‘Liberalisation leads to lower prices’. Really? Since when?

When any segment of a market as small as Malta is ‘liberalised’... the result is almost invariably the creation of a ‘cartel’: in which prices are simply dictated by the same four or five companies that always somehow get to control those sectors between them, anyway

There are a couple of things that have always puzzled me about the Nationalist Party.  Such as, for instance, the way its leader, Bernard Grech, candidly admitted (in April  last year)  that the PN’s debt now stands at a staggering €32 million...

... and yet, the same Bernard Grech somehow seems perfectly capable of predicting future price fluctuations: even in notoriously ‘unpredictable’ international markets, such as the European energy sector.

Consider, for instance, how Grech has so far defended his party’s proposal to ‘liberalise’ Malta’s energy distribution network: by insisting that... ‘this will not lead to an increase in energy prices’.

At a glance, this already raises quite a few additional questions (including the most obvious of the lot – i.e., how the heck does Bernard Grech actually KNOW that, for a fact?) But I’ll come back to that a little later on.

For now, I’m quite willing to go along with the idea that various exponents of the Nationalist Party – including its leader; and also its finance spokesman, Mark Anthony Sammut – possess some kind of miraculous, innate ability to accurately foretell whether the price of any given service or commodity (energy, in this instance) will ‘go up, or down’, in the coming months, years, and decades.

Sorry to have to ask, but: if this is indeed the case... then how on earth did the Nationalist Party even manage to accrue a debt of €32 million, in the first place? And why is it still finding that debt so difficult to pay back, all the way down to this day?

Let’s face it, folks: if Bernard Grech really IS armed with such valuable foreknowledge, of how international markets are expected to perform in future – and the energy market no less: which has arguably never seen a more ‘uncertain future’, than the one it faces today – not only would the PN be easily capable of reversing its current economic fortunes (by means of just a couple of shrewdly-placed investments, in sectors that Grech ‘knows for a fact’ will be profitable...)

... but Bernard Grech himself would probably be numbered among the most obscenely wealthy individuals, to have ever walked Planet Earth: alongside Elon Musk, Jeff Bezos, and Bill Gates.

As such, a debt of €32 million would be ‘chicken-feed’... to someone who could probably afford to set up his own private Space Programme, and compete with Bezos for the ‘colonisation of Mars’...

But oh, well. It is rather evident, from circumstances that are staring us all in the face, that neither the PN, nor Bernard Grech himself, has access to that kind of money, right now. (Still less, enough to pip the likes of Musk, Bezos and Gates, to the top of ‘Forbes 500’ list).

So – no offence, or anything – I’ve decided to no longer accept the notion that Bernard Grech is indeed blessed with some kind of magical ‘economic clairvoyance’. Clearly, he possesses no such powers, at all... and quite frankly, this also shows up from his own – and his party’s – arguments on the subject of ‘liberalisation’.

Which brings us right back to that other question I asked earlier: how can Bernard Grech be so absolutely certain, that ‘liberalisation will not lead to higher prices’?

Let’s see now. So far, the PN only seems to have come up with two arguments, to support the above claim.

The first (chronologically-speaking) was provided by Bernard Grech himself: when he pointed towards "past successful liberalisation efforts, such as the PN's decision to open up the telecommunications market, which, according to him, led to reduced prices and job stability.”

The second came from Mark Anthony Sammut, who – in a televised debate with Energy Minister Miriam Dalli – merely repeated the traditional ‘pro-liberalisation’ argument, that “this would give consumers more choice” (with the underlying implication that ‘more choice’ = ‘more competition’ = ‘more pressure on private companies to LOWER (not raise) their prices’, etc. etc.)

Once again, I apologise for being such a spoilsport, but... both those arguments – and bear in mind that the PN hasn’t actually come up with any others, since – are, for want of a better word... BULLSHIT, from beginning to end.

Let’s start with Grech’s apparent belief – inherent in his description of ‘telecommunications liberalisation’ as a ‘success’ – that people are somehow paying LESS for services in this sector, today... than they used to pay in the days before the sector was liberalised, way back in the 1990s.

Now: to be fair, there is some room to argue (even if Grech didn’t actually make this argument, in as many words) that certain costs associated with this  service have undeniably been reduced, since liberalisation. These include the simple price of an overseas call: which – even accounting for three decades worth of inflation, in the meantime – is probably around 10 times cheaper, today, than it ever was in the past.

Two small snags, though. One: the reasons for this reduction in price have less to do with ‘competition/free choice’, etc... than with the rapid stride of technological progress, in the field of telecommunications itself.

Two: the same technological innovations that have arisen, since the 1990s – including mobile telephony, text-messaging systems, ‘WhatsApp’ and God-know-else – have also come complete with an entire raft of new expenses, that quite frankly never even existed, back in the days before ‘liberalisation’.

Think about it for a second. Before the 1990s, the only costs involved in owning a telephone, were:

a) the cost of the phone itself;

b) an annual fee, paid to Telemalta, for the line;

c) a flat rate for domestic/overseas calls, which – while I don’t actually remember the amounts, all these years later – used to be measured in ‘cents and mils’ (for those who still remember the archaic Maltese lira, in action).

Today, on the other hand? Leaving aside that the average cost of a mobile phone hovers somewhere around the €700 mark – and the phones themselves are designed with ‘inbuilt-obsolescence’: which means you have to buy yourself a new one, every time the manufacturer comes up with a new IOS version (in other words: every other year) – there is now a MONTHLY subscription, payable to a (limited choice of) service providers, who all seem to somehow charge exactly the same rates.

And this last detail is hardly surprising, because – as can easily be proven by pointing towards other ‘liberalised’ sectors (like gas, for instance: in which case, consumers now have the ‘choice’ of buying gas cylinders from different providers... ALWAYS AT THE SAME PRICE!) – ‘liberalisation’ does not automatically translate into ‘more competition’; and, even less, into ‘lower prices’.

On the contrary: when any segment of a market as small as Malta is ‘liberalised’ – with very few exceptions (such as taxis, for instance: which would have made a much better example, in support of Grech’s argument) – the result is almost invariably the creation of a ‘cartel’: in which prices are simply dictated by the same four or five companies that always somehow get to control those sectors between them, anyway.

In any case, however: add up all those extra costs, today... and you’d probably find that it is around 10 times MORE expensive - not LESS – to make a phonecall, than it ever used to be in the past.

And while I aware that not all these extra expenses are the direct result of ‘market liberalisation’...

a) some of them certainly are. (The monthly subscription, for instance, represents a tenfold+ increase in cost, over the previous ‘annual’ one... and it was introduced, as part of a ‘private-sector model’ that is geared only towards generating profits);

b) They still represent examples where liberalisation clearly FAILED to have the desired effect of ‘lowering prices’... and actually ‘raised’ them, instead!

So exactly how Bernard Grech can so egregiously claim that ‘liberalisation will not result in price increases’ – when we all know, from our experience, that it HAS had that effect, in other areas – is... well, anyone’s guess, I suppose.

And please note that we still haven’t even got to Mark Anthony Sammut’s other (more ‘economist-like’) argument, yet... although, in a sense, we already have. 

Even from the examples already mentioned, it should be painstakingly clear that... No, actually. Liberalisation doesn’t always lead to ‘more choice’ – or at least: not to any ‘REAL’ choice – and it certainly doesn’t always lead to lower prices, either.

And oh look: liberalisation of the energy sector, in particular, has somehow managed to have the OPPOSITE effect, practically everywhere else in the European Union (that is to say: all other 26 member states - 27, if you also include pre-Brexit UK - which, unlike Malta, liberalised their own energy sectors years, if not decades ago.)

Almost makes you wonder, doesn’t it? Did either Bernard Grech, or Mark-Anthony Sammut (or anyone else in the PN) ever actually look at the consequences of that ill-fated liberalisation process, in any of those countries?

I guess not. Because if they did, they would surely have noticed a rather regular pattern, that unfolded in almost every single one of them. This is how the effect was described, in Volume 48 of the online journal ‘ScienceDirect’ (December 2011):

“Electricity liberalized markets should lead to reduce electricity prices. [...] However, HOUSEHOLD ELECTRICITY PRICES ARE INCREASING IN THE EUROPEAN UNION. [My emphasis]. We find that the deployment of RES [Renewable Energy] INCREASES PRICES PAID BY CONSUMERS IN A LIBERALIZED MARKET [Ditto].”

So, um... is Bernard Grech still so very certain, that his plan to liberalise the Maltese energy network, will not similarly backfire in future?

If so: I’d sure love to hear his reasons why, myself...