THE CONSUMER: KING OR PAWN

Few markets are perfect. Many markets in Ireland are managed to some degree or other. The question is: in whose interest are they managed? Most interventions travel under the label of protecting the consumer. In practice, we usually see other hands at work. Markets which work badly generally results in excessive prices or queuing. Artificial scarcities, excessive mark-ups, failure to pass on cost savings, are all symptoms. Unfortunately Ireland is no stranger to such features.

• A Fórfas Study shows that Ireland has now become the most expensive country in the euro zone for consumer goods and services. On average now, Ireland is 22% dearer than the rest of Euroland. In the mid 90’s we were 14% below the Euroland average



• CSO figures show that the retail sector pushed up their markups rapidly between 1997 and 2001, increasing from 44% to 50.2%. Had they not increased in this way the average householder would have saved €1000 per year on shopping bills



• Housing continues to exhibit the greatest signs of marketing balance. In Dublin the average price of accommodation increased by €130,000 in the past four years,now topping €300,000 for average house. Over the period the average house price rose by 78% while the cost of building grew by only 40% and the consumer price index by only 21%. A largely contrived scarcity of land for development has seen the site element of the house price explode to 50% of the cost of a house compared to a norm elsewhere of only about 15%



• The independent MIAB has reported that it does not consider the market for private motor insurance competitive in Ireland. Its fights for higher profit levels over sustained period compared to the UK. It also highlights the unacceptable take by lawyers from the insurance pool,with legal payments amounting to 40% on top of payments that make their way to victims in the case of motor insurance and an even higher 56% in the case of public liability. Overall the cost to householders of insurance has grown by 65% in the past 5 years, 2 ½ times the increase in the cost of living



• Banks are another sector where the degree of competition is highly questionable. In the past 2 years as the European Central Bank has cut lending rates by 2 points, only half of this cost reduction was passed on to business and personal borrowers. The National Competitiveness Council maintains that the spread between Irish lending and deposit rates, which is the source of bank profits, is 35% higher than in the rest of Europe



• In the past 18 months, as a value of the euro has strengthened, it has become evident that cost savings are not being affected in the prices in the shops. While the prices which our exporters are getting have fallen by 10% in the last 12 months, and import prices have also headed south by the same margin, surprisingly the price of goods in our shops continue to grow up almost 2% in the same period



• Health shows all the signs of a non-performing sector, long queues, barriers to entry, administration growing at the expense of frontline delivery, perverse pricing policies, fierce segmentation between the privately provided and publicly provided sectors

Why we may well ask in a small open economy, the most open in the world by many reckonings, should key markets be operating so perversely. The government would tell us that we are the victim of our success! This is a trite explanation. Many of the markets show the classic signs of a rigged market: barriers to entry, restrictions on competition among key players, obstacles to consumers seriously shopping around.

Barriers to Entry

Barriers to entry have almost become an accepted feature of many of the non-traded sectors of the Irish economy. In almost all of the professions there is a rigid cap on the number of new entrants who can take up education in any year. This applies to lawyers, vets, doctors,dentists, opticians. In some cases the restriction is actually policed by the profession itself. Not surprisingly these have become professions where the point requirement is sky high. A sure indication of contrived scarcity. Licensing restrictions on entry continue to apply in the bar trade and in pharmacies. However, perhaps the greatest impact is the manner in which zoning has created contrived scarcity for development plan.

Obstacles to non-Irish people setting up are a feature of many professions extending even to British and Northern Irish practitioners in the legal field.

The most absolute form of barrier to entry is of course the establishment of a State monopoly. Such monopoly protection continues to apply almost universally in bus transport and in the provision of many local authority services.

Restrictions to Competition

Even when a new entrant has overcome the obstacles to entry, they often face other restrictions that may it difficult to contest the position of the established players. Bans or comparative or fee based advertising apply in many of the professions. Rarely are there robust grounds in terms of consumer protection for such restrictions. The legal provision has perhaps the most complex form of restrictions on competition that make it difficult for new entrants. Apprentice barristers do not get paid. A member of the public has no direct access to a barrister. Barristers employed by a company cannot compete for briefs. All of these restrictions fossilise the forms of competition that are possible and are not designed to protect the consumer.

In the Groceries area a ban on the low cost selling remains in place although the Minister now says he wants to remove it. The ban applies without any need to show below cost selling is linked to predatory pricing or overweening competition by a dominant player.

Obstacles to consumers shopping around

For most consumers who lead busy lives, shopping around has a real cost. Consumers can be easily deflected by artificial obstacles which may it more difficult to get information or make a move of supplier more complex than it need be. In key service areas like insurance, education and health, access to information is far from free. Indeed in the case of education, the State has put an absolute ban on the comparison of exam results between schools. In the area of Health, no useful information is routinely published about the waiting lists costs or performance of different professionals. It is easy for an old boys network to build up where some consultants have very long waiting lists, where equally qualified consultants who do not have the same connections among the GP population struggle to get business. The important principle of client/professional confidentiality has been pushed far beyond its correct domain preventing parents, patients, pupils and passengers knowing relevant information about the performance of service providers.

Even if a consumer has decided that they want to move their business, often obstacles stand in their way. If you want to move your bank account, serious complications can arise the transfer of direct debits and standing orders. Such complications are often enough to make the moving impractical.

Clearly many Irish markets are 'managed' often with the explicit or tacit blessing of government. It is time to ask hard questions of these regimes. In whose interest are these markets being managed? We have a political system where producer interests are dominant. Consumers have no seat at the social partnership table. It is dominated by the producer interest whether it be business or union. This pattern has allowed almost unnoticed producer interest to achieve a dominant influence over sectoral policy formation. It is time for a more healthy scepticism about the motivation for regulations.

Here is huge agenda where a concertive set of government initiatives could really give consumers better value. At times there is a glimmer of awareness from government. When the OECD produced a Report in April 2001 showing the extent of regulations that conspired against consumer interest, the Taoiseach pledged himself 'to address remaining imbalance in policies which tend to prioritise producers over consumer interests'. Since that time not one initiative that would help consumers has been taken. Far from protecting consumers against rip offs, government Ministers have got in enthusiastically on the act with myriads and charges and stealth taxes conspiring to raise the cost of living in Ireland even further.

There have been studies and reports galore, each in its turn spawning another report rather than resulting in concrete action. This is indeed a slow bicycle race on the part of the Taoiseach and Tanaiste.

From a Pawn to a King

It is time for a dramatic shift of policy to assert the rights of a citizen in public policy. In regulating private markets, it must be in the interests of the consumer that are served. A new form of PPP must drive reform in public services.

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