. The attempts have been so successful that not a single woman of the age between 10 and 50 have entered the inner sanctum of the temple to this day.

 

Women devotees at Sabarimala.

The typicality of Sabarimala

Three aspects of Kerala society throw light on the typicality of the developments: one, Kerala is a hyper consumerist, middle class society in which party supporters behave like consumers with a sense of entitlement. Politicians are only capable of giving what these supporters like and want. This should explain how the state committees of national parties have decided to take a position contradicting their national leadership. Two, though Kerala somersaulted into a global economy in 1970s itself, its values are completely feudal: a huge house, marrying off a daughter in all pomp and glory, and strict allegiance to family, community or party are still cherished.

The cocktail of feudal values and capitalist life-conditions provides the third aspect of the Kerala society: misogyny. Sabarimala is only one of the spaces in Kerala where women have no entry. Public spaces are largely inaccessible to unaccompanied women after nightfall, places of worship, festival venues and grounds are male homosocial havens, mass media and entertainment industries revolve around a handful of male icons, in many households women continue to belong to the kitchen and drawing rooms are still men’s, and lastly and most importantly, political and cultural discussions are held by men, of men and for men (even feminism is just another discussion topic for men!). In short, Kerala’s public sphere is saturated with male bodies and their understanding of the world.

This is not to belittle the amazing movements of the women in the last 30 years for the rights to body, property, work, dignity and presence. But the subcultural space of male bonding has defined itself against all such naming them to be feminist. The all too existing possibility that “feminist” in itself can be used as an allegation, like “terrorist” or “Maoist” in today’s Kerala should tell us something about contemporary Kerala. This becomes all the more revealing when compared with the moral ground that North Indian feminists have won against patriarchy on the ground, creating a new common sense, making it impossible even for the majoritarian right to oppose the Supreme Court verdicts on decriminalising homosexuality and lifting the ban on women to enter Sabarimala.

This is nothing new: though women’s rights were a crucial concern for the social justice project on caste reformation and economic restructuring called Kerala Renaissance (beginning in the early 20th century), men limited their participation to the level of ideas without extending it to bodies and spaces. Women continued to be in-charge of households, preparing children for a male chauvinist society and men continued to talk about things political and social. These women and their domestic spaces were addressed only by two entities: the religious organisations and by television serials (both were designed and developed by men again). Other than making fun of them and treating these as innocuous, men never had interrogations about the exclusivity of the spaces they held. Family WhatsApp groups seem to mould these sensibilities into community stories of victimhood and fear mongering. This blackhole of the Kerala public sphere must be acknowledged in the contemporary developments.

 

Kerala Renaissance: Archaic, Aestheticised or Unfinished?

Sabarimala women’s temple entry issue largely has four categories of people involved: Violent Ritualists (mostly male) who oppose women’s temple entry and believe that women who dare should be stopped using violence and terror, Anti-Violence Ritualists who oppose women’s temple entry but believe that use of violence and abuse by vigilante groups is unacceptable, Constitutionalists who believe that the verdict is, to borrow Gandhi’s words on the Temple Entry proclamation for the lower caste groups, one written in golden letters upholding constitutional morality and must be implemented by getting rid of the violent men at any cost, and Institutionalists who believe that though the judgment could have as well not come at all, now that it has, there is a need to respect the judgment and implement it, slowly and strategically.

All these groups seem equally lost about something or the other: Ritualists don’t know till how long they can hold the fort (every party has people who make contradictory statements is a good sign of it), Constitutionalists have not come up with any practical solution to the law and order troubles that might come up with what has now been construed as the “event of that single woman’s temple entry” (One of the questions they should consider answering is how did this “social vacuum” around Constitutional values come about!) and Institutionalists seem to be rather half-hearted about any actual step by any woman to enter the temple.

Among the four, the first, the Violent Ritualists, given how anti-social their acts have been merit no discussions. They need to be removed from the space and booked, along with their political patrons in the media and elsewhere, for their acts. The Anti-Violence Ritualists, Constitutionalists and Institutionalists can, and I believe they need to, hold conversations.

What would be the reference point of such conversations? Many are resorting to idealisation of the Kerala Renaissance which I find problematic in a discussion about women’s bodies for its very exclusive history on that front. Post 1970s Kerala has been such a different space that much of this rhetoric ring no bell with the life-realities of Malayalis now- as future cannot be in some past and nostalgia for it, it is unlikely to take anybody forward. Reviving any kind of golden past in itself is a regressive position.

Secondly, Kerala Renaissance has been made into an empty symbol to such a point that all sides are actually using the same images. The constitutionalists and institutionalists are constantly reminding people of the dark ages before the Kerala Renaissance while the Ritualists have used the photos of the Renaissance leaders on their “rath yathra” vehicle, and thus making them null entities politically.

The only useful and viable option is to see Kerala Renaissance as an unfinished project: one that talked of social justice for the backward castes like ezhavas while abandoning dalits and adivasis, one that spoke of women but never let them speak and one that believed in freedom from feudalism but without ever being able to come out of feudal values. Kerala Renaissance surely has, in it, a moment and a spirit that is ethical, inclusive and brave that can be captured but it cannot be a destination.

For this act of completion, let women sit together and come up with ethical, practical and effective solutions which are capable of redefining the very social values of the Malayali society. For once, men need to listen and just listen for the saturation they have caused is itself a huge part of the problem.

The underbelly of the state has come out right in the open, while the symptoms have always been there. Now this is an opportunity: let there be new thoughts, new imagery, new set of bodies from the receiving end changing the very paradigm towards a more egalitarian and more inclusive tomorrow. Kerala needs more and Malayalis deserve better!

TTIP leak could it spell the end of controversial trade deal?

Andrew Griffin in The Independent

Hundreds of leaked pages from the controversial Transatlantic Trade and Investment Partnership (TTIP) show that the deal could be about to collapse, according to campaigners.

The huge leak – which gives the first full insight into the negotiations – shows that the relationship between Europe and the US are weaker than had been thought and that major divisions remain on some of the agreement’s most central provisions.

The talks have been held almost entirely in secret, and most information that is known in public has come out from unofficial leaks. But the new pages, leaked by Greenpeace, represent the first major look at how the highly confidential talks are progressing.

They indicate that the US is looking strongly to change regulation in Europe to lessen the protections on the environment, consumer rights and other positions that the EU affords to its citizens. Representatives for each side appear to have found that they have run into “irreconcilable” differences that could undermine the signing of the landmark and highly controversial trade deal, campaigners say.

For instance, the papers show that the US is looking to weaken the EU’s “precautionary principle” that governs how potentially harmful products are sold, Greenpeace says. The US has much weaker regulation that aims to minimise rather than avoid risks, and that same less strict regime could come to the UK and Europe under the deal.

If the EU made further changes to similar regulations, it would have to inform the US and corporations based there, according to the documents. American companies would then be able to have the same input into EU regulation as European ones do.

There are also notable missing parts of the agreement. None of the texts includes any reference to the global effort to cut CO2 emissions agreed in Paris last year, according to Greenpeace, despite a commitment from the European Commission that it would make environmental sustainability a key part of any deal.

Those who support TTIP argue that it represents an important step that will allow the US and EU to work together more closely and that it will support business in both regions. But parts of the deal and the secrecy that surrounds it have led campaigners to argue that it could include dangerous changes to the consumer protections that are guaranteed by the EU.

UK Parliament 'would not be able to stop NHS sell-off under TTIP'

Poverty, environmental and other campaigners have claimed that the new leak could be enough to undermine those already controversial talks.

"The TTIP negotiations will never survive this leak,” said John Hilary, the executive director of War on Want. “The only way that the European Commission has managed to keep the negotiations going so far is through complete secrecy as to the actual details of the deal under negotiation. Now we can see the details for ourselves, and they are truly shocking. This is surely the beginning of the end for this much hated deal."

Other campaigners criticised the fact that the only public information that has emerged about TTIP has come from leaks.

“TTIP is being cooked up behind closed doors because when ordinary people find out about the threat it poses to democracy and consumer protections, they are of course opposed to it,” said Guy Taylor, trade campaigner at Global Justice Now. “It’s no secret that the negotiations have been on increasingly shaky ground. Millions of people across Europe have signed petitions against TTIP, and hundreds of thousands have taken to the streets to call for an end to the negotiations. These leaks should be seen as another nail in the coffin of a toxic trade deal that corporate power is unsuccessfully trying to impose on ordinary people and our democracies.”

Right to 30-day refund becomes law

Brian Milligan in BBC News


New consumer protection measures - including longer refund rights - have come into force under the Consumer Rights Act.

For the first time anyone who buys faulty goods will be entitled to a full refund for up to 30 days after the purchase.

Previously consumers were only entitled to refunds for a "reasonable time".

There will also be new protection for people who buy digital content, such as ebooks or online films and music.

They will be entitled to a full refund, or a replacement, if the goods are faulty.

The Act also covers second-hand goods, when bought through a retailer.

People buying services - like a garage repair or a haircut - will also have stronger rights.

Under the new Act, providers who do not carry out the work with reasonable care, as agreed with the consumer, will be obliged to put things right.

Or they may have to give some money back.

'Fit for purpose'

"The new laws coming in today should make it easier for people to understand and use their rights, regardless of what goods or services they buy," said Gillian Guy the chief executive of Citizens Advice.

When disputes occur, consumers will now be able to take their complaints to certified Alternative Dispute Resolution (ADR) providers, a cheaper route than going through the courts.

The Consumer Rights Act says that goods 

- must be of satisfactory quality, based on what a reasonable person would expect, taking into account the price 

- must be fit for purpose. If the consumer has a particular purpose in mind, he or she should make that clear

- must meet the expectations of the consumer

The Act has been welcomed by many consumer rights groups and further information can be found here.

"Now, if you buy a product - whether physical or digital - and discover a fault within 30 days you'll be entitled to a full refund," said Hannah Maundrell, the editor of money.co.uk. "The party really is over for retailers that try to argue the point."

The Act also enacts a legal change that will enable British courts to hear US-style class action lawsuits, where one or several people can sue on behalf of a much larger group.

It will make it far easier for groups of consumers or small businesses to seek compensation from firms that have fixed prices and formed cartels.

Christmas is a face-off between people who are spiritual and people who are consumerist

How do you formulate an anti-consumerist worldview that doesn’t involve becoming a killjoy?

• 
• • Zoe Williams
  • theguardian.com, Tuesday 23 December 2014 11.22 GMT

'It isn’t my kids' spiritual wellbeing I’m worried about. It’s the volume of plastic tat I have to throw out every year, to make way for the next tranche of plastic tat.' Photograph: Paul Hackett/Reuters

Christmas is a face-off between people who are spiritual and people who are consumerist. The consumerists never call themselves that, they’re just really keen to let you know that they don’t believe in God. The spiritual ones never call themselves spiritual, they are just very anti-consumerist. It’s the dialectic method of identity building: I hate crackers and piped music, ergo I am deep; I hate superstition and unprovable things, ergo I am fun. It’s like a zero-sum game in which the shops helpfully give the spiritualists something to kick against, and the churches, especially with their midnight shenanigans, give the consumerists something to laugh at.

Unfortunately, it doesn’t leave you much room for manoeuvre if you are both anti-consumerist and an atheist. Pretty much everything you say will deliver you into the hands of the wrong ally. Up until now, I have always just succumbed to one side, in order to avoid getting crushed by the competing plates. Between about 1983 and 2013, assuming myself – on the final throw of the dice – to be more of an atheist than an anti-consumerist, I swallowed the shop-fest whole. I remember standing in Marks & Spencer buying a slipper bag for my uncle, crying with laughter at the scope of the needlessness. Who needs a bag to put their slippers in? It’s like having a special wallet for handkerchieves. Probably, if he’d lived a bit longer, I’d have bought him one of those too. None of this ever struck me as at all obscene; it was all at one remove from obscenity, like a cartoon of someone accidentally chopping off their arm.

But having kids has tipped me over the edge. It isn’t their spiritual wellbeing I’m worried about – they have grandparents for that. It’s the volume of plastic tat I have to throw out every year, to make way for the next tranche of plastic tat. It’s like an anxiety dream, this act: shovelling gigantic, brightly coloured items that have detained nobody for one second longer than the time it takes to render them incomplete or no longer working. They are almost new, and completely pointless. I don’t want to blight another household with them, but I can’t face putting them in the bin, so the whole lot from last year spent six months in a sort of staging post, some inconvenient place while I waited for some other person to throw them out for me. If they’re battery powered it’s 10 times worse, because the added complexity is like an accusation. They are all battery powered.

This is when you’re faced with the question that you should have squared up to 20 years ago: how do you formulate an anti-consumerist worldview that doesn’t involve becoming a killjoy? How do you eschew consumption while still maintaining your spiritual hollowness? The people buying the plastic have annexed the space “fun”, while the people with the baby in the manger have appropriated “thought”. I have no ideological home in this season. But I do love the drinking.

Celebrities endorsing products also liable for misleading advertisements: Panel

Dipak Kumar Dash,TNN | Feb 4, 2014, 05.22 AM IST 

The authorities are mulling provisions to ensure that celebrities endorsing products are also made liable for misleading advertisements.

 

NEW DELHI: If the skin whitening cream isn't as phenomenal as advertised or the hair oil not producing a lush mop as promised, you may soon be able to claim compensation not only from the advertisers, but from the celebrities endorsing the product. 

The Central Consumer Protection Council(CCPC), under the chairmanship of minister K V Thomas, on Monday decided to set up a sub-committee to suggest strategies to deal with such advertisers. Among the concerns raised was peddling of products by celebrities. 

"About 50% of the daylong conference was spent addressing ... the huge impact of misleading advertisements, particularly food items, hair oil and health products," said a CCPC member who attended the meeting in Kochi. "Even the celebrities must pay compensation in case there is a complaint," said Joseph Victor, a CCPC member. 

Panel mulls measures to monitor ad claims 

What seems to have moved the consumer affairs ministry is a direction from the MP high court to set up an ad monitoring panel as recommended by the Vibha Bhargava Commission. "An ad monitoring committee with proper budgetary support from the Centre may be set up to monitor the advertisements on regular basis... the committee will have the powers to (take) corrective actions and (impose) compensation," the CCPC said. 

Sources said that the decision was taken unanimously by CCPC, which has members from central and state governments, besides representatives from consumer organizations and academicians. The sub-committee may be formed in less than a week and could submit its recommendations by February-end, sources said. 

Some members told TOI the issue of southern superstar Mamootty endorsing products was discussed. "We have similar problems across the country. We have Shahrukh Khan or some other Hindi film star endorsing consumer items and they get huge payment for doing so. Misleading ads featuring such famous faces shown on TV even for a day serves the purpose of advertisers. We discussed how suo motu action can be taken against ads which have been withdrawn. Even the celebrities must pay compensation in case there is a complaint," said Joseph Victor, a CCPC member. 

Another member, Ashim Sanyal, said he had raised the issue of monitoring ads, which are in huge numbers and across different modes and media. "We need to plan the mechanism for monitoring. The sub-committee will come out with directions and provisions to deal with the menace," he added. Lok Sabha MP Charles Dias, who also attended the meeting, told TOI that concerns were raised on manufacturers' ad spend, which is passed on to buyers. "Most of us felt that there should some sort of monitoring on how much is being spent on advertisements," he said.

Petrol price 'rigged for a decade'

Motorists may have paid thousands of pounds too much for their petrol over the last decade, after two of Britain’s biggest companies were raided on suspicion of manipulating oil prices.

European investigators said the alleged price-rigging could have had a 'huge impact' on the cost of oil Photo: ALAMY

By Rowena Mason and Emily Gosden

9:57PM BST 14 May 2013

425 Comments

MPs and energy experts tonight raised fears motorists have been “taken for a very expensive ride”, after officials searched the offices of BP and Shell for evidence of price-rigging.

The companies are suspected of distorting the oil price since 2002, meaning drivers have potentially been ripped off for more than 10 years.

Over that time, petrol prices have risen dramatically by more than 80 per cent to around 135p per litre.

European investigators, who raided the London offices of BP and Shell, said the alleged price-rigging could have had a “huge impact” on the cost of oil, including the price of fuel for consumers.

The investigation into market-fixing already has echoes of the Libor scandal, which saw the banks falsely report key interest rates used to calculate mortgages. It cost several British banks hundreds of millions of pounds in fines.

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Robert Halfon, the MP for Harlow who has long campaigned for an investigation into the oil market, said high prices have been “crushing families across Britain”.

He called for UK authorities to launch an urgent inquiry and for oil companies to “come clean and show some responsibility for what is happening to the international price”.

The raids were part of an investigation across the continent by the European Commission’s competition authorities. Offices owned by Platts, a price-reporting agency, and Statoil, a Norwegian oil company, were also raided.

European officials said several companies may have colluded in manipulating the price of both oil and green “biofuels”.

This could have happened if the oil companies provided false information to Platts, the main reporting agency that collects and reports prices to the wider market.

“Any such behaviour, if established, may amount to violations of European antitrust rules that prohibit cartels and restrictive business practices and abuses of a dominant market position,” the European Commission said.

“Even small distortions of assessed prices may have a huge impact on the prices of crude oil, refined oil products and biofuels purchases and sales, potentially harming final consumers.”

It said the raids were a “preliminary step to investigate suspected anticompetitive practices” and “does not mean that the companies are guilty of anti-competitive behaviour nor does it prejudge the outcome of the investigation itself”.

The inquiry comes after The Daily Telegraph revealed growing concerns about the reliability of oil prices last year.

A study for G20 finance ministers, including George Osborne, said traders from banks oil companies and hedge funds have an “incentive” to distort the market and are likely to try to report wrong prices.

Scott O’Malia, a top official at the US Commodities Futures Commission, has also previously drawn attention to the “striking similarity” between the potential for manipulating oil and Libor. The price reporting agencies strongly deny any similarities between their methods and the way Libor was calculated.

The information published by Platts and other reporting agencies is used widely by companies as a guide for pricing their oil-related products, including petrol.

Brian Madderson, chairman of the Petrol Retailers’ Association, tonight said any manipulation of the benchmark oil price over a decade could have cost motorists “thousands of pounds each”.

He said the PRA has repeatedly warned the regulators that the oil price appears to have been manipulated.

An 8p rise in the price of petrol last winter cannot be explained by basic supply and demand, unusual geopolitical events or other factors, he said.

Like Libor – the interest rate measure that banks were found to have rigged – the market is unregulated and relies on the honesty of the firms to submit accurate data about all their trades.

Lord Oakeshott, a senior Liberal Democrat and former Treasury spokesman, urged the UK authorities to take a closer look at the oil market.

“Rigging oil prices would be as serious as rigging Libor,” he said. “The price of energy ripples right through our economy and really matters to every business and families.

“All credit to the European Commission for taking action if they have evidence of collusion-but why have we had to wait for Brussels to find out if British oil giants are ripping off British consumers?

"I will be putting down parliamentary questions asking who has UK regulatory responsibility for ensuring fair and open competition in the oil market and what action they have taken in the past 5 years to investigate and enforce it.”

The oil companies tonight confirmed their offices have been raided.

A spokesman for BP said the company is “cooperating fully with the investigation and unable to comment further at this time.”

A Shell spokesman also confirmed its companies are “currently assisting the European Commission in an enquiry into trading activities”.

“We are fully cooperating with the investigation. For legal reasons we cannot make any further comment at this stage”.

Platts, the price-reporting agency, said the European Commission has “undertaken a review at its premises in London” and confirmed it is “cooperating fully”.

Three decades after privatisation, monopoly power is still king

IoS investigation: The great British energy rip-off 

The "big six" energy firms were last night accused of maintaining a "stranglehold" over millions of consumers, after new figures showed that they each control more than two-thirds of the market in different regions across the UK.

An average of 70 per cent of households across all regions use the same electricity supplier, with the proportion rising to 85 per cent in some areas, undermining claims by the Government and Ofgem, the regulator, that the energy market is operating competitively.

The figures, uncovered by Labour, are published in the wake of the confusion over the future of energy bills after David Cameron pledged in the Commons to force companies to offer householders the "lowest tariff" – a promise that within hours was exposed as unworkable. The Prime Minister clashed with the Liberal Democrat Energy Secretary, Ed Davey, who backed Ofgem's proposals, published on Friday, for a simplified tariff system that encouraged consumers to switch between firms.

The official figures show that companies supplying electricity to homes where they inherited the network from the former utility boards are operating a near monopoly, making a mockery of the idea that customers routinely switch firms to get better deals.

Separate data from the Department for Energy and Climate Change (DECC) reveals that customers who have stayed with their old electricity supplier are paying more than those who have switched. DECC analysis shows that these "home suppliers" charge an average of £31 a year more than non-home suppliers for electricity – in effect placing a premium on loyalty.

The research emerged on the eve of British Energy Saving Week amid an outcry that energy firms are pushing up fuel bills beyond the rate of inflation, adding between £80 and £112 to the average annual household bill.

Although deregulation of the energy market in the 1980s supposedly led to more competition, the reality is more similar to a monopoly within each region of the UK.

The largest five electricity suppliers dominate the regions they inherited from utility boards more than two decades ago, while British Gas still retains the largest share of the retail gas market nationwide. This is despite consumers being encouraged by price comparison websites to shop around for the cheapest supplier. When the gas and electricity networks were first privatised, price caps were in operation, but a decade ago Ofgem removed controls because competition had, in theory, been established.

Yet figures published in Parliament in a written answer to the shadow Energy Secretary, Caroline Flint, show that there is little real competition. Firms last night claimed the figures show the loyalty of customers they inherited from the boards, but Ms Flint said the companies appear to be exploiting consumers' unwillingness to shop around. With a baffling array of more than 500 tariffs on offer, consumers are often loath to switch.

In Northern Scotland, SSE, the firm that inherited the network from the North of Scotland Hydro Board, has retained an 85 per cent share of the retail electricity market, while in south Wales, SSE has an 82 per cent share and in the Southern region it has an 80 per cent share.

Scottish Power has an 82 per cent share in southern Scotland, and a 73 per cent share in north Wales. EDF has remained dominant in London with a 74 per cent share; in the South-east, it supplies electricity to 73 per cent of homes; and in the South-west, it has 71 per cent.

Npower remains the dominant supplier in the West Midlands, with 65 per cent of the retail market; in Yorkshire, it has a 65 per cent share; and in the North-east, 64 per cent. E.ON has a 69 per cent share in the East Midlands; 68 per cent in the Eastern region; and 67 per cent in the North-west.
The sixth major energy firm, British Gas, has held on to 76 per cent of gas-only accounts across the UK. The figures do not apply to dual fuel accounts, but nearly 10 million households are on electricity only, and 4.6 million have gas only.

Ms Flint said: "It's no wonder the energy giants are shame-faced about hiking up energy bills when they have a stranglehold over the energy market. People talk about the 'big six', but in most parts of the country there's only one big supplier in town. The fact that 70 per cent of people in any region all use the same electricity supplier suggests that the energy market is not functioning properly. It cannot be right that customers who have stuck with their old electricity supplier pay a premium for their loyalty.
"The time has come to create a tough new regulator to police the energy market properly, and force the energy companies to pass on price cuts to the public."

A spokesman for Npower said: "We have a larger than expected share in the West Midlands because our history is in the Midlands. A lot of people were Midlands Electricity Board customers and many of them remained so [under the new name]. The rate of turnover has been quite significant, people have left and people come back. It is about loyalty – many people still refer to us as 'the Midlands Electricity Board' as they refer to British Gas as 'the Gas Board'. They are with us because we are incredibly good value. It is the same in the North-east. We feel very much part of the community in these areas."

A spokesman for E.ON said: "Many of our customers, while staying with us, will have regularly changed products. As such it would be wrong to say they are not engaged in the energy market – they are, and have chosen to stay with us. Some 69 per cent of our customers overall have switched supplier or tariff in the past three years.

"It is important that we treat every customer as an individual and as such being on the right tariff for your own individual circumstances is vital. In recent weeks we have made checking you're on the right tariff easier than ever, and it is this simplicity and comparability that our customers are responding to. By making things simpler and more comparable, as well as continuing to provide help and advice that will make homes more energy efficient, we can really help our customers and ensure they are on the best deal for them."

A Scottish Power spokesman said: "The British energy market is one of the most competitive in Europe, and Scottish Power welcomes anything that encourages or supports this competition."
SSE said in a statement: "We would fully expect our customer retention rates to be higher than those of our competitors because of our exceptional standards of service, for which we are consistently recognised as the best in the business by the likes of Consumer Focus and uSwitch.

"There's no doubt that greater levels of consumer engagement in the market would be a positive thing. However, switching rates in the UK compare very favourably with those in other European energy markets, and with other retail service markets such as fixed and mobile telecommunication, insurance, mortgages and personal current accounts."

How easy is it to reduce your energy bill?

If a seasoned investigator has trouble, what hope for the average consumer? Here’s what I discovered after many frustrating minutes on hold:

Npower

My current provider, Npower, predicts my spend for the next 12 months will be £208.37 for 1,620 kWh of electricity and £531.78 for 11,260 kWh of gas – all helpfully displayed in my latest bill, but irrelevant because it was generated two days before they announced an 8.8 per cent price hike. Sneaky.

British Gas

After an automated apology for any delay due to “a high volume of customer calls” came some advice: “If you’re calling for our fix and fall tarif,f go online to sign up and register your details. If you have received a coupon about this offer, please complete it and return the pre-paid envelope. If you are calling about a fixed contract that ends in either 2013, 2014 or 2015, your prices are not affected by our recent price increase.”

I simply want to find out if you can beat my existing deal.

“Press 1 to change your account name or address or if you are moving house. Press 2 to give us your meter reading or find out your balance, pay your bill or to let us know you are going to pay your bill or you have paid your bill. Press 3 if you have any questions about your central heating or home care or press 4 to talk to one of our team.”

Hooray. Well, nearly. I sit through more suggestions to “go online for further information”. A pause, then a human voice. “You probably were sent that estimate prior to their price rise announcement.” True. “Our best deal is the online variable until November 2013, which includes the price increases taken into effect. We can do a 6 per cent discount from your total bill for direct debit.”

“That will cost you around £229 for electricity and £532 for gas. A little bit more than your estimate, but your prices will go up remember”.

So your prices are fixed, then?

“No, we have another “fix and fall” tariff which is not discounted but is fixed until March 2014. That might make more sense to you.

“If our prices go up, yours won’t do, but if prices go down, yours go down – and you get a fixed premium of 3 per cent.”

“That comes to £253.34 for electricity and £583 for gas.”

£100 more! “Ah, but your charges…”

Yes, yes, they will be going up.

To be fair, she did recommend I call npower to check how much my bill would apparently be going up by. That was easier but it still took 17 minutes.

E.ON (no freephone)

It took less than a minute to speak with someone and we were straight down to business: full address and phone number (“in case you get cut off”) before we were on to the tariffs. Four on offer: standard, E.ON energy discount (“3 per cent cheaper than standard for 12 months but you’re not protected against price rises”), fixed one year or fixed two years. It was like remortgaging a house.,

Standard came to £787.93 and the energy discount was £752.69. Fixed one came to £776.48 – “no premium, mind” – and fixed two £816.39 – “a bit of a gamble as it is 5 per cent above standard unit rate but you’re protected against price rises.”

The good news: E.ON was not among the four of the “big six” energy companies which had recently announced price rises for 2012. The bad: “but it’s more than likely we will put them up for 2013”. Hmmm.

That took four minutes.

EDF

Oh dear. I gave up trying after being on hold for 15 minutes listening to what sounded like Morcheeba. Rubbish.

SSE

After seven minutes on hold, I was mercifully told there were only two tariffs the company provides – standard and capped. My quote was £28 more expensive than npower, but SSE credits your account with £100 when you switch and their rate is capped for two years meaning, like British Gas, it won’t go up, but could come down. And SSE “was the only energy company that reduced their prices last year”. In addition, my gas and electricity standard charge of 16.44 pence per day would come down to 14.8p with paperless billing. “I’m here until 2pm if you want to switch,” a very helpful Eddie told me.

Scottish Power

I had tapped in my numbers to their online quote generator which gave me an estimated bill of £816.57. But on the phone, a quote using the same figures was better: £755. This for a deal fixed until March 2014 without a cancellation fee. Did I want to know the unit price? I certainly did. “Scottish Power’s first quarter electricity unit price is 21.74p for the first 225 units going down to 10.99, compared with Npower’s current unit price of 16.93 reducing to 13.39. Our primary gas units are 8.10 going down to 3.01 with Npower’s at 7.89 reducing to 3.51.” I regretted the request for more detail.

So much to choose from. Do I ditch and switch, fix or stick? I have no idea. I tried calling Npower to see what their updated estimate would be for next year, but their systems were down. I’ll have to call back on Monday.

Paul Gallagher

THE MORAL MAZE

Girish Menon

In the film Gandhi, after gunning down many non violent protesters at Jallianwalla Baugh General Dyer insisted that he was willing to offer first aid to any victim who would approach him. That was a case of selective morality and a similar argument can be made to explain our society’s treatment of the alcohol industry. In my view alcohol is no different from cocaine in its deleterious effects on society and hence its treatment should not be different from drugs.

There has always been an utilitarian argument for alcohol in that it provides jobs and more importantly government revenues. Also, the argument goes, prohibition will result in a black market. However, I do not see such an argument being upheld when it comes to consumption of heroin.

The other argument in favour of alcohol is the other old chestnut ‘consumer choice’ i.e. we should allow the consumer to decide how much alcohol he should consume instead of the nanny state taking that decision for him. This argument is a case of double standards since consumers do not have a similar choice with drugs. More importantly, the consumer choice argument is based on the assumption that a consumer is a rational actor who will only take decisions that maximizes his welfare. By consuming alcohol regularly if a person is found to be jeopardising his own future, can we call such a consumer a rational actor?

Thus in my view governments run on alcohol, politicians need it in great measure to do what they do and also the tax revenues generated are highly addictive too. The alcohol industry employs folks who look like us and are probably people like us. I would hence invite you to imagine what would be our reaction if the same alcohol industry was based in Afghanistan or Colombia. Would we treat such exports just as well?

PSBR or PSNCR

PSNCR - Explanation

The PSNCR - public sector net cash requirement - used to be called the PSBR - the public sector borrowing requirement. They are the same thing. They measure the amount the government has to borrow to meet all its expenditure commitments. Governments frequently spend more than they are earning in tax revenue, and so have to borrow to plug the gap.
There are two ways to measure the value of the PSNCR. The first is to look at the PSNCR as an amount of money - usually in billions of pounds (£bn). This is useful as a measure, but we may also want to consider how significant this figure is in the overall context of the economy. £5bn sounds a lot of money (and we would all like a share of it !), but in terms of the overall level of GDP it is fairly insignificant. So the other way to measure the PSNCR is as a percentage of GDP.
The PSNCR tends to vary with the trade cycle. This happens because as the level of growth changes the governments expenditure and tax revenue will also change automatically. For example, imagine the economy is going into recession. As people lose their jobs, incomes fall and this means less income tax. They will also spend less which means the government gets less from VAT and other indirect taxes. At the same time they will need to be paid benefits, and this means an increase in government expenditure. The overall effect of the recession therefore has been to increase the PSNCR.

PSNCR and the Trade Cycle - Why does it vary?

The PSNCR tends to change along with the state of the economy. When things are going well and the economy is booming, the PSNCR will tend to be falling (unless the government is going mad spending on other things!). This is because a booming economy means low unemployment and low unemployment means less spending on benefits. Not only that, but when people are employed they will spend more, and this will boost VAT and other indirect tax receipts.
The impact of a recession on the PSNCR will be the opposite. Increasing unemployment means more spending on benefits, increasing the level of government expenditure. Unemployed people don't pay income tax, and others may find their incomes falling. The combination of these two effects means that the government receives less income tax. Spending also will fall as people have less money and are more reluctant to spend what they do have because of uncertainty about the future. As spending falls so does the government's revenue from indirect taxes. As if all this weren't enough of a problem, the performance of firms will also affect the government's finances. In times of recession, firms' profits will fall, in fact they may even make losses. Since corporation tax is paid on profits, the governments tax revenues will be hit even further.
So boom periods should help to lower the PSNCR, while recessions and economic slowdown will tend to push it back up again.

PSNCR Theories - Cyclical or Structural - What determines it?

Theory 1 (PSNCR and the trade cycle) shows that the PSNCR will tend to vary with the economic cycle. If this happens over a number of years and the PSNCR fluctuates around an average value of zero, then the government doesn't need to worry about it too much. A recession may increase it, but the onset of recovery will help it fall again. If this is the case then the PSNCR is termed a cyclical PSNCR.
However, it will often be the case that the value that the PSNCR fluctuates around is far from zero. This means that the government is borrowing all the time. In other words, it is borrowing over the long term. Where this happens, this part of the PSNCR is termed a structural PSNCR. Governments do need to worry more about a structural PSNCR as it is a long-term one, and they need to think about how they can reduce it. They have two main alternatives:

1. Increase taxes
2. Reduce government expenditure

If they don't do either of these, there will be a permanent PSNCR and the national debt will grow over time.

PSNCR and the Money Supply - The effect of borrowing on the money supply

If the PSNCR is high, this means that the government is spending much more than it is receiving in tax revenue. It follows then that it is putting more money into the banking system (from its spending) than it is taking out of it (from taxes). This will increase the money supply in the economy. This may be undesirable as many economists believe that excessive money supply growth will cause inflation. This is a view held particularly by Monetarist economists and Classical economists.
The aim of governments should therefore be to keep the value of the PSNCR down to help keep money supply growth down.

PSNCR and the National Debt - How indebted are we?

The national debt is the total amount of borrowing accumulated by the government that is still outstanding. It is the total amount that the government owes to individuals and institutions.
Think of the national debt as the level of water in a tank. Each year the government borrows more. The amount it borrows is the PSNCR. This is equivalent to a tap filling up the tank - the amount of water (debt) is growing. However, at the same time, the government pays off some of its debts each year. This is like water flowing out of the tank.
If the amount flowing into the tank (the PSNCR) is greater than the amount going out (debt paid off), then the water level (the national debt) will rise. If on the other hand the amount flowing into the tank (the PSNCR) is smaller than the amount going out (debt paid off), then the water level (the national debt) will fall.
The diagram below shows this:

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What is a market?

What is a market? asked a Russian
It is a form of coordination
Where many producers
Meet demands of consumers
Using profit as a consideration

Copyright - Girish Menon