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Wednesday, 22 September 2010

I CAN HAZ POLICY DEBATE?


Still from my folks' TV the other day... a delegation of road transport unionists. 

Greece is one of the few countries where not only workers but also entrepreneurs are allowed to band together into Unions that collectively bargain on things like, say, their own prices. It's called a CARTEL and it should be smashed to pieces.

Here they are, in one of our seedier but powerful fora, the TV show Zougla (Jungle) hosted by Makis Triantafyllopoulos (to whom we also referred here). The caption reads: MPs with haulage licences.



Their quarrel with the government is that it is forced to liberalise road transport in Greece and has therefore decreed that their licences will now be worth a fraction of what they used to be worth. Which is only fair because while they used to confer monopoly power and they will no longer be able to. These people argue however, that they paid good money for their licences which they will now lose. That's EUR50,000 for trucks and EUR200,000 for fuel carriers (source here).

In an industry in which 31.6% of gross output goes into capital compensation (according to EUKLEMS) despite only moderate concentration in Herfindahl terms (according to the EUKLEMS linked dataset), it is pretty clear that anti-competitive strategies are already at play. Even so, surely the cost of the licence could have got amortised over the years? EUKLEMS tells me the average inland transport company is 21.1 yrs old;  a licence worth EUR200,000 amortised over say 20 yrs works out to EUR20,000 per annum, which the average company should have been able to make out of a gross output of EUR65,000 or so. 

Now something tells me this stuff hasn't been amortised and people have been paying themselves inflated directors' salaries all along. THAT'S THEIR PROBLEM. Meanwhile we're stuck with a loss estimated at ca. 0.5% of GDP per annum.

Of course, it's not just the cartel that's to blame. Ponder if you will the record of government intervention in road freight over the last decade, almost calculated to support this market structure. Comparatively, as of 2007, ours was the most price-regulated road freight sector in the OECD.

Now, there are those who fear that the signal might go out that the Greek state doesn't keep its promises to licenceholders. I'm not worried about that. Market participants are not stupid. The signal they will receive is that the State will not keep its promises to prop up cartels, and that a licence to monopolise must never be taken for granted. 

That can only be a good thing.

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