Tuesday, 20 April 2010

Saving Economics from the Economists

I just read a column by a purported economist that makes me see red. In case the link isn't publicly available, the comment that Robert Gottliebsen makes in the context of the ACCC's decision to block NAB's takeover of AXA is this:
But when the share analysts start to think more deeply about the issues raised by the ACCC decision to block NAB's offer while giving the green-light to AMP's alternative offer, it becomes clear that, over a wide area, mergers in Australia are now going to be much more difficult. What we are seeing is a dramatic widening of competition policy and shareholders' interests can sometimes be cast aside (italics mine). The best illustration is telecommunications where [ACCC Chairman] Graeme Samuel and the government are reshaping the industry and shareholders in Telstra are the sacrificial pawns.

I can't believe it - Gottliebsen seems to be saying that what's good for consumers (i.e., competition) is bad for shareholders!

On the contrary, Mr. Gottliebsen, you should surely know that the lack of competition benefits neither consumers nor shareholders. Oligopolistic markets are known to be wasteful, paying shareholders less than their due and charging consumers more than their share.

When the US Justice Department broke up AT&T in the early eighties, shareholders actually saw the value of their shares go *up* after a few years, thanks to the improved efficiency forced on the company's parts.

These are not just idle comments by one without skin in the game.

I'm both a customer and a shareholder of Westpac's and I believe the ACCC's lack of teeth with regard to the St George takeover has impacted me adversely on both counts. The spread they gain through their increased oligopolistic position is simply frittered away on inefficiency and waste. Where, indeed, is the impetus to improve when the landscape today is far less competitive than just a couple of years ago?

I'm both a customer and a shareholder of Telstra's and I applaud the government's surprisingly tough stance against it. It couldn't happen to a nicer monopoly!

I'm both a customer and a shareholder of NAB's. I'm happy about the ACCC decision to block NAB's takeover of AXA but I believe the same ban must also extend to AMP. We need more competition in every market, not less. It's not just consumer protection but shareholder protection as well. It shouldn't take an economics degree to see this.

I think Australia's status as one of the most diffused shareholder bases in the world has created a class of shareholder-consumers afraid to revolt at higher prices because they falsely perceive a benefit from that as shareholders. That fallacy owes much to the demagoguery of economists like Gottliebsen who, for reasons known only to themselves, continue to peddle the myth that the interests of consumers and shareholders are somehow opposed. The only real opponent is oligopoly and its resultant waste. Both consumers and shareholders stand to gain when waste is eliminated, and competition is the only way to achieve that. Surely a free-market economist should be able to see that.

To paraphrase Raghuram Rajan, it seems we need to save Economics from the Economists.