Why does the government create monopolies?

Patrick McLoughlin and Michael Gove are competent and well-thought-of Secretaries of State. As Conservatives, they presumably assert from time to time generalities about the virtues of competition in free markets. So why are both signed up to policies which award long-term monopolies?

Mr McLoughlin has inherited the West Coast line problem. Richard Branson is currently seeking judicial review of the decision to award the exclusive long-distance franchise to First Group. The question we ought to be asking is not who should get this lengthy contract, but why such contracts are awarded anyway. Mr Branson does not bid for an exclusive right for his airline to fly to New York, but has to compete for limited landing slots with other airlines. So why can we not have more than one company offering trains from London to Glasgow? There is no technical reason. There is some limited competition between Virgin and London Midland on part of the West Coast line, and similar choice between First Hull Trains, East Coast and Grand Central between some destinations on the line to Edinburgh. But there could be much more such competition, with the promise of innovation and greater choice for the consumer, if both Virgin and First Group – and other possible providers – could compete via a more liberal track access policy. Failing a more thorough privatisation of the rail network, surely this is worth trying?

If Patrick McLoughlin has inherited his franchise system, Michael Gove is creating one all by himself with the proposal to offer a long-term monopoly of his new ‘English baccalaureate’ (surely a nonsense title in international terms, incidentally) to one exam board. Clearly Mr Gove has been hoodwinked by his civil servants into believing the story that competition between exam boards has driven down standards, when the reason for this decline is the persistent interference of governments and a regulatory system that forced boards to set grade boundaries within narrow statistical tolerances determined by teacher predictions, student intake and other highly debatable indicators which gradually drift upwards over time.

Before governments started intervening so closely in schools examinations back in the 1980s, competition between boards was uncontentious and often highly creative, leading to innovative syllabuses and new methods of assessment (things like Nuffield Science, for example). Grade inflation was not seen as a problem, and governments, opposition and teachers’ unions did not feel compelled to treat each year’s educational achievements as a pawn in a politicians’ game about social mobility.

Giving a monopoly to one board in the most important school subjects will have consequences for other subjects, and in a few years’ time we could well see all schools examinations in the hands of one or at most two major providers, tightly regulated by government. Other models for educational assessment exist – for instance GMAT, the privately-owned international test for MBA entrants. We ought to be seeking similar types of external assessment, rather than relying, as with the railways, on yet tighter regulation of monopoly suppliers.

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

4 thoughts on “Why does the government create monopolies?”

  1. Posted 20/09/2012 at 14:14 | Permalink

    Len Shackleton is completely correct, of course, especially when it comes to examination boards.

    What he doesn’t mention is the associated problem of only having one exam board for each subject – the fact that there would then be only one, centrally determined syllabus for each subject. Does anyone think that this is desirable? Should everybody learn exactly the same things? Should there not be considerable, and competing, variations in what people consider the most relevant aspects of a particular subject?

    The example he gave of Nuffield science courses is a good one. The Nuffield syllabuses were, in my opinion, a big improvement over what went before, but they would never have had the opportunity to establish themselves under the system Gove proposes.

  2. Posted 20/09/2012 at 17:41 | Permalink

    Very good article, although the referral to competition between exam boards being beneficial is false. It is true that in competition consumers (the schools) will choose the exam boards that will benefit them most, however, the benefit exam boards can provide to them is a large percentage of top class grades. Schools would not choose an exam board that offered an invigorating and refreshing syllabus, or promised “fairer” grades over one that promised more A*s as the more A*s would reflect better on them. Other boards then seek to win the affections of schools by offering, in turn, lower grade boundaries and so on… It is a perfect example of misplaced market actions. A standardized exam board would ensure grade boundaries remain constant.

  3. Posted 20/09/2012 at 20:14 | Permalink

    The railways seeking to carry passengers between London and Glasgow have competition from coaches, airlines and private cars; and their business may also be affected by forms of communication such as e-mails and conference calls. So Im not sure their ‘monopoly will be too damaging. And surely it’s a bit soon to be calling Mr. McLoughlin a ‘competent’ Secretary of State as he’s only been in the job a few days! But I do agree with Len’s criticism of the proposal for only a single examination board in each subject in the new English Baccalaureate. For some years I was chairman of the Cambridge Business Studies Project Trust; and my experience was that competing exam boards in Business Studies worked perfectly well. For example, the Cambridge syllabus used to have a well-regarded project (course work) which other boards weren’t nearly so keen on. That was competition in action — and it succeeded for years.

  4. Posted 20/09/2012 at 21:23 | Permalink

    @A sixth form student – this is an interesting issue and one that is rather similar to the issue of credit rating agencies in the crash. If what you say is true then the following questions have to be answered: (a) why do private schools use the IGCSE? (b) why do many schools abroad use the IGCSE? (c) why did competition work (when, in fact, it was much more intensive) before 1990? The answer, probably, is twofold. One aspect is that league tables based on crude data (which served an important purpose it has to be admitted) led to the numbers of top grades an exam board produced becoming more important than the reputation of the exam board for good examining. The second is the endless quest for comparability between vocational and academic subjects that has led academic content to be needlessly injected into the former and withdrawn from the latter. A third aspect is possibly the move away from exam boards that developed spontaneously amongst centres of society who were end-users of the qualification (universities, business professions, city and guilds) towards a small number of commercialised exam boards with less connection with those groups – this was something strongly encouraged by government.

    But, you raise a good point – and unscrambling eggs is not easy!

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