David Cameron has joined in the Tesco-bashing, but the OFT should leave it alone. And the IMF is proving better at spin than at giving poorer countries votesby P L / June 25, 2006 / Leave a comment
Bashing Tesco It’s fashionable to have a go at Tesco, so it’s no surprise that David Cameron has joined in. Keen to show that he’s not in the pocket of big business, the Tory leader recently warned Britain’s biggest supermarket chain to “behave responsibly.” Worse, on the same day, the office of fair trading (OFT) announced that it would refer the supermarket sector to the competition commission—less than a year after ruling that Britain’s £125bn-a-year groceries market was sufficiently competitive.
The OFT claims its about-turn has come about since more evidence came to light. More likely its new boss John Fingleton is bowing to pressure from lobby groups which hate supermarkets. But while bashing Tesco may be clever politics, it is not sound economics. And it makes a mockery of government competition-policy reforms, which were meant to take politics out of antitrust decisions. Although farmers, environmentalists and small shopkeepers may not like it, shoppers use Tesco because it gives them what they want: an ever wider range of ever more affordable food. Judging by the performance of its overseas ventures, Tesco is also an international success story. Cameron may regret his opportunism; the OFT’s boss certainly should.
The IMF proves a good spinner Rarely have the IMF’s spring meetings enjoyed such coverage. A “breakthrough in the governance of the global economy,” splashed the FT; the IMF, said the Guardian, is becoming a “world economic watchdog.” Gordon Brown, who chairs the fund’s key policymaking committee, knows how to spin.
The IMF has been rather idle lately: there haven’t been any big financial crises recently and Asian governments, notably China, have been piling up vast reserves of foreign currencies to insure themselves against such a calamity—doing away with the need to borrow from the fund, and all the conditions it entails. But the Asian countries have achieved this by holding down their currencies, thus propping up the US dollar and swelling America’s already vast trade deficit. With exchange rates out of kilter and trade imbalances growing perilously large, many have suggested that the IMF should rediscover its original Keynesian vocation as global economic policeman.
Cue finance ministers’ much-hyped decision to ask the IMF to examine how various countries’ policies contribute to these global imbalances and suggest how they might act together to resolve them. The fund already reviews individual countries’ economic policies periodically; by monitoring several collectively, it will now be able to make suggestions in a more joined-up fashion. Big deal. While the IMF has huge power over developing countries to which it has lent money, it has little sway over the US, China or Britain. Just ask the chancellor: for years, he has roundly ignored the fund’s advice to raise taxes to plug the government’s budget deficit. The global imbalances will only be corrected when governments choose to mend their ways—or when markets force their hand.
Rich governments also put off a decision to give rising economic powers such as Brazil, China and India more say at the IMF. Although its economy is over ten times bigger, India currently has fewer votes than Belgium.
Energy politics I
Not since Che Guevara died fighting there nearly 40 years ago has Bolivia been on the frontline of the global struggle against capitalism. So the anti-globalisation brigade cheered on May day as new president Evo Morales marched his troops into the country’s foreign-owned gasfields carrying banners declaring them “Nationalised: property of the Bolivians.” Among the victims of the expropriation were Britain’s BP and BG, France’s Total, Spain’s Repsol and Brazil’s Petrobras. The seizure of foreign assets by the government of Bolivia—GDP $22.3bn—should nail once and for all the myth that global companies such as BP, with an operating income of $32.7bn last year, run the world. But Bolivia was unwise to flex its muscles in this way. It will be in a pickle if foreign gas companies refuse to stay on as contractors, taking their knowhow with them. International investors will think twice about investing in the small Andean country, and Brazil, the main customer for Bolivia’s gas, will doubtless seek more reliable suppliers in future.
Energy politics II
Governments are rarely right to block foreign takeovers. But European governments would do well to limit Russia’s stranglehold over their gas supplies—by blocking state-owned Gazprom from snapping up Centrica, Britain’s main gas distributor. Gazprom demonstrated it was the pawn of a Kremlin potentially hostile to Europe when it cut off supplies to Ukraine earlier this year. And its boss has warned European governments not to block its expansion ambitions on the continent, lest it pipe its gas east to China instead. It is bad enough that Gazprom could exploit Europe’s dependence on its gas supplies to pump up prices; far worse that it is threatening to abuse its power for political purposes. Far from allowing the Russian monopolist to tighten its grip over European gas supplies, EU countries should be building pipelines that bypass Russia to alternative producers in the Caspian and seeking supplies of liquefied natural gas from further afield.