Petrol prices, grocery prices and bank fees are causing a little political pain at the moment.
You cannot mention them without mentioning the word “competition”, so perhaps Prime Minister Kevin Rudd should have a look the way football works. I don’t want to draw some crass football-mateship-team-spirit analogy. Rather we should look at the economic model of football. And comparing Australia with Europe might help.
Usually in soccer, only a few goals are scored. So it is quite possible for a weaker team to burgle the odd game with a fluke goal or two coupled with some lucky defending.
This is just as well. Were it not the case, European football would be deadly boring. Results would be so predictable that bookies would go broke.
You see, the Europeans, at least when it comes to football, believe in a lot of those economically rational things like free movement of labour, property rights, deregulation (including salaries) and unbridled competition. It means that the owner of a football club can employ anyone and pay any amount he likes.
In theory, these policies of deregulation provide a level playing field (to use an apt metaphor) and promote competition.
In reality, they do nothing of the kind. The big clubs, like Manchester United, employ the very best footballers and pay them buckets of money. Manchester United, like so many European clubs, employs so many top foreign players that they often out-number their native counterparts.
If that happened with the Australian clubs playing Australian rules, and the two rugbies, the result would be tiresome. Without the more frequent fluke result that soccer provides, the rich clubs would buy the best players and win game after game year after year.
In Australia, the football business is heavily regulated. Clubs are not permitted to pay their players over a certain amount in total. Moreover, at the end of the playing year the rich clubs have to yield up some good players who can be selected by poor clubs.
Poor clubs are almost guaranteed a continued run with subsidies and/or incentives to move to other premises or interstate.
And what is the result of this regulation and interference with the economical rationalists’ precious market? Paradoxically, it is a more even and more intense competition to the greater satisfaction of the consumer.
So how can we learn from this when dealing with petrol, banks and grocers?
What? Salary caps for chief executives? Haven’t we been told that we have to pay far more in order to compete?
What? Guarantee the continued existence of smaller grocers even providing them with opportunities to get bigger and better premises (by, say, using planning laws to interfere with market forces so that the two big players cannot bid outrageous prices to keep new players out).
What? Prevent mergers that might reduce the number of banks and upsetting all those St George or Bendigo supporters.
Doing something about the cartels might help a bit with grocery prices and bank fees, but with petrol it could at best slow an inexorable trend.
The trouble for Rudd is that he built up an expectation during the election campaign that he could and would do something about them — some sort of panacea like the equivalent of salary caps – when, at least in the case of petrol prices, there is really not much he can do.
He can flounder, as first his price-watch proposal and then his descent into hubris with demands that OPEC lower its prices showed. The former was a sort of barely enforceable salary (or price) cap and the latter was like Derby County pleading for Manchester United to give it some top players.
His floundering makes another football analogy apposite. In the lead up to the election there was a lot of cheering for Kevin 07 and Labor by fans and supporters.
Football teams, too, have fans and supporters. The fans have geographic, family, emotional, irrational reasons for supporting their team. They support it no matter that it or some of its players play incompetently, unfairly or contrary to the rules.
It is not rational to support a political party in such a way. Far better to applaud its worthwhile actions and damn its foolish ones rather than be a carte blanch “fan”.
And on petrol prices Rudd was as foolish as John Howard in 2004 on interest rates. No matter that Howard’s precise promise was the unprovable proposition that rates under the Coalition would always be lower than under Labor. He led voters to believe that they would remain absolutely low, in the same way that Rudd led people to believe he would lower petrol prices — sheer folly in the face of scarcer oil and climate change.
He is now facing the consequences. At least with Rudd it is fairly well recognised that he can do little about prices, whereas Howard could have helped on interest rates. Instead his extravagrant government spending made the position worse.
Tragedy of democracy is that the promises necessary to get into power are often millstones when power has been achieved.
In the meantime, a look at the economics of football might help Rudd distinguish between what might work and what will not.