It is only right that antitrust decisions which have a bearing upon mergers and acquisitions within the EU are kept out of the hands of elected politicians, not least, because the markets in which the government is the main customer are prone to cronyism – the nexus between the political elite and big business that contrives to puts the national interest last, not first. This is because the twin evils of lobbying and corruption rear their ugly heads every time taxpayers’ money crosses the boundary between the Public Sector and the Private Sector.
But, all this talk about creating and protecting pan-European champions and picking winners only serves to divert attention from the most pressing issue for businesses in the EU – how to deal with the problem of lack of competitiveness in both, the domestic and in global markets.
Consider, for a moment, the defence equipment market in the UK, for which there is only one customer – the Government.
The default policy of Governments of all persuasions in the UK has been to procure military equipment for the Armed Forces through fair and open competition – the only exceptions being off-the-shelf purchases and single-source development contracts, the latter to be awarded on a preferential basis (to the Select Few).
Indeed, in its most recent policy statement on defence procurement expressed in the Defence Industrial Policy published in December 2017, the Government says (on page 23):
“We strive to provide our Armed Forces with the capabilities they need at the best value for money, obtaining this through open competition in the global market, wherever possible. Competitive tension is the greatest driver for innovation, productivity and earning power in any economy.”
Yet, in the very next sentence, the Government goes on to make this frank admission:
“In 2016/17, 58% of new MoD contracts by value were placed on a non-competitive basis. This has grown from 36% in 2010/11 ……”.
So, it seems that less and less use is being made of the market-based instrument of fair and open competition – which happens to be the Government’s preferred policy on defence procurement. There is a suspicion that senior executives seconded from the defence industry and embedded within the Ministry of Defence, who remain in the pay of their employers, may have exercised their maligned influence to interfere with implementation of policy to serve their narrow business interests. Or is this a clear-cut case of the senior civil service subverting the will of the party of government and policy set by Ministers? What Trump calls the “deep state”.
It is entirely understandable why the Government would want to hand out uncontested, single-source development contracts to selected defence contractors on a preferential basis, but the downside is that there is a price to be paid for this Government largesse – and it is not only in pounds sterling!
Over the last 45 years or so, the UK’s top defence contractors who have monopolised the market in military equipment, have become seriously uncompetitive – largely because they have enjoyed unbridled protection from Government on national security grounds. Which means that they are ill-equipped to contribute towards the Government’s vision of a thriving and globally competitive defence sector trading freely with countries beyond the EU, post-Brexit.
Indeed, since joining what was then the European Economic Community, successive Governments including that of Margaret Thatcher – the original champion of free markets – have gone out of their way to shield domestic equipment manufacturers from the full rigours of the free market, that is to say, “feeling the heat” of competitive market forces, by denying continental rivals the opportunity to bid for UK defence equipment acquisition programmes, which is allowed under Article 346 of EU procurement regulations on war-like goods.
The results are entirely predictable. The defence industry has become grotesquely inefficient on the back of endless subsidies from Government, which it expects to receive in perpetuity – cultivating an entitlements culture. As a consequence, it has failed time and again to deliver equipment to the Armed Forces which is fit for purpose, adequately sustained in-service and constitutes value for money through-life.
Additionally, it has got away with not investing in innovation, research and development, creating intellectual property or upskilling employees – despite quietly hoarding mountains of cash and putting it to no particular use.
These are the same producer interests that are secretly lobbying the governing elite right now to remain in the Single Market and the Customs Union so that they can continue to be protected from being exposed to the full rigours of the free market.
@JagPatel3