21st September 2005

Banks prove competition flaw

Competition favours the consumer. This is the gospel according to right-wing economists and their political wing, the Progressive Democrats.

And who could argue with that? Sure, look at Ryanair.

Before Ryanair, the popular belief goes, Aer Lingus were charging a million, billion pounds to get to London. Now you can fly for a cent. Case closed.

The idea here is that if there is one of something - a monopoly - consumers get fleeced. If there’s more than one - consumers are laughing.

And this is actually what happens. Some of the time. But there’s a flaw in this argument. A big flaw.

I’ll let the father of free market economics, Adam Smith (1723-1790) tell you what it is: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”.

Roughly, this means that when the scope to lower prices and still make a profit ceases to work, traders will tend to strike an agreement, spoken or unspoken, to keep prices up.

Consider the Irish banking industry. There’s loads of different bank’s on Ireland’s main streets.

Yet, according to the banking union, the IBOA, research shows that Irish banks are the most profitable in Europe and in some cases they are twice or three times as profitable as their European counterparts. That doesn’t sound like cut-throat competition. Now why would that be, do you think?

I have no evidence that there is a secret cartel of banks in this country. Yet nobody’s rocking the boat with drastic price cuts. Bank of Scotland caused a bit of a stir when it entered the mortgage market. A lot of the banks suddenly found that they could reduce rates.

I’m not saying that competition (or capitalism) doesn’t work. I’m saying that it doesn’t always work. The simplistic mindset of ‘privatise everything, deregulate everything’ (the PD mindset) won’t work without the intervention of intelligence and common sense.


I’ve come back to life

A few weeks ago I wrote about how I had been considered dead by the NUJ for the past eighteen months.

Well, I’ve been revived. I received a nice leader from the head of the NUJ Seamus Dooley congratulating me on my existence, saying sorry (even though it wasn’t the NUJ’s fault) and reinstating me as a member.

Seamus gently reprimanded me for not naming the bank involved who had originally declared me dead. He wrote to them to find out what had happened.

The bank then wrote to me (this is getting complicated) putting their hands up, saying the words ‘account closed’ had become mixed up with ‘payer deceased’. Maybe they meant that I was a dead loss.

And, lo and behold, they included a cheque for some 250 odd euro to cover the time that I wasn’t a member of the NUJ.

What should I do with it?

The money is not mine, I saved the same amount by not paying my membership. It’s not the NUJ’s, after all I wasn’t a member. And I’m not giving it back to the bank. So I have decided to forward it to Concern for their Niger appeal.

And should I now name the bank? I didn’t name it when it messed up. If I name it now because it made amends, I’ll feel a bit of a wuss.

So I’ll keep it a secret. They’ll know in their hearts they did the right thing. Isn’t that good enough?