The Austrian Way: The matter of high energy prices

Energy companies in the UK have just been putting through their latest ‘evil’ price hikes, causing the most almighty furore.

The carry on has been so enormous, you’d think some ethnic cleansing or the like had being going on.

What is most painful about this whole episode – for us soon-to-be-institutionalised-Bogpaperites at least – is that it really shows what a Statist shit show our economy has become.

I write this sipping a Coke I just bought from a Tesco in the City and whilst buying it I noticed TV coverage of the boss of an energy company appearing before a parliamentary committee to justify his decision to raise prices.

WTF! The CEO of a private company having to explain the private decision, made by his private company, owned by private shareholders, as to how they price their product.

The fact that the BBC, the Guardian, the liberal intelligentsia and even the more Statist factions at the Torygraph, think this is a public matter is the greatest shame here. A majority of folks in the UK think the State needs to get involved in these things to generate better ‘market’ outcomes.

Sad, sad times.

The cure for high prices, is high prices

The phrase above – often bandied about by the likes of Jim Rogers in the commodity markets – has more wisdom and relevance to it than could be distilled out of the aforementioned, wrong-headed majority.

If energy companies are offering us shitty service, bad prices and generally a poor experience, that creates opportunities for new companies and entrepreneurs to enter the scene. The energy market is no different from any other. Customers go where they’re treated best.

Let the big four energy companies in the UK raise prices. If their pricing strategy deviates too far from their true cost base, they’re opening the door to new, smarter and leaner competitors. Bring it on!

If price rises become anti-competitive these energy companies are shooting themselves in the foot.

It really is as simple as that.

Populist policy responses will make it worse

The other sad thing about this debacle is the populist policy responses coming out of the media, Westminster and Ed Miliband’s arse are proving hugely popular. Weep.

Whether these touted solutions be price fixes, windfall taxes on profits or whatever, none of these Soviet-style measures have ever worked.

All Red Ed’s Ministry for Energy and Enlightenment will offer us is less competition, shortages, poor customer services and an even bigger problem. David Cameron’s comments on this issue are similarly idiotic.

Where’s the Vernon Hill of energy?

I went to an inspiring talk last week where Vernon Hill – he of Commerce Bank and now Metro Bank – talked about how he has built retail banking giants by focusing obsessively on customer service.

In doing this Mr Hill has turned general wisdom on its head and generated far greater value from High Street, branch banking. His only secret is put the customer first, value their deposits above all else, never stop thinking of them and aim to build fans, not customers. From these ‘fans’ Mr Hill built an $8.3bn bank which he sold in the US and he is now busy in the UK disrupting our tired, retail banking market. Metro Bank’s strategy is now working again in the UK, where its growth so far has been stellar and above target every step of the way.

Vernon Hill is not unique. Nor is he unique to the banking industry.

Richard Branson did that same thing for airlines and now we need other entrepreneurs to train their crosshairs on the energy market.

These disrupters won’t arrive if the State reaches ever further into the UK energy market.

The high cost of living in the UK is mainly due to a dirty marriage of money printing and increasing State intervention in the economy. Green energy policies certainly aren’t helping, whilst UK shale gas is also looking like the biggest missed opportunity since Ben Kay dropped a rugby ball in Sydney.

For now, hands off our energy market you Statist buffoons. Let’s open the doors as wide as we can to the Vernon Hills of energy.

12 comments on “The Austrian Way: The matter of high energy prices

  1. Anthem
    October 29, 2013 at 5:26 pm #

    Let the big four energy companies in the UK raise prices. If their pricing strategy deviates too far from their true cost base, they’re opening the door to new, smarter and leaner competitors. Bring it on!

    If price rises become anti-competitive these energy companies are shooting themselves in the foot.

    It really is as simple as that.

    That was my initial reaction too but this really doesn’t seem to be quite as simple as that.

    It’s almost impossible to get to the bottom of what’s going on here.

    For a start, as you can imagine, barriers to entry in the field of energy generation (which is where they are making their profits) are prohibitively high.

    Margins in the supply market have been made deliberately low in order discourage competition.

    That the “Big Six” energy companies all seem to be setting their rates around the same level with no clear actual competition really going on does suggest cartel-like behaviour and should any competition enter the fray then I suspect some shenanigans would go on with the prices to cut them out again.

    You might be thinking that I’m against the energy companies in this one but I’m not.

    I do believe that the energy companies have had the piss taken out of them by governments (by way of Green Taxes imposed upon them which are seemingly being used to fund alternative energy supplies i.e. they’re being forced to fund their own competition) – and this is their retaliation.

    That this will hurt us, the customers, is a necessary part of their battle plan.

    That’s my take on it all, anyway and would be very interested to hear the views of others.

    Maybe Atlas is finally Shrugging? Grab the popcorn.

  2. Paul H
    October 30, 2013 at 8:28 am #

    Your utopian belief in free markets is ludicrous. Left to the markets these companies have taken over their competitors and reduced the number of entrants. Everytime a new company comes into the market one of the big boys gobbles them up.
    I can’t believe you are so stupid.

    • Simon Roberts
      October 30, 2013 at 9:22 am #

      By that logic we would only have one retail bank, one supermarket chain, one parcel courier etc – every servce sector would only have one provider.

      Last time I looked, there were many providers in every field. The only monopoly that I see is government or those areas where the government intervenes (like the legal profession).

      • Colin
        October 30, 2013 at 7:11 pm #

        “Last time I looked, there were many providers in every field. The only monopoly that I see is government or those areas where the government intervenes (like the legal profession).”

        Eh? There are many thousands of law firms and independent barristers, all in competition with each other. What monopoly?

      • Simon Roberts
        October 30, 2013 at 10:20 pm #

        The monopoly reference refers to Legal Aid. That’s me trying to be clever by referring to James’ defence of Legal Aid on Monday. Not a good idea if you haven’t read it of course 🙂

      • Colin
        October 30, 2013 at 11:03 pm #

        Legal Aid is a monopsony, not a monopoly.

    • Anthem
      October 30, 2013 at 11:02 am #

      I suspect your solution is to, what? Nationalise these industries so that the government runs them all?

      But wouldn’t that mean a monopoly situation whereby the government could set whatever prices it wants and we would be forced to pay them or risk fines and/or imprisonment?

      If you seriously believe that the state could provide all of this stuff cheaper then you’re deluded. Yes, the bill might appear cheaper but it would be because of subsidies provided by taxes elsewhere so the true cost becomes “hidden”.

      If you want to know what it’s like when governments DO provide all this stuff, think back to the seventies. State control attracts Trade Unions who have a tendency to go on strike every time their demands aren’t met.

      Up goes the price, down goes the service.

      Yes, there do appear to be some faults with the way the energy companies currently operate but I would suggest that they pale into insignificance when compared to the alternative.

    • Jasmine A
      October 30, 2013 at 5:04 pm #

      Paul,

      Do you not realise you’re reading a site guided by Austrian School economics?

      As for your comment – this is nothing to do with capitalism failing. We are where we are today (shafted!) because of croney-capitalism and regulation failing to protect the consumer and instead the existing providers, all because of too much government involvement.

  3. Rocco
    October 30, 2013 at 3:42 pm #

    I think Paul has got a point, actually – and I say this in all seriousness.

    He’s wrong about the cause, obviously: the energy market is anything but free, and this is the reason why the big companies can act like a cartel. All the interventionist measures, all the regulations that are supposed to help the consumer hinder competition and guarantee a dominant position for the Big 6 – they are massive barriers to entry. Without the assistance of the State these companies could not behave in such a fashion.

  4. theaustrianway
    October 30, 2013 at 4:22 pm #

    @All commentors,

    Thanks for reading and taking the time to get involved..

    I’m agreed with Paul that there is some form of energy oligopoly at this time, engaging in cartel like behaviour. However, the biggest danger to cartels is themselves.

    I’m also agreed with Rocco as to where this problem comes from.

    However, is this situation that much different from the major UK banks dominating their own market? I believe not.

    Starting a new bank is hugely capital intensive, tough to manage in terms of regulatory compliance, but still the Vernon Hill’s of the world arrive with their backers. The large barriers to entry can be overcome.

    Shaking up the energy market would indeed require big names and big money. However, the world is awash with money and I believe the skills will be out there too.

    Time will tell. But, I suspect we’ll see a private threat to this energy cartel before too long. Who knows what form it might come in – new technology, inventions etc, or simply doing the old things far better with obsessive focus on the customer.

  5. Lucy
    October 31, 2013 at 12:20 pm #

    This website is pretty depraved. You, Delingpole, Taylor and Rocco are dangerous, inhumane and impractical. A well selected body would sort out these energy companies much better than your convenient obsessions with ‘the market’. I feel dirty and depraved just having read this drivel. Urghhhhh. I won’t be back.

    • Honey Badger
      October 31, 2013 at 4:39 pm #

      Go and vote Labour then, but before you do don’t forget 2 things. Blankets. Candles.

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