Competition

As I already said, the elevation of "competition" to a magic word puzzles me. What is missing is narrative, very often. What I mean by that is a coherent story which ties things together. Because "competition" is assumed to lead to good outcomes there is seldom any outline of how it will do this. We are to take it on faith. That is not to say that there is no such story: maybe it is there and those who promote it think it is so self evident that there is no need to join the dots. In this they are mistaken. I cannot be alone in finding the proposition so bizarre that it needs some explanation: though by now I may well be in a minority, since it is well known through advertising that repetition becomes persuasive in itself, eventually.

Competition cannot exist without at least two things being in place: choice and information. The idea is that a number of suppliers all offer things which meet a need or satisfy a want: and the person who wants those things makes a choice about who to buy it from. That is the minimum requirement, I think.

Let us imagine those who can afford morning coffee make it at home and drink it there. Some enterprising individual realises that a great many of those people would prefer to go to a cafe and have their coffee there. They are able and willing to pay a great deal more for that coffee than they do at present, so there is profit to be made by opening a cafe. Our enterprising individual therefore opens a cafe. Now those who drink morning coffee have a choice: they can make it at home, as before, or they can go to the cafe. Leaving aside those who cannot afford to go out, some proportion of those who can make the choice now go to the cafe: and if there are enough of them the cafe owner makes money.

Other people notice this and they realise that this one cafe cannot supply all of those who want to have coffee out. So they open more cafes and now there is more choice. The coffee drinkers can choose to make it at home, or to go to one of a number of cafes which are now open. Their choice has expanded: sort of. On one level they can stay in or go out: but now, having decided to go out, they can go different places.

They make that choice on the basis of information. Information is complex: it includes a whole range of things which are important to different individuals. The most basic of those is often overlooked: it is important for the coffee drinker to know that any given coffee shop will not poison him or give him disease. At the outset this can presumably be done through trial and error: a lot of folk will get sick and some will die: but that is ok, because through the magic of the market the cafes which kill people will lose trade and go out of business. It is a shame that that will arise time and again, because there is a lag in the information becoming available: but that is what a free market implies. In practice, of course, we assume that the state will intervene, through health and hygiene regulations, in order to ensure that cafes do not poison us, even for a short time. The magic of the market is not really enough for us, and we take for granted that somebody is making sure they meet the minimum safety standard. Once we have taken that for granted we lose sight of the fact that it is state intervention which keeps us healthy: and we listen to the siren voices which say that these regulations are unecessary and are pushing up prices: we, cynical in other areas, somehow believe that cafe owners will take the essential steps without them being imposed: even if the steps are not intuitive and so can be missed through ignorance: even if failure to take them only results in epidemic some of the time, and the risk is low enough; the profit high enough, to make them take that risk. The typhoid outbreak in Aberdeen is famous: the risk was low. The hazard was huge. It happened. It has always happened. That is why we have health and hygiene law. Without it there is no doubt that people would withdraw their custom from some cafes through the simple and effective mechanism of being dead. The competition and the market will indeed close those cafes down. So that is all right, then? Hardly.

Other information is also important: quality, price, location, ambience, service: all sorts of things. These are things we can know. We go to a cafe and we get that information just by being there. So we can exercise our choice on the basis of that knowledge: and we do. We weigh those things as seems good to us.

There is other information we do not know: and they are not important to us, or so we are told. For example the profit being made is not known to us: or the structure of that profit. I understand that in some countries that can be known, because tax returns are open. Not in the UK. It is accepted that if we choose on the basis of all those things we can know, that is enough: it is none of our business how much the cafe owner is making off our money: though I rather think it would be something at least some people might like to include in their calculation. It is arguable that we include that by including price: but we don't. Price is only one element of profit. Currently "workfare" is an issue in this country. To me that demonstrates that some folk do care about the composition of profit: in the case of workfare it is obvious that those businesses which get the labour for nothing will make more money than those which don't. But personally I prefer not to support businesses which employ slave labour: so I need to know about that. I do know something about it in the case of workfare: but only through the efforts of people who have worked hard to let me know: not journalists, for the most part although they are now involved. I only know because government is directly involved as well: when it is private I cannot know. From time to time there is scandal relating to cockle pickers who die; or fruit pickers who are paid below the minimum wage; or servants who are abused and have no recourse because of their immigration status. All of this goes on and occasionally there is a tragedy which draws it to attention. But not very often. If the shell fish or the fruit ends up in my cafe of choice I cannot factor that in because I do not know about it.

All of these things will happen naturally because of competition. If the cafe owner gets cheaper supply through abuse he will often take it: not all will, because they are people, and so they have values too: but they will not necessarily know either: and in any case, if even one or two of the cafe owners have no such scruple any values will be quickly eroded. Bad money drives out good: and exploitation drives out fair wages etc, in just the same way. Once again we rely on state regulation, and once again we don't notice the benefits a lot of the time: instead we hear that minimum wages are killing jobs and that red tape is hampering the optimal outcome that comes from free competition

Other things we do not know include the fact that apparent choice is apparent: as the soap powder in the OP shows. Well, you may say caveat emptor. If I buy coffee at cafe X because I think the brand is better and am prepared to pay more for it: then if the coffee at cafe Y is identical, but unbranded, blame my snobbery, or whatever. Clearly I am not wholly motivated by money (folk aren't in the end) and I am meeting some other need or want: my choice. But what about my choice to take umbrage against a particular business practive: like forced labour? I take my business elsewhere: only it happens that Cafe Y is owned by the same people as own Cafe X, and I don't know that. Tough, really.

In the case of cafes, the information we have in incomplete: but it is sufficient, arguably. Let us say that, for the sake of argument. We get lots of cafes and they don't poison us and we can choose, within the limits of our purses, what kind of experience we will have, on the basis of quite a lot of information. Fair enough. Perhaps there will be no cartels and the price will fall as low as it can go at each band (for not all cafes compete with each other: the cafe at the Ritz competes with that at the Savoy; it does not compete with Luigi's in Hackney: and not just because of geography)

This model can be said to work ok for those things we can have good information about: but it fails with things we do not buy often. For example, if I want to buy a carpet. I do not buy a carpet very often: it is a major purchase and it is also very disruptive to get a new carpet. But what that means is that I have very little information to bring to the table: actually almost none. I can draw on my mum's experience and that of my friends. I can know which manufacturers have a "good name" maybe: though I cannot know if they acquired it in time past and have since changed the quality so it is now rubbish. I can assume "you get what you pay for" and so judge on price. But I really know nothing at all about carpets. I have plenty of choice. There are loads of carpet shops. But no information. In this case the choice becomes an imposition, and I guess: I decide the colour I want cos I have that knowledge: and I listen to a salesmen with an interest in selling me what makes him most commission: and I hope that if it is dearer that means it is better. I can use consumer guides like "Which" and that might help: but its very existence shows what is wrong with this fairy story of choice and information.

What applies to carpets applies to health care: in spades. It is presently argued that competition will improve health care in this country: to date "internal competition" and in future unlimited competition. It is argued that giving me a choice of where I get treatment will impose "market discipline" and that this will make the service better.

Well what we already know is that there is such a system in America: it does not produce cheaper health care: quite the reverse. It does not produce better outcomes, in terms of health, either. So the question I am asking is what is the story which joins the dots between competition and inevitable improvement? Since the best example we have shows the opposite what is the mechanism, the narrative, which indicates that example is not applicable, and some other outcome is to be expected?

Competition requires choice. So there must be a range of providers so that I can choose. Well, in the case of GP's I already have choice: there are a number of GP's within easy reach of my home and I go to one of them. I registered at that practice because it was close by. Since we have a national health service no other consideration entered into it. I am aware that some doctors are better than others; and some are better at some things. But that is theory. In practice I have absolutely no way of knowing whether the doctor I see is good or bad. What I do know is that he is better than me, and that again depends on state regulation. He has studied and he has passed exams and he has done clinical work under supervision of more experienced doctors. He undertakes regular training to keep up to date because the state requires that. He has access to more experienced colleagues, and to specialists if he needs them. If he is not very good maybe he uses those resources more than someone who thinks they are good and is maybe a bit arrogant about it? How would I know? My choice is meaningless: and if it is argued that "league tables" will help, well no, they won't. Since if I am seriously ill I have no idea what is wrong with me, how will a league table help? A general figure is useless to me: but tables based on particular illnesses is just as useless. Fact is that I will choose a doctor on geography and, probably, on whether I like his manner: which is a chocolate teapot so far as exercising choice related to medical considerations is concerned. In face of this where is the counter story showing that competition will be useful to me as a patient?

What about hospitals? I now have a choice about which hospital to go to, because competition is a good thing. How does this help me? Let us say I am knocked down in the street or have a heart attack: there I am, lying on the pavement and an ambulance is called: the ambulance people do first aid and then they say: where do you want to go? What am I supposed to reply? A good consumer, I have wasted hours of my time reading league tables etc and I know all the stats for the hospitals. But if I am in a rural area there is only one. If I am in a city there may be several: and you know what? I don't care: I want to go to the one which has a bed. For competition to work they must all have a bed. Even in the case of cafes I cannot always get a table: so what are the chances of that? Well they are high if we have a lot of surplus capacity. But over decades we have been pursuing "efficiency" by reducing that surplus below the level which is actually required for prudence: now we must needs reverse that process. And both policies are to achieve the same end: cost cuts and increased "efficiency". Two diametrically opposed aims will produce the same benefits: curious, isn't it? Or maybe it is a lie. Who knows? When they give us the narrative maybe it will all become clear.

Ok that is emergencies: less urgent treatment is different and now we can choose. Choice will make things better there, at least. Once again I cannot have choice unless every treatment centre has spare capacity: or unless I am prepared to wait to get the hospital of my choice. Oh..wait. Waiting for non urgent treatment is a bad thing: in fact one of the major critcisms of the NHS. So I cannot be expected to wait for my hip replacment: I must have it done quickly AND have it done where I want. So assuming I am informed enough to make a choice (unlikely even with league tables, as Circle well knows: their spiel shows quite clearly that they expect me to choose on the basis of the "hotel" aspect, not the medical: and they are right) all facilities must have a bed for me at the same time. I will fill one of them. Are the rest to lie empty? They have to: because otherwise my choice is non-existent. What then? Having wooed me with better food and nicer pictures on the walls I will go to that hospital: since they get a lot of business the extra costs of the hotel facilities will be offset by more "business": so that is all right. And the other hospitals will close: oops, there goes my choice. Relax Fiona, the successful hospital will take it over and make it better and then you will choose that one and all will be well. But still I can only occupy one hospital bed at a time: so still some will lie empty if I am to have choice. Hmmm...what we need is more demand: I better get sick more often: or be told that I am sick, at least. Couldn't happen.....could it? Once again, look to America. Comfortably off people seem to have a lot of tests etc we don't have: this is said to be fear of litigation: but remember, everything can be reduced to supply and demand.....

In short, even if it is accepted that competition is a good thing I cannot see it is applicable to important things like health. Not in theory and not in practice. So what I want is some evidence or even just a coherent story as to why it would be. "Competition is good" is not a story. It is a slogan