Tuesday, May 16, 2006

Efficiency Quango Inefficient


One of Gordo's most extraordinary beliefs is that he, an old skool Scottish socialist, somehow holds the key to making our economy more efficient.

Naturally, much of his destructive tinkering has comprised loads more public spending- everything from those multibillion R&D tax credits to our shambolic unwanted £9bn pa state "skills" industry. But on top of that, he's taken it on himself to instruct and regulate Britain's private sector businesses to improve their performance. And more regulation of course means more jobs for quangocrats.

One of the bigtime winners has been the Office of Fair Trading: since 2000, its budget has increased by 70% to £56m pa. That was to enforce Gordo's stern new competition laws, supposed to deliver more competitive markets, and pressure companies into greater efficiency. Consumers would gain from lower prices, and the economy from higher productivity. Simple.

Hmm. If only.

The Public Accounts Committee has just reported on the reality. Instead of efficiency, all it found at the OFT was the usual morass of bureaucratic incompetence and delay:
  • No effective strategy- "The OFT relies largely on complaints to select its cases. It receives around 1,200 complaints from the public each year. There is no guarantee that complaints will relate to one of its priority sectors." Reactive working practices and lack of strategic prioritisation- the classic recipe for organisational wheelspin
  • Poor operational management- eg its internal case manual, vital to ensure consistency, is only half finished; staff don't understand what top management want; it does not maintain a competition database to retain and share knowledge
  • Weak staffing- "The competition enforcement division has suffered from staff turnover of 20% per year, and 12% of its posts were unfilled in 2005. Many of its staff leave to join the private sector." Main grade OFT lawyers are paid only £39,000 pa- if they're any good, they can get a multiple of that in the private sector
  • Culture of delay- "The OFT has published standards for how long its investigations should take. The standards state that 75% of its investigations should be completed within 9 months. In fact, no investigations have been completed within this timeframe...
    Many investigations take at least 3 years...Some have lasted over 4 years"
  • No measure of success- it's impossible to assess value for money since OFT have not considered it necessary to measure the benefits of their actions: when pressed, all they could come up with was reducing the price of football shirts, and- possibly- the Monopoly board game...not quite what Gordo promised

The really concerning thing about the OFT is that- on top of its £56m pa funding- its activities always load additional costs on business:

"Legal costs alone costs can be sizeable. CBI members estimate that they can incur legal fees in excess of £200,000 on an OFT case. In complex cases, these costs can be far higher, particularly if the company appeals. One company has incurred legal fees in excess of £1.7 million."

And the legal fees are just the tip of the cost iceberg. Senior competition lawyer Edward Pitt, commenting on the OFT's recent decision to ditch its bumbling and long-running cartel investigation into the telecoms market, fumes:

"If the OFT spent £1.5m on this investigation, you can multiply that by five for the companies that spent four years defending themselves against these allegations. The real cost of such an unnecessary and long investigation is the economic inefficiency caused by business uncertainty, as well as the disruption of management time."

Right now, the OFT is again pursuing the big supermarkets. It's another reactive decision, diverting resources from much more important matters. Because in reality, fierce competition among supermarkets has been brilliant for consumers, routinely driving down prices just like Gordo wanted. But they are naturally unpopular with suppliers and small shopkeepers, and are evil personified in the eyes of the BBC and many other leftie pundits. So the OFT is jumping back in, even though its time would be much better spent concentrating on say the appalling anti-competitive practices in the construction industry. And even though its intervention will increase supermarket costs.

There is a school of free market thought that says governments should stay out of competition enforcement altogether. It's yet another burden for taxpayers, organs like the OFT never know what they're doing, they can easily make things worse, and anyway markets have their own self-correcting mechanisms (eg excess profits attract new suppliers to enter the industry).

We may not be ready for that, but as things stand the OFT is pretty much a waste of space.

2 comments:

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