Fairness

Like motherhood and apple pie, it’s hard to object to the principle of fairness. Or is it?

What is fair for business and consumers?

But what is fairness?

In practice, fairness turns out to be a slippery concept that means different things to different people. It certainly raises more questions than answers. In the pursuit of fairness, should society promote greater equality of opportunities or of outcomes? Are governments justified in intervening in markets to achieve a more level playing field. If so, who should foot the bill?

These may be age-old questions, but they have acquired new urgency in the wake of the Global Financial Crisis. The stagnation of real incomes in the decade since the crisis erupted has made voters increasingly resentful of widening income and wealth inequalities. The rising tide of decent enough growth that Western economies are enjoying is not lifting all boats. At least that’s the perception fuelling the “yellow vest” protests in France and burnishing the appeal of populist parties across much of Europe.

Not surprisingly, then, inequality in various forms – between generations, sexes, regions, rich and poor, etc – is galvanising politics. In the UK, the debate over free TV licences for the over-75s, inadequate rail infrastructure in northern England and the admission policies of Oxford and Cambridge universities are just three of a host of issues that, at root, are about fairness.

Internationally, the Organisation for Economic Cooperation and Development, a club of industrial democracies based in Paris, is aiming for agreement by next year on an international digital tax. Governments have in their sights multinational tech giants such as Google and Amazon that generate fabulous revenues but pay puny amounts of tax.

In this highly charged political environment, regulators in the UK are redoubling efforts to protect consumers under the banner of fairness. Notably, the Competition and Markets Authority has endorsed a complaint brought by a civil-society group that providers of essential services are overcharging customers by billions of pounds a year.

And how do we apply it?

It sounds like an open and shut case of unfair treatment by big companies that can be easily remedied. But not so quick. As Andrew Leicester explains (Fair’s fair. But what do we mean by ‘fair’), just as fairness itself is a tricky concept, identifying and implementing remedies is not straightforward. After all, one man’s loyalty penalty is another man’s introductory discount: restrict one and you will restrict the other.

One reason why fairness is such uncomfortable territory is that the overriding goal of modern regulation has been to maximise economic efficiency, not to achieve particular distributional outcomes, argues Antti Lemberg (Fairness in Pricing).

To that end, regulators have typically sought to sharpen competition by providing consumers with maximum information and making it easy for them to switch suppliers, the hope being that this will result in better, hence “fairer”, outcomes.

But, Clive Kenny argues, (Fair questions online) competition is not a magical solution to fairness. The two are not synonymous.

Dan Elliott makes a similar point (What is a fair level of service in the water sector?). Paradoxically, competitive markets are not guaranteed to produce outcomes that are seen as fair from a wider policy perspective. Other policy tools are needed in the quest to satisfy society’s desire for fairness without gumming up the gears of the market.

For instance, it may be that changes to taxes and benefits are the best way of addressing distributional concerns – the path that Macron has taken in a bid to quell the protests that have rocked his presidency.

The growing clamour for “fairer” markets makes new demands of companies, especially those providing essential services. Ticking the fairness box by taking a few steps to protect the vulnerable will no longer suffice. Companies need to engage closely with their customers to determine what measures they support to achieve more-just outcomes and how they should be paid for. And executives, alert to the importance policymakers are attaching to fairness, need to be able to defend their pricing policies not just to regulators but also in the court of public opinion. That sounds fair, doesn’t it?

Team Thoughts

Fairness looks set to be one of the main drivers of regulatory activity this year
Antti Lemberg
Associate Director, Financial Services
In fast changing markets competition authorities need to be ready to respond to new situations and concerns
Clive Kenny
Manager, Telecoms

In numbers

3.9bn

Users connected to the internet via 18bn devices

£4bn

CMA estimates loyal customers pay in penalties

10%

Price cap rise announced by Ofgem for typical customer from 2019

Team Thoughts

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