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GUEST POST: Murdoch and the Problem with Dinosaurs

July 29th, 2011 Posted in Uncategorized by
This article is published on behalf of David M Gibson.
Watching a humbled Rupert Murdoch address the select committee earlier this week made me think of dinosaurs. The earliest of the ‘thunder-beasts’ were small, forgettable creatures, living in a dangerous world of high interspecies competition. At their peak, they had reached awe-inspiring heights, seemingly untouchable through their bulk alone.
By the late-Cretaceous era, the reality was that evolutionary arms race was being lost and that, despite their intimidating weaponry, real competition was going on underfoot, as smaller creatures feasted on their eggs and contributed to their fate. A similar cycle reoccurred post-mass extinction, when the world’s new megafauna were almost entirely eradicated by climate and mankind. It is likely that, one day, it will be the bugs and the bacteria that will do for humans in turn.
The problem is that big beasts do not adapt very well. Despite the (somewhat unfortunate) acquisition of MySpace, News Corp has a negligible online presence. Murdoch’s obsession has too often been his news media and it now appears that he may fall into the trap of clinging too hard to print media, even though it contributes a small part to his personal empire.
Assuming that the Murdochs were truthful in their testimonies to Parliament, their heads were too high off the ground to either willingly or effectively probe at the moral rot beneath. In hacking, blagging and bribing, severe risks were taken to get at the eaves of the tallest trees, seemingly without a sense of mortality. It should have been obvious that at some point this would all come out, especially with the planned BSkyB acquisition inflaming Murdoch’s opponents in the media.
Similar problems of corporate governance can be seen in the string of BP’s technical failures involved in the Deepwater Horizon oil spill and the development of dodgy investment packages at Lehman Brothers. All three had a presence in politics and were considered to be too big to fail [or at least, to take on – Ed]. The damage done by big beasts like these should remind us that it its dangerous to concentrate power. The rot of our almost uniquely unaccountable media has spread to our politicians and police. It has not just jeopardised the personal privacy of the famous, but of countless individuals the press has frenzied upon.
As round two of the phone-hacking scandal comes to an end, it is disturbing that so few voices are addressing the real problem. Prior to the scandal, three media companies controlled 80% of the purchased print media market. While a report by Ofcom noted that, in 2009, print media was the main source of news for only 8% of the public, it would probably rate far higher for opinion-shaping. Newspapers are more opinionated and partial than television and radio news, more esteemed than new media and more articulate than live debate. The political lesson of ‘Hackgate’  should be the need to prevent corporations from accumulating such influence.
Nick Clegg’s plans for better regulation of the media may help this, but this is about competition where, as in evolution, even the big beasts are not untouchable and a single disaster can bring them down. What Clegg’s measures lack are three things: an end to politicians having a say in commercial acquisitions, whether Jeremy Hunt or Vince Cable; effective independent bodies to prevent purposeful accumulations of large market share; and a reduction in any tax or regulation which significantly impedes entrance to the marketplace by new players.
Real competition would mean executives and share-holders keeping a close eye on their corporate culture. After all, we wouldn’t let dinosaurs evolve in our society, why let commercial monsters do the same?
David M Gibson is a classical liberal and a member of the Liberal Democrats. He is currently interning at the Freedom Association. A collection of his writings can be found at davethedystopian.blogspot.com, as well as on the Freedom Association website.

"I'd just like to say one thing: This is the most humble day of my life."

6 Responses to “GUEST POST: Murdoch and the Problem with Dinosaurs”

  1. Tom Papworth Says:

    Firstly, my apologies to both David and to readers that the paragraph breaks appear to have been swallowed. May I take this opportunity to say that I hate WordPress and all it’s works!

    I think this is a great article (I wouldn’t have posted it otherwise!) but I would question one line: where David calls for “effective independent bodies to prevent purposeful accumulations of large market share”.

    If this refers (as I understand it to) to individuals/firms buying up large stakes in this (or any) industry, then it’s not that controversial.

    However, I have been wondering recently about firms that naturally achieve a large market share within a competitive process. For example, both the print media and the retail grocery markets are highly competitive, yet they have seen the emergence of one firm (News International and Tesco respectively) that have come to control more than a third of the market. In the case of The Sun this has been entirley because they have given the readers what they want in a way that rivals failed to… well… rival. I think the same is true of Tesco (questions about land ownership notwithstanding).

    I’ve been wondering for some time whether that sort of market dominance should be tolerated on the grounds that
    1) it has arisen because the companies have served, rather than exploiting, their customers; and
    2) it is perfectly susceptable to market mechanisms (i.e. rivals can attack the monopoly at any time through innovation) that will destroy the monopoly if it no longer remains competitive.


  2. Liberal Eye Says:

    While I broadly agree with David’s analysis I have a problem with his conclusions re Clegg’s plans.

    It simply wont happen that politicians aren’t involved in competition decisions when huge sums/payoffs are involved. All that will happen is that the political influence will go underground, regulators will be found who understand exactly what the required outcome is while pretending impartiality. Or perhaps, they will be subborned by the revolving door promise of a juicy appointment on stepping down from their regulatory role – as some senior police have been.

    Better to admit from the off that competition issues are at root political and have decisions exposed to a bit of daylight and debate.

    Re TP’s Tesco point what does “natural” (as in competitive process ) mean? Is it that they constantly innovated in socially-useful ways or was it a little more muddy than that? Tesco benefitted from being allowed to take over the T&S chain even though the decision involved standing competition law on its head. Also, retailing has strong economies of scale which gives incumbents an unbeatable edge. That has now evolved perfectly “naturally” into the economics of bullying, very fat margins (remember to adjust quoted figures for tricks like transfer pricing)and rent extraction on an epic scale.


  3. Jack Hughes Says:

    Odd to see a discussion about excessive concentration in the media with no mention of the BBC.

    The BBC is the biggest player in the UK media and uses it assured tax income to occupy every single niche – from TV, radio, magazines, guide books, CDs.

    It oozes an incoherent statist / leftist position on everything from Murdoch to Obama to the war on plastic bags.


  4. Tom Papworth Says:

    @Jack: All your points are correct but one can’t crowbar an attack on the Beeb into every article. That being said, the BBC is definitely the Argentinosaurus of the media (a huge, heavy plant-eater).

    @Eye: The word “naturally” didn’t really add anything to my sentence. My point is that, if a company gains a predominent market share by more successfully serving its customers than any competitors, it should not be subject to anti-trust regualation, in part because it is still held in check by competition. As Schumpeter noted, even a monopoly is held in check by potential competition.

    That being said, if barriers to entry are high (e.g. oil firms; railways) that process is less efficient. Barriers to entering the print media are, I suspect, fairly low – and getting a lot lower now (witness the Huffingdon Post). Whether that’s true of retail is debatable: yes there are economies of scale, but there clearly still is a lively market (witness the number of Costcutters about!) and margins are not as great as you suggest. For a decade until 2008 food prices had been falling, and relative to incomes they had been falling fast.


  5. Liberal Eye Says:

    A young company may indeed win customers primarily by serving them better than its competitors (and may have no other feasible strategy available to it). But Tesco today is qualitatively different to Tesco of, say, 30 years ago. Why should it get any sort of free pass today because it was once an innovative and disruptive company?

    While Tesco itself naturally claims its success is all down to good service (what else would you expect them to say?), the reality is that beyond a certain point retail growth is largely about rolling out a formula. That means that its ability to play the planning game is at least as important as its customer service. A friend who is a Conservative councillor (and on the planning committee) confesses that they are so ruthless, so willing to spend whatever it takes (which the council cannot afford to match) that they are, in practice, above the law as far as his authority is concerned. That anyone should be above the law revolts me.

    The problem with judging Tesco by food prices are that retail prices conflate two things – producer/farmgate price and the retailers’ gross margin. How confident are you that gross margins are reasonable and falling? My impression isthat it’s producer and farmgate prices that have been falling and that gross margins are higher than they were in in pre-supermarket days.

    If so that implies a sector that has enough market power to extract considerable rent.


  6. David M Gibson Says:

    @Jack – I entirely agree with your BBC point but my article was focusing on the private sector. I took as read that economic liberals would oppose the size of the BBC, whereas lots of economic liberals have no qualms with corporatism in the private sector.

    @Liberal Eye – I agree that it is unlikely that a company could grow to the size of Tesco in a competitive market and without anti-competitive practices. I broadly support the new supermarket regulator, if it is focusing on spurring competition from SMEs rather than just restraining profit.

    I do, however, think you’re being a bit fatalistic when you say it won’t be that politician’s won’t involve themselves in competitive decisions. If the institutions and political culture were in place, it would be harder to do so. A statute prohibiting ministers from involvement could do it, especially if other companies were able to challenge such any acquisitions and mergers in court on the basis that a government minister was involved.

    People once said that monarchs would never give up using their powers, yet look at the apolitical nature of our royal family. Taking the politics out of big business would be hard to achieve, yes, but not impossible.


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