From competition to the foundational economy

For thirty years, the British economy has repeated the same old experiment of subjecting everything to competition and market because that is what works in the imagination of central government. This book demonstrates the repeated failure of the 30 year policy experiments by examining three sectors: broadband, food supply and retail banking. It argues against naïve metaphors of national disease, highlights the imaginary (or cosmology) that frames those metaphors, and draws out the implications of the experiment. Discussing the role of the experiments in post-1945 Britain, the book's overview on telecommunications, supermarkets and retail banking, reveals the limits of treatment by competition. Privatisation of fixed line telecoms in the UK delivered a system in which the private and public interests are only partially aligned in relation to provision of broadband. Individual supermarket chains may struggle but the four big UK supermarket chains are generally presented as exemplars because they have for a generation combined adequate profits with low price, choice and quality to deliver shareholder value. The many inquiries into retail banking after the financial crisis have concluded that the sector's problem was not enough competition. In a devolved experiment, socially-licensed policies and priorities vary from place to place and context to context. However, meaningful political engagement with the specifics in the economy will need to avoid losing sight of four principles: contestation, judgement, discussion, and tinkering. While others can be blamed for the failure of the experiments, the political responsibility for the ending and starting another is collectively peoples'.

Imaginary, history and cases Introduction
Andrew Bowman, Ismail Ertürk, Julie Froud, Sukhdev Johal, and John Law

This chapter draws on Science and Technology studies to argue against naïve metaphors of national disease, and highlights the imaginary that frames those metaphors. It provides context in the form of a broader political history of the role of 30 year policy experiments in post-1945 Britain, and shows how competition came to be the cure for British decline. The imaginary of competition became the dominant basis of economic policy in the early 1980s and licensed the 30 year Thatcher-Blair experiment in structural reform which continues under the 2010 coalition government. The chapter then shifts into political and cultural economy and engages specifics differently as it explains how our three sectoral case studies telecommunications, supermarkets and retail banking reveal the limits of treatment by competition. Supermarkets and dairy or retail banking are both sectors where competition takes the same form of oligopoly in a retail market dominated by giant chains.

in The end of the experiment?
Under-investment and confusion marketing
Andrew Bowman, Ismail Ertürk, Julie Froud, Sukhdev Johal, and John Law

The British Telecommunications Act of 1981 enabled private providers to supply equipment to customers, and gave government powers to license new telecoms operators to provide network services. The most important developments in the sector have been the proliferation of complex, confusingly-priced product bundles and a sports content bidding war whereby British Telecom (BT) spends similar amounts on football as it does on its fibre-optic network. This chapter argues that in the case of broadband the shareholder value pressures contribute to a form of competition based on confusion marketing of bundled products that attempt to limit process of commoditisation and price competition. The business models of most major UK internet service providers (ISPs) are focused on winning market share through aggressive discounting, with minimal investment so as to ensure good return on capital.

in The end of the experiment?
Success at the cost of suppliers
Andrew Bowman, Ismail Ertürk, Julie Froud, Sukhdev Johal, and John Law

This chapter demonstrates that interrogating the problems of the dairy sub-sector can help us understand something of the problems with food supply chains more generally. As industry cheerleaders point out, supermarket chains have triumphed over independent retailers because they offer consumers low prices, choice, quality and convenience. In supermarkets, the special offers are frequently paid for by suppliers: supply chain power relations allow the supermarkets to dominate suppliers, with adverse consequences for the chain. Providing the supermarkets win planning permission and avoid collusion, there are few restraints on the shareholder value behemoths of sheltered British capitalism. The chapter explores how the supermarkets are engaged in a permanent struggle to maintain margins. The standard media story presents the problems of food supply as a dichotomised confrontation between modernity embodied by supermarkets and tradition embodied by farmers.

in The end of the experiment?
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(Mis-)selling for return on equity
Andrew Bowman, Ismail Ertürk, Julie Froud, Sukhdev Johal, and John Law

Investment banks compete for funding in capital markets and those within a universal bank generally benefit from a higher credit ratings and excess liquidity from retail banking operations. A more imaginative public utility approach to banking needs to recognise that mis-selling is the nearly inevitable result of ambitious return on equity (RoE) targets. Pressure to reduce the costs of the branch network, while increasing the revenue generated by each branch are key elements of the retail bank business model. Retail banking is different from chain retailing. Banking requires a back office to process and service products and a high street front office to make sales. The declining productive economy limits the possibilities of small and medium size enterprises (SMEs) lending, while the retail bank business model emphasises selling over relationships, especially with SME customers.

in The end of the experiment?
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There’s more than one show in town
Andrew Bowman, Ismail Ertürk, Julie Froud, Sukhdev Johal, and John Law

This chapter starts from a critique of the corporate practice and government policy, and argues that a 'point value' logic lies at the heart of the mismanagement of the foundational. The foundational economy is partly financed indirectly by tax revenues and partly by direct household expenditure. The capital market demands shareholder value and sets sectoral rate requirements for return on equity (RoE) and earnings growth in a frame where all firms are expected to earn abnormal profits. To reframe the foundational economy as a matter of social license is to insist that the foundational is not simply about point-value economic transactions, but also about reciprocal social relations within local, regional and national spaces. The chapter also suggests that the post-1979 policy experiment is now using 'bolt-ons', like industrial policy, to ensure that state policy answers exigencies without addressing fundamentals.

in The end of the experiment?