Cold hand of competition reaches for greedy publicans

THE Government makes a lot of noise about introducing competition into the economy, not least in the latest row over the price of a pint. Some progress has been made through, for example, the recent reinforcement of Competition Authority powers.

The authority is now going to conduct what could be a very interesting review of the drinks industry from, as Richard Bruton put it, the malting house to the public house.

There are still some thorny issues to be tackled. The economic pay off of doing so would be significant. A Trinity College economist, Mr John Fingleton, estimates in a paper presented to the Statistical and Social Inquiry Society yesterday that the economy could lose up to £1 billion a year through the absence of strong competition. So what can be done?

Take, for example, the issue of how to regulate competitive markets. The Government has known for some years that competition was coming in the health insurance market. A report completed in 1994 by an expert group pointed out that an independent regulator would be needed to police the sector. In the meantime nothing was done, and the Department of Health was left to play the role of both team owner (as VHI's parent) and referee in the recent dispute about BUPA's products.

Precisely the same situation applies in telecommunications. Fortunately the wheels finally seem to be in motion for the appointment on an independent regulator in the sector, but why has it taken so long?

In the meantime ESAT Digifone, the second mobile phone operator, and the companies competing in the business market have had to deal with the Department of Telecommunications - Telecom Eireann's parent department - as regulator.

This is not to criticise the civil servants involved, but the regulation of key sectors' such a telecommunications and health needs to be undertaken by an expert, transparent and independent agency. It is vital that the regulator to be established in telecommunications is clearly separate from the Department and is prepared to act as a champion of competition, rather than a protector of the status quo.

Regulation is only one of the issues which the Government must tackle. Entry to markets is another key issue. Dr Fingleton examines the topical issue of beer prices, for example. Production is controlled by three large firms, he points out, and entry to retailing is limited by licence. The price of stout has increased by 16 per cent in real terms (i.e. ahead of inflation) since 1986, he calculates, while in the fiercely competitive off licence market it has fallen by 13 per cent.

Weak competition may thus cost pub drinkers several hundred millions of pounds, a year, equivalent to about 40p a pint.

What is the answer? The investigation about to get under way by the Competition Authority into the sector appears well warranted. If nothing else, it will alert the industry to competition rules which outlaw any collusion in price increases. Ultimately Dr Fingleton points to the tough licensing regime and the lack of availability of drink in many restaurants as a key reason for the lack of competition and resulting price increases in pubs.

Other sectors have similar problems. There have been rows for year, for example, about licensing in the taxi industry. He also correctly identifies Government lobbying that Telecom Eireann be allowed to retain its stake in Cablelink as limiting a potential source of competition and innovation.

The Competition Authority can carve out an important role for itself. It has used its new powers to initiate investigations - previously it could only respond to complaints - to take a look at the drinks industry. However, the Government also has a heavy responsibility. It, too, needs to learn to champion competition, despite any short term political pain this may involve.

All it needs to do is to look at the tourist and business activity which competition from Ryanair has brought on the route to London to realise the economic benefits.