begging consumers to enact market forces: Huhne’s liberal paradox
Chris Huhne is in the papers today encouraging consumers to punish energy companies for putting their bills up. That’s Chris Huhne, Secretary of State for Energy. Apparently this is Mr Huhne ‘intervening dramatically’. By, er, giving an interview to a newspaper. He tells the Observer that we shouldn’t accepted the current rise in prices ‘lying down’. So he has bravely stood up and, um, done essentially nothing about it.
We might have thought that the person chosen democratically(ish) to oversee energy in the country may have some kind of control when he believes that companies are charging more than they should. But, no. We long gave up on these ‘crazy socialist’ ideas. Instead we decided that the market should set these things. Because the market ‘always gets prices right’.
But, um, if the market always gets prices right, then why does the Secretary of State for Energy have to go to the press in order to encourage people to switch energy companies? Surely we would do that anyway if we were the simple rational agents that neo-liberal economics tells us we are?
No, what Chris Huhne is accepting is that we are not simple rational agents. He is accepting that we are influencable by things other than price – including, he seems to think, by him prompting us to remember that we can switch.
But if he thinks that, surely he has to accept that we are influencable by other things more broadly? Like, say, energy company adverts? Or, the fact that it’s a real pain to switch? And, more to the point, to whom, precisely, are we supposed to switch. As the Observer says:
“At least one of the other so-called “big six” energy companies is understood to be preparing to announce a significant price increase in the coming days, and the rest are likely to follow over the next few weeks.”
To be fair to Huhne, he is re-writing regulations so that the ‘big six’ don’t continue to have the monopoly powers they do now. Or so he claims. But if people are already bewildered by the complexity of switching between 6 potential companies, why does he think we’ll be more likely to switch between more? The pain of doing it (the ‘transaction cost’) is, it seems, too high for many, especially when most companies charge roughly the same.
It’s a classic example of a liberal paradox. A government minister believes a market has failed. He believes that, at once, he isn’t powerful enough to tell 6 companies to cut their prices, and is powerful enough to tell 25 million households to switch company. This is la la land economics. Fuel prices are, quite simply, not going to fall because Chris Huhne gave an interview to the Observer saying people should switch supplier more often. If there’s a problem (and, yes, there is) then he needs to understand that it isn’t the job of the government to commentate. It’s the job of the government to fix.
George – yes, I want him to nationalise, or, at the very least, to set price limits.
“So he has bravely stood up and, um, done essentially nothing about it.”
So what did you mean by that then?
The idea of market forces is that competition between providers drives efficiency and lowers costs. You might think that energy should be nationalised (which is something I tend to agree with) but that doesn’t make it right to accuse Huhne of doing nothing when he is in fact actually doing something which should, in theory at least, be a substantial change to the current situation where the cartel of the big six is practically free to do whatever the hell they want.
So tell me George, how many companies do you think there need to be before we see competition that actually does improve efficiency or lower costs? 6 doesn’t seem to be working. How would 10, or 20 change anything?
Hi George, I did make reference to it:
“To be fair to Huhne, he is re-writing regulations so that the ‘big six’ don’t continue to have the monopoly powers they do now. Or so he claims. But if people are already bewildered by the complexity of switching between 6 potential companies, why does he think we’ll be more likely to switch between more? The pain of doing it (the ‘transaction cost’) is, it seems, too high for many, especially when most companies charge roughly the same.”
Why didn’t you mention the rest of the article?
“In a further attempt to ease pressure on prices by increasing competition, the energy secretary will this week announce new measures to make it easier for smaller companies to compete in the market by easing the costs and red tape that prevent them from doing so. Around 99% of people currently get their energy from one of the big six. “Right now, only one in five people switch suppliers. I want to see more switching, more competition and more companies in the market,” Huhne said. “The big six only have a few minnows snapping at them, who are kept artificially small. By scrapping red tape for small players they can become serious challengers and help keep bills down.””