Most favoured customer status

One of the things that annoys about the neoliberal era is the constant advice to “shop around” for the best deal for services we could once assume were fairly priced, like electricity or banking services. A crucial feature of this is that you can’t do this once and for all.  Loyal customers are routinely punished by being left on unfavourable deals while new customers are offered better terms.

It struck me that we could get substantially better outcomes from markets if all firms were required to extend to existing customers any offer made to new ones.* That would greatly reduce churn and wasteful sales efforts, hopefully leading to a reversal of the increase in retail margins we’ve seen in areas like electricity.

This would be the equivalent of Most Favoured Nation status in trade policy, which ensures that all members of the World Trade Organization receive the same treatment. Interestingly, the Wikipedia article on Most Favoured Nation status refers only to an anti-competitive version of Most Favoured Customer status, where MFC status is extended only to selected customers.

I’m a bit ambivalent about suggesting ways to make neoliberalism work better, especially as it is now in retreat, but I think it will be around for a while yet, so reforming obvious failures seems like a worthwhile idea.

 

 

* I can imagine a case for some limited exemptions, for example, for “try before you buy” deals.

Why electricity reform failed

My latest piece in the Guardian is headlined The national energy market is an abject failure – it’s time for a publicly owned grid   I’ve said this before and I don’t mind repeating myself. But the new insight that provoked me to write this piece is a bit further down

Why has Australia done so badly? The reform process in Australia has treated markets and competition as goals in themselves, rather than as policy instruments designed to produce useful price signals and thereby guide investment and consumption decisions.

The article is also a plug for a recently published book, Wrong Way, How Privatisation and Economic Reform Backfire, in which I have two chapters, one on electricity and one on productivity.

Prebutting the CIS: Lifters and leaners, yet again

Robert Carling of the Centre for Independent Studies has just released a paper, with the title “Voting for a Living“, an even more offensive reprise of Joe Hockey’s “lifters and leaners” rhetoric of a few years ago. The Oz (no link) ran a report by  with the opening claim

The top fifth of households by ­income are almost entirely supporting the bottom 60 per cent of earners

Of course, this is absurd. The actual CIS paper centres on the fact that 60 per cent of the population receive more in benefits and public services like health and education than they pay in taxes, while the top 20 per cent pay more in taxes than they get back. The claim then is that the parasitic 60 per cent are voting for a redistributive state. That’s a long way from “almost entirely supporting”.

If this sounds familiar it’s because  Creighton made almost identical claims in 2014. I rebutted them at the time, in a piece for the Guardian. The key point is that,  since government spending and taxation must be approximately equal[1], we collectively get back from government what we pay in, whether this takes the form of cash payments or public services. So, if services are provided more or less equally, those with an income below  (above) the mean will get back more (less) then they put in. Add in the fact that, thanks to income inequality, mean income is higher than median, and you get the Carling result automatically.

The current version of the paper extends the 2014 analysis in a couple of ways. First, it has a broader coverage of revenue (including GST) and expenditure (including health and education). Second, it includes a claim that the position of the median household has shifted since the 1980s, from being roughly in balance to being net recipients. However, a closer look suggests that all of this change occurred between 1983 and 1993 that is, under the Hawke-Keating government. And, since there’s no data before 1983, we can’t say much about longer term trends.

The other notable change is that the report is even clearer in stating that there is no legitimate basis for asking high income earners to contribute to society as a whole, for example to reduce income inequality.

Shorter Carling and Creighton:  High income earners pay more tax than everyone else and that’s bad.

All this contrasts strikingly with last week’s rightwing talking points, making much of the relatively limited growth of inequality in Australia due, almost entirely, to the redistributive policies introduced under Hawke and Keating. The Oz was all over this, and one of their sources was none other than Robert Carling

 

fn1. A couple of qualifications on this, which work in opposite directions. Some government spending  is financed by growth in debt and income other than taxes, which means that, on average, by the Carling calculation, we get back more then we pay. On the other hand, some spending categories, such as defence, aren’t included, which goes the other way.

The pension age is already high enough

In the light of Scott Morrison’s latest exercise in jettisoning unpopular commitments, in this case the proposal to raise the pension age to 70, I thought I would relink this piece on the Intergenerational Report, from the Abbott-Hockey era. The crucial observation is that, had the increase gone ahead, it would have cancelled out all of the increase in conditional life expectancy at pension age for women since the pension was introduced back in 1907, and most of the increase for men. The only real problem in retirement incomes policy is the lavish concessional treatment of superannuation.

Our financial system only works for the 1%. It will take another crash to fix it

That’s the title of my latest article in The Guardian. Opening paras

The royal commission into banks has uncovered fraud and misconduct on a massive scale, amounting to nearly $1bn and perhaps more. The usual defences of “bad apples” and “rogue advisers” have fallen apart as it becomes evident the problems are systemic, driven by relentless pressure from the top to maximise profits at all costs.

The royal commission into misconduct in the banking, superannuation and financial services industry has shown that dishonesty and sharp practice are endemic in the retail banking and finance sector. But if retail banking, involving direct personal contact with customers, is plagued with fraud and malpractice, what can we say about the wholesale criminality

A billion dollars sounds like a lot but it pales into insignificance compared to the repeated frauds that have been exposed in global financial markets, and the much greater volume that is almost certainly going undetected. Moreover, while misconduct in retail banking raises important issues of consumer protection, fraud in the broader financial system calls the entire market system into question.

Conclusion “We will probably have to wait for another crash before the power of the financial system can be tamed.”

Peace for our time ?

Amid the recent upsurge of leadership speculation, this time affecting the government, a crucial observation on the so-called National Energy Guarantee seems to have been missed.

No one thinks the NEG is a good policy: its selling point is the claim that it could resolve, once and for all, the political fight over climate and energy policy.  After the last few days, that claim has fallen in a heap. A few days after claiming the endorsement of his party room for the previous version of the NEG, Turnbull is doing an emergency rewrite of the NEG to stave off a rebellion and perhaps a challenge to his job.

This half-baked compromise, if it works at all, won’t resolve anything. There’s no target for emissions reductions, which might help get legislation through Parliament, but leaves the most important single issue for later. The already messy pricing system is to be complicated further by unspecified policies to reduce prices directly. And the denialists are still pushing for a publicly funded coal-fired power station.

Supposing this chimera somehow struggles into existence, it will last as long as the political stars with which it is aligned. If Turnbull loses to the right of his own party, the whole thing will be dumped in favor of policies driven by culture war concerns rather than economics, let alone climate. If Labor wins, they will need to dump this mess and start again, effectively from scratch.

I have in my mind a picture of Turnbull, descending the steps of a plane and waving a peace of paper while he announces “Peace for our Time”. I guess that can’t literally happen since the relevant meetings will all take place in Canberra and tarmac photo-ops are confined to state visits these days. But I doubt that Turnbull’s deal will last as long as Chamberlain’s did.