Ofgem – the regulator for the British gas and electricity markets – this week called for an investigation into the “Big Six” energy firms regarding anti-competitive behaviour. As a result, there will now be a lengthy review of the energy market by the Competition and Markets Authority (CMA), which will look into Ofgem’s accusations of "possible tacit co-ordination" by the major energy companies regarding the prices they offer.
The move follows on from criticism levelled against the giant energy monopolies in a joint letter by consumer group “Which?” and the Federation of Small Businesses (FSB), who asked for regulators to examine the “broken” energy market.
"For too long the lack of competition in the energy market has not been addressed,” states the letter from the two bodies. “It is now time for radical changes that deliver an effective, competitive market that works for everyone, before the scale of this crisis worsens.
"We want to see the presence of strong competition right across the industry drive affordable pricing that gives everyone the confidence they are paying a fair price for their energy."
The public debate around energy prices began around six months ago with the announcement by Ed Miliband that the Labour Party would freeze energy prices for 20 months if elected in 2015. This pledge by the Labour leader - and the ensuing furore - shone a light over what was already apparent to most: that fat-cat energy bosses are lining their pockets whilst millions can barely afford to heat their homes. Whilst wholesale energy costs have increased by 3.2% in the last four years, consumer energy prices have seen a 24% rise in the same period; meanwhile, profits for the Big Six – British Gas, E.On, EDF, npower, ScottishPower, and SSE – have increased by a whopping 73%.
Miliband’s energy price freeze promise led to an immediate hysteria and backlash by the energy bosses, who gave warnings of future blackouts due to a lack of investment in energy supplies. Cameron and the rest of the Tory-led Coalition, feeling the public pressure to do something about rising household energy costs, promised to cut energy prices by removing the obligations on energy companies to help subsidise energy efficiency and insulation measures for homes. But such energy efficiency measures are themselves designed to reduce household energy demands and thus lower energy bills. In other words, the Tories will help to reduce energy prices in the short term only by increasing energy bills in the long run!
Such examples demonstrate the limitations of simply tinkering with the system by changing this-or-that tax and this-or-that regulation. What the government is able to gain from regulation with one hand is simply taken away with the other. For all the dazzling rhetoric and supposed reform, nothing fundamentally changes. The net-effect for ordinary people is zero – or worse; meanwhile, the capitalists continue going about their business as per usual, laughing all the way to the bank. Plus ça change, plus c’est la même chose: the more things change, the more they stay the same.
One day before the recent report by Ofgem, SSE, one of the Big Six, announced plans for a self-imposed price freeze until 2016. This act, whilst at first seemingly benevolent, only serves to prove the above point, as SSE’s profits, far from being damaged, will simply be made up for by cuts to jobs and investment elsewhere. As Robert Peston, the BBC’s economics editor, explains:
“So why is SSE's eye-catching, populist initiative such a non-event in financial terms?
“Well it is because...if pressure is applied to price or profits in one part of what are in effect conglomerates - with interests in energy generation and distribution, as well as energy supply or retail - there are ways of making up the difference elsewhere.
“In the case of SSE, it is cutting costs by £100m - and shedding 500 jobs.
“SSE is massively scaling back its investment in offshore wind farms, for those it no longer deems viable.”
Again, what the capitalists might give with one hand, they will take away with another. In the case of SSE, an energy price freeze – note: freeze, not reduction – will be accompanied by a cut in jobs and a reduction of investment in new energy supplies. Thus the earlier threat of the energy bosses about a strike of investment is seen to be entirely realised. SSE are simply demonstrating in practice what the Big Six have collectively warned about in words: “if you try to regulate us and threaten our profits, we will turn out the lights on the country and plunge you into darkness.”
The Tories, always willing agents for addressing the concerns of big business, duly chimed in with warnings about the dangers of trying to regulate the market. As the Financial Times (26th March 2014) reported:
“Tim Yeo, who chairs the Commons energy and climate change committee, said this [the SSE announcement] showed that energy price freezes could produce an “investment shortfall” in the UK that could threaten to “aggravate the coming crunch in generating capacity and increase the risk of blackouts”.”
The boss of Centrica, the parent company of British Gas, meanwhile, responded to the announcement of the CMA competition review with additional threats of a lack of future investment and potential blackouts.
The SSE and Centrica examples aptly demonstrate a fundamental law of the economy: you cannot control what you don’t own. All attempts to reform and regulate capitalism will end in disaster, with shortages, job losses, and a lack of investment. The needs of society – for affordable warmth and electricity, for improved energy efficiency, and for green energy supplies – cannot be met by a system of production that has only one root interest; one simple raison d’être: profit.
Anger and pressure
The SSE announcement, however, also expresses the fears of the capitalists – and their political representatives – about the mass anger towards them from below. In this sense, the self-imposed price freeze by SSE is more a case of self-flagellation than of benevolence. As the Financial Times (26th March 2014) notes:
“The SSE price freeze reflects pressure on suppliers to rebuild customer trust, which was severely damaged by a flurry of inflation-busting increases in bills last year that pushed energy to the top of the political agenda and fuelled a fierce debate about the cost of living.”
The recent Ofgem report and CMA investigation into the potential “anti-competitive” practices of the Big Six are a reflection of the same sentiment: the need for the representatives and managers of capitalism to be seen to be doing something to quell the fury felt by ordinary people towards these profiteering gangsters. As is always the case when the gaping wounds of capitalism and class society are exposed for all to see, the answer of the ruling class is not to tackle the problem (for they themselves are part of the problem), but to “launch an investigation”.
Such investigations are no more than an attempt to distract from the real problem: the capitalist system. In the case of the energy market, the CMA competition review will likely come back in 18 months with a variation or combination of three conclusions: there is “tacit co-ordination” between the Big Six companies; there are structural problems in the energy market preventing new companies from entering and competing; or the market is fine and this whole debate was just a bit of political jostling.
In the meantime, the government and the energy companies will hope that the investigation will kick the issue into the long grass and help put the debate about energy prices to rest for the foreseeable future. But without any real changes in the meantime, energy prices will continue to rise, the energy bosses will continue to rake in their profits, and families will continue to face a choice between heating and eating. All the investigations in the world cannot resolve the issue of declining living standards felt by workers and youth as a result of the contradictions of capitalism.
Competition and monopoly
Whatever the conclusions of the CMA investigation, nothing will fundamentally change. Perhaps some of Big Six will be broken up into smaller companies; or maybe regulations will be introduced to enable new businesses to enter the energy market. Either way, the key question of ownership remains the same: the energy companies will remain in private hands, producing for profit rather than for social needs. The laws of the market – of the invisible hand – will still be in place, and the contradictions of capitalism will continue to assert themselves.
It is not the energy market that is “broken”. The fault does not lie with an “anti-competitive” market dominated by just six monopolies, nor with the behaviour of the Big Six – whether it involves active manipulation and collusion or not. The problem is not one of too-little competition, but of capitalism itself and its nature as a system in which production is only for profit.
Marx long ago explained – in the Communist Manifesto and the three of volumes of Capital – how monopolies were a product of the laws of capitalism itself. The laws of competition and the invisible hand inevitably turn the free market into its opposite – that is, into an economic system dominated by giant monopolies. The weak – the uncompetitive – go under and are consumed by the strong. The small are bought up by the big. Companies merge and businesses amalgamate. The result is a concentration of capital in fewer and fewer hands.
One only has to look around today to see how every major industry is dominated by just a handful of giant multinational monopolies: almost all consumer goods are produced by just 10 multinationals (Unilever, Kellogg’s, Mars, Nestlé, Coca-Cola, Kraft, etc.); 90% of media is controlled by six huge conglomerates (News Corp, Time Warner, etc.); and four supermarket chains (Tesco, Sainsbury’s, Asda, and Morrisons) account for three-quarters of the UK grocery market. This is not to even mention the intense concentration of capital when it comes to the banking industry and the enormous domination of these financial companies over the global economy.
The recent history of the UK energy market proves this very point even further: up until the late 1990s, energy supplies in Britain were run by a single state-owned monopoly. Following Thatcher’s programme of privatisation, 15 suppliers were allowed to enter the energy market. Within a couple of decades, however, the initial 15 had become the Big Six that we know today, accounting for 95% of the UK gas and electricity market. In the space of just one generation, the free energy market became one of six giant monopolies.
For all the attempts of the capitalists to create the illusion of efficiency through “competitive markets” – which, after all, is the only real justification they have for the existence of their exploitative system of greed and profit – they cannot overcome the dialectical laws of capitalism, which turn competition into its opposite.
No to “competitive markets”! Yes to nationalisation!
The solution – which is staring everyone in the face – is not to try and artificially create competition in the name of efficiency, but to take these giant monopolies that have been created by capitalism and put them under democratic and public ownership – that is, to nationalise the energy industry and put it under workers’ control. Such a measure, despite having never been mentioned by any of the major political parties, is known to be extremely popular, with surveys showing that 68% of people support the idea of nationalising the energy companies.
After years of rising bills and cold winters, ordinary people have lost all faith in the ability of market to provide their basic needs. The apologists of capitalism themselves are aware of this anger and loss of trust in their system, as indicated by the article by Allister Heath, the editor City AM, from last year entitled “There is sadly mass support for nationalisation and price controls”. Commenting on the results of the surveys mentioned previously, Heath remarks:
“Slowly but surely, the public is turning its back on the free market economy and re-embracing an atavistic version of socialism which, if implemented, would end in tears. On some economic issues, the public is far more left-wing than the Tories realise or that Labour can believe.
“...Supporters of a market economy have a very big problem. Unless they address the concerns of the public, they will be annihilated.”
Heath’s words indicate the real concerns of the capitalists and help to shed light on the rationale behind the latest distraction of the CMA’s competition review. The representatives of capital understand that they must be seen to be doing something to address the problems facing increasingly impoverished families. But all their attempts will be in vain. For real, genuine, and long-lasting change, we must tackle the root problem and fight for the socialist transformation of society. Only in this way can we guarantee that the needs of the vast majority of society are met rather than the profits of the few.