Taxes, equality and death are issues that vex every generation. There’s not much we can do about the latter but, hard to believe as it might be, governments and regulators are in prime position to help with the other two.
While there are policies that support economic growth and others that address inequality, there are few policy instruments that can actually tackle both – competition law is one that can.
There’s been many learned studies over the years – some highly technical and some more accessible - which show that economies are more productive and grow more effectively when companies compete on their merits. Analysis also suggests there’s a correlation between wealth gained through businesses in a strong, competing market and how that wealth is distributed through various strata of society. Where there’s a lack of business competition the wealth that’s acquired shifts to those with the most. So to put it plainly - competition, and protecting against unfair competition, is both good for wealth equality and for the tax take of any economy.
There’s a risk that because we have wealthy economies in Guernsey and Jersey we are lulled into thinking there’s no reason to be concerned about income inequality. This assumption should be challenged; those selfless people helping with food banks and supporting families who would otherwise go without this Christmas will be all too aware of need within our island communities.
Government policies impact conditions for people in ways that are not just intellectual. Almost regardless of the size of the population, where there’s no competition unfair market practices drive up costs and higher prices increase everyone’s expenditure – those who can afford it least are those who end up worst off.
Competition policy and market competition can help governments to drive economic growth and make an important contribution to reducing wealth inequality.
Interestingly in smaller economies, such as Jersey and Guernsey, it could be argued that word of mouth is a powerful tool that keeps sharp practice by businesses in check. However it could also be argued that, without competition or regulation, monopolies, and those with significant market share, could operate without fear of repercussion and those who complain are easily punished. This activity widens wealth inequality and potentially reduces taxes collected and the economy shrinks for everyone.
Imagine if all the builders, dentists or petrol stations in Jersey or Guernsey got together and decided they’d all charge the same high price for their services. This would indeed be an illegal practice under competition law and would almost certainly force wealth to move from the poorest to the better off.
That’s not to suggest that wealth acquired from investment, ingenuity or competitive performance is improper - far from it; it creates profit streams (and potentially more tax paid) and is an incentive to further investment and innovation; competition law actively fosters this behaviour.
However market power which results in anticompetitive behaviour or back room deals which hike up prices don’t simply mean there is less for all; it means there is less for those who already have less. A policy instrument that supports economic growth and reduces income inequality is vital; competition policy and law enforcement are tools that pre-empt market distortions; they play a role in addressing wealth inequality; they act and prevent illegitimate market power from regressively redistributing income and wealth. So there’s not a lot we can do about death but two out of three ain’t bad.