The Wrong Solution

There is no doubt, in my mind, that the announcement that a future Labour government would impose a freeze on energy prices is a political master stroke. Prices have risen dramatically over the last five years and are causing real people real pain. His policy will undoubtedly gain Labour votes by the barrow load.

© Christian Guthier

© Christian Guthier

Of course, the prospect of the state interfering in private enterprise is knee jerk anathema to libertarians and I agree entirely that Milliband has naturally stumbled onto the wrong solution. Like his predecessors, his instincts are entirely authoritarian and he looks for government to solve every problem by means of compulsion.

And yet there is a problem for libertarians here.

Because, although there are a number of factors that have affected the energy price rise, (the rise in the wholesale cost and the expensive, and ridiculous drive for green targets are two examples) it is clear to me that the six energy companies who have, between them, 98% of the market have been making excess profits.

Unless some brave whistle blower steps forward, it is very difficult to prove that a cartel has existed but the conditions for it to occur and the symptoms that it has occurred are all there. Consider the ridiculous obfuscation over prices and the arrogant lack of customer service. It is, quite obviously, a rigged market and there is a further suspicion that successive governments have tacitly allowed the cartel to flourish in return for the unresisting implementation of their Green agenda. State corporatism at its worst, and the corruption behind it may even be greater, who knows.

So what would be a good libertarian solution? Or should we just allow cartels to prosper because interference in private enterprise is alien to our beliefs?

I believe that the underlying problem is that, in an unfettered capitalist system, markets have a natural tendency toward monopoly. Shareholders look for the best possible returns and if those can be achieved by the company they are investing in realising economies of scale, by merging with or acquiring another, they will vote to do so. This natural trait is exacerbated in markets where there are significant levels of state regulation and high barriers to new entrants. We have seen this kind of consolidation occur over the last 30 years in financial services and have witnessed the resultant carnage.

I believe that the libertarian solution to this problem is that customers should be protected from the hardship of being ruthlessly exploited by oligopolies by….. the operation of the market. In the long term, this means that we need government to allow markets to operate effectively by eliminating regulation, but I am not sure, in the real world and in the short term, that this is enough (or that it will ever happen).

A much better solution to the immediate problem would be to bring forward legislation to prohibit any Company having more than 5% of the total UK energy market and this would impose the necessary preconditions for a true market in energy to develop. And whilst I accept that government imposition, or prohibition, does not feel like a particularly libertarian solution to any problem, when it comes to promoting market forces I’m prepared to countenance it.

 

 

  5 comments for “The Wrong Solution

  1. Paul Marks
    Oct 1, 2013 at 9:50 am

    Errr – why not get rid of the rising “Green” taxes (and other scams such as “Carbon Trading”) that are forcing up energy prices?

    As for a cartel – well there is certainly one in Georgia (in the United States) as there is a State regulation that makes it illegal for private individuals (or private companies) to sell energy they generate on their property (by a dam, or a wind turbine, or solar cells – let alone one of those truck sized one piece nuclear generators that are perfectly practical if only government would allow them), the only people allowed to sell energy is the officially licensed company.

    That goes beyond a cartel – it is actually a formal monopoly of sale, a classic monopoly in the old (government granted) sense.

  2. Oct 1, 2013 at 4:08 pm

    Hi Paul

    Agree with you on all of the above.

    But what is your solution to the problem of the “big six” cartel in the UK?

  3. Oct 1, 2013 at 10:21 pm

    “I believe that the underlying problem is that, in an unfettered capitalist system, markets have a natural tendency toward monopoly. ”

    I don’t think this is true, but, as we are nowhere near an unfettered capitalist system, it’s probably not worth falling out over. The more pressing matter being the corporate state system which we have.

  4. Oct 2, 2013 at 7:39 am

    5% is probably too low, but I don’t think I have the right to decide, fortunately, a free market is more than qualified to decide and can do so without infringing upon the rights of individual company owners.

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