Tag Archive for CRH

Monopoly capitalism and the Irish economy

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Two brilliant articles by Kieran Crilly published in this months Socialist Voice, magazine of the Communist Party of Ireland, look at monopoly capitalism in Ireland and expose the myth of competition which underlines much of the media presentation of the economy from establishment sources. Why? Because it is politically motivated by the desire to defend capitalism and increase its reach and strength over our lives. This well worth reading.

Kieran Crilly

Taken from the November Socialist Voice

Introductory orthodox economics is dominated by the concept of what is called “perfect competition.” This is based on four assumptions. (1) The industry or sector has a large number of small firms that cannot affect the price of the goods if they increase or decrease production. (2) All firms produce the exact same product. (3) It is easy to enter or leave the industry. (4) There is full knowledge of the prices and profits of all firms.

The reality is different.

The modern economy is dominated by large firms—monopolies and near-monopolies; and they set the prices for their products.

All goods in a modern economy are different in the eyes of the consumer, because of advertising and promotion.

In nearly all industries nowadays there are barriers to entry, so it is difficult for new firms to enter.

In some instances it is difficult to find out the price being charged: for example the tariffs of gas and electricity companies are so complicated that there are even comparison sites on the internet. The same applies to insurance and to mobile phones. And supermarkets change some of their prices by the day.

Most students study economics for one year and come away with the idea that the consumer has some say in the economy. We get consumers being urged to “shop around,” even though under a monopoly there is only one firm, and with oligopoly (a small number of firms dominating a sector) firms do not compete on price: they either collude (setting an agreed profit-maximising price) or follow the price set by the leading firm. Computers have made the setting of price to maximise profits easier. Firms (shareholders, through the profits they make) are the main beneficiaries of the economic system.

Students are taught that price is determined by supply and demand. But only demand exists while price is set by the monopolists and the firms in oligopoly to maximise profit. So supply is not relevant.

“Perfect competition” is Alice in Wonderland economics, used to hide the real structure of the economy. It is merely pro-capitalism ideology.

In this article we analyse different branches of the Irish economy according to the dominance of one firm or a small number of firms.

Supermarkets

This sector is dominated by five firms: Supervalu, Dunne’s, Tesco, Aldi, and Lidl. They give the impression of competing on price by taking full-page advertisements citing low prices for a small range of products. With these enticements they encourage people to do a full shopping in their stores, leading to increased sales and profits.

Aldi and Lidl (two German companies) have expanded rapidly and have put pressure on the existing firms. Tesco has responded by opening smaller and more expensive “express” branches. Dunne’s has reacted by introducing zero-hour contracts.

There is informal evidence that Tesco charges higher prices in Ireland than they do in Britain, and that Aldi and Lidl charge higher prices than they do in Germany. They all try to maximise profits and so maximise share prices for their shareholders.

Banks

Banking in Ireland is dominated by Allied Irish Bank, Bank of Ireland, Irish Permanent, Ulster Bank, and KBC.

Now, they do not compete on price for deposits or when they are lending. They try to confuse the public by offering a large number of different rates of interest on deposits. They also reduce rates without informing the depositor. They put small advertisements in the daily papers. For mortgages, Irish banks charge about 4 per cent, while their European counterparts charge 2 per cent. This is because they want to build up their capital so that they can be sold back to the private sector. In the case of Bank of Ireland it is to increase profits and share price for its shareholders.

So if you pay 4 per cent you will get a mortgage. It’s a “take it or leave it” proposition. The Central Bank does not regulate the interest rates in the interest of consumers.

Insurance companies

Insurance (motor and home) is dominated by six companies: FBD, Axa, Aviva, Liberty, Royal Sun Alliance (123.ie), and AIG. They have raised their prices on average by 20 per cent in the past year, but there is no way that customers can tell whether the price increase is justified.

As these are mainly subsidiaries of foreign companies, they may be taking advantage of Irish customers so that they can send back more profits to their parent companies. They are licensed by the Central Bank, but it does not regulate their prices. One would expect a regulation of prices with an oligopoly, where a small number of firms dominate, if the Central Bank were interested in consumers.

Mobile phones

There is only a small number of mobile phone manufacturers in the world. Apple, Samsung and Nokia dominate the market. They update their models regularly so that their older models become obsolete. They advertise heavily. They charge high prices for their products to maximise their profits.

There are three mobile network providers in Ireland: Meteor, Vodafone, and 3. Each provides a range of payment methods, and it is very difficult for customers to work out which is the best option for them. By confusing customers they aim to get the largest number of customers and maximise profits. They minimise costs by having a small number of retail outlets and a small head office staff. Once the network of masts is installed, maintenance costs are minimal.

Alcohol

The beer and cider sector is dominated by three companies: Diageo (Guinness), Bulmers, and Heineken. They set prices to maximise profits. They advertise heavily, and they sponsor sports and music events to attract young people into the drinking habit. They portray drink as a beneficial product, when all the medical evidence shows that in fact it is harmful.

The medical profession asked the government to introduce legislation that would ban drinks companies from sponsoring sports events. But the government of Fine Gael and the Labour Party put the profits of the drinks companies before the health of the population and decided not to introduce a ban.

The whiskey industry is dominated by two firms: Irish Distillers (Pernod Ricard) and Diageo. They are free from government regulation to set their prices to maximise profits.

Television satellite and cable companies

Satellite sports television is dominated by three companies: Sky, BT Sport, and Setanta. These companies offer billions for the right to screen live English premiership matches. They charge high monthly rentals to recoup their costs, and they make large profits.

Rupert Murdoch, the owner of Sky, was able to buy Fox News in the United States with the large profits he made in Britain and Ireland after Margaret Thatcher allowed him to set up Sky in the late 1980s.

The cable companies, UPC and now Eircom, are offering packages of phone, broadband and television; Sky is doing the same. You have to take all three services (a “bundle”) at a set price. The three companies are setting a similar price for the bundles. These offers are heavily advertised and are set at a low initial price to get new customers, who enable these firms maximise profits.

Terrestrial stations

RTE (including RTE1, RTE2, and TG4) is the state channel; its main rivals are TV3, BBC, UTV, and Channel 4. But it also has to compete with Sky.

The terrestrial channels are losing out to Sky, because they are buying up the rights to sports events which were available free. Sky has bought up the rights to some international soccer and rugby friendlies and GAA matches; if you haven’t got Sky you have no access to the matches.

Profit is the driving force for Sky in all of this. They gain extra income from new subscribers and from the extra advertising generated by the matches. Rupert Murdoch only wants Sky to grow and expand his empire.

Radio

National radio is dominated by RTE (Radio 1, Radio 2, Lyric, and Raidió na Gaeltachta). It is financed through the licence fee and advertising, and it competes for advertising with stations in the private sector. Getting funds from the licence fee impose an obligation on the television and radio stations to provide high-quality programming.

The private sector is dominated by two groups: Communicorp (Newstalk, Today FM, Dublin 98, Spin 1038, Spin Southwest, and TXFM), in which Denis O’Brien is a major shareholder, and UTV Radio Solutions (Dublin FM 104, Dublin Q102, Cork 96 FM, Limerick Live 95 FM, LMFM, U105, WLRFM, and Galway Bay FM).

The private stations aim to maximise profits, which they do by having wall-to-wall pop music. They have no commitment to high-quality programming. Because they are owned by businessmen it is probable that they have a pro-business and pro-conservative (Fine Gael and Fianna Fáil) bias in their news and their economic and political coverage.

National newspapers

Irish News and Media Group, with six titles, is the largest media group in the country. It comprises the Irish Independent, Herald, Irish Daily Mail, Irish Mail on Sunday, Sunday Independent, Sunday World, and 50 per cent of the Daily Star.

The Irish Times (owned by a trust), the Irish Examiner (owned by the Crosby family of Cork) and the Sunday Business Post (owned by Key Capital and Paul Cooke, Irish businessmen) are the other Irish-owned papers. The Irish Daily Mirror and Irish Sunday Mirror are owned by the British company Trinity Mirror. The Irish Sun, Irish Sun on Sunday and Sunday Times are owned by Murdoch companies.

There are only six owners of newspapers in Ireland, despite the number of titles. Each of these companies tries to maximise its profits. They have a lot of power, as they set the agenda of politics here. The same comment applies to them as was applied to radio stations.

Cement and building materials

Cement Roadstone (CRH Holdings) is the largest company quoted on the Irish Stock Exchange, and the only Irish company to appear among the top 160 companies in Europe by income in 2012. It had a 100 per cent monopoly in the production of cement until recent years, when the Quinn factory was set up in Co. Fermanagh.

There is a significant barrier to entry when cement is produced in an island country. The shipping and delivery costs for cement are high, because its ratio of value to weight is low. A tonne of cement is cheap, but the cost of transporting it from England to Ireland is high. So cement prices were kept high, and large profits flowed in. Using these profits, CRH was able to expand abroad. The company is also dominant in the building materials sector.

Non-alcoholic carbonated drinks (fizzy drinks)

This sector is dominated by the Coca-Cola Group and the Pepsi-Cola Group and to a lesser extent by the Cantrell and Cochrane Group. In recent years Coca-Cola has introduced a smaller bottle (200 ml) instead of the previous larger bottle (330 ml); but hotels, pubs and restaurants are charging the same price as previously, which has the same effect as a whopping 65 per cent increase in price.

These companies are good at fighting their corner when it comes to governments “interfering” in their market. Obesity has become a growing problem, especially among young people, and health experts have called for a sugar tax. Carbonated drinks contribute to obesity because they contain large amounts of sugar. Our pro-business government ignored the pleas of the medical profession and the health needs of our young people and dropped the idea of a sugar tax. The needs of business are more important than the health of the nation.

Motor vehicles

In 2014 a total of 93,361 new cars were sold. Of these, 23,825 (26 per cent) were supplied by the Volkswagen Group, 9,658 (10½ per cent) were Toyota, 9,040 (10 per cent) were Ford, 7,410 (8 per cent) were Hyundai, 6,691 (7 per cent) were Nissan, and 6,156 (6½ per cent) were Opel. Between them these six companies supplied a total of 62,776 cars, or 68 per cent of all cars bought in Ireland. There is competition among the few, but the last thing they want to do is to compete on price.

It is interesting that the Central Statistics Office does not collect information on car prices.

Petrol and diesel

Four companies—BP, Exxon Mobil, Chevron, and Royal Dutch Shell—dominate the petrol, diesel and heating-oil sectors. These were originally seven companies that merged to form three. From the late 1920s these companies shared production zones and transport costs and agreed sales prices. As a cartel, they colluded—and still collude—on price, and smaller operators follow suit.

No government would dare take on these companies, as they have overthrown governments and have pauperised countries, such as Nigeria.

Department stores (Dublin)

Three department stores—Arnott’s, Debenham’s, and Marks and Spenser—serve mainly middle-income people, with Dunne’s and Penney’s mainly serving ordinary people while Brown Thomas caters for the bourgeoisie.

Summary

There is nothing free about the “free market,” except that it is free from government regulation. But because nearly all branches of the economy, including those not listed above, are dominated by one or a small number of firms, the state should regulate these sectors much more in the interest of the majority of the population, who are being exploited by a relatively small number of firms.

Revealing capitalism in Ireland

This month (July 2012) the Irish Times launched a special web site, www.top1000.ie, that, in its own words, “contains details on all these [top 1,000] companies with the capability to search by industry, company and key employees, and to sort the information by turnover, assets, profit and employees.”

The companies listed cover both North and South and are judged according to their audited accounts from the last three years, covering turnover, profits, and number of employees, making the web site an invaluable resource in analysing the nature of capitalism in Ireland and the interests of the dominant section of the ruling class.

Without meaning to, I’m sure, it serves to show how exposed Ireland is to the instability of monopoly capitalism, and how dependent it is on foreign capital.

In essence, this list makes understandable the actions of the ruling class. They are not stupid, naïve, or weak. Their interests are inherently tied to the interests of the largely foreign monopoly capital that dominates our economy. They are not to be convinced of the error of their ways or the foolishness of their economics, because they are not foolish if you are part of the class that rules.

When they impose pay freezes or pay cuts they are not concerned with how this affects domestic demand: they are doing it to reduce the cost of production and increase the profits of global monopolies. When they ensure that bondholders are fully paid they are not doing this to release capital to small businesses: they are sending a clear message to international capital that in Ireland you will be looked after.

When they refuse to legislate for comprehensive collective bargaining, union recognition or the right to organise a union they are not doing so because the voluntary system has worked well for all sides: they are doing so to facilitate international capital in operating in a non-union environment.

This web site reveals the extent of the dominance of foreign monopolies and consequently the reliance and subservience of the Irish state to these monopolies.

Of the top 50 companies in turnover, 31 are foreign monopolies and 19 could be considered Irish companies. However, a closer examination of these “Irish” companies suggests that their interests are tied more to international operations than to a domestic market, meaning that their interests are aligned with those of their foreign monopoly friends.

Take CRH, for example: the great majority of its 76,000 employees are employed in the other thirty-five countries it operates in, and its profit of €711 million last year is largely based on overseas work. Likewise DCC Group: its 8,868 employees generated a profit of €185 million last year but it boasts on its Irish web site that 68 per cent of its operating profit came from Britain, 18 per cent from the rest of the world, and only 14 per cent from the Republic.

Where are their interests tied—to serving a domestic market and championing a strong independent Ireland? or serving overseas markets and championing a submissive Ireland that doesn’t rock the boat internationally?

Smurfit Kappa, considered an Irish company, employs 38,373 people but only 800 in Ireland. Kerry Group employs more than 24,000 people and made a profit of more than €400 million last year. Again, however, operating in more than twenty-five different countries and with customers in more than 140 countries, Kerry Group’s interests are tied to monopoly capital globally.

Likewise Ryanair: 8,500 employees, mostly overseas. Of United Drug’s operating profits, two-thirds were generated overseas: 41 per cent in Britain and 20 per cent in the United States. Its Irish business contributes a third of the company’s profits. And of its 4,500 employees only 750 are employed in Ireland.

Kingspan, the construction and insulation company, is based in Ireland but has larger overseas operations in other parts of Europe, the Middle East, the United States, and Australia. It has a turnover of €1½ billion, made an operating profit of €77.8 million last year, and employs 5,800 people globally.

Origin employs 1,415 people in its worldwide operations but only 100 of these in Ireland; it made a profit of €62½ million last year. Sisk, which has construction contracts all over the world, made a profit of €9 million last year, employing 1,132 people in Ireland out of a total of 2,000.      Diageo, formed from a merger between Guinness and the British hotel chain Grand Metropolitan, had a turnover of €1.9 billion and employs 1,500 people in Ireland. However, production is for a global market. The company’s global brand teams, based in Ireland, develop sales and marketing strategies to meet the needs of the company’s international markets.

Musgrave, one of Ireland’s most “successful” companies, began as a family shop in Cork in the 1870s. While still controlled by the family it is now a global operation, employing 55,000 people (34,000 in Ireland), with a turnover of €4½ billion, two thousand operations in Britain, and shops in Spain. The co-op IDB employs 4,000 people in Ireland but is driven by export need.

The exceptions to the rule—those Irish companies among the top fifty serving a domestic demand and employing primarily a domestic work force—are Dunne’s Stores (employs 16,000), Boyle Sports (employs 1,100), ESB (employs 1,275), Eircom (employs 7,000), Aer Lingus (employs 3,500), BWG (employs 900), and Tedcastle (employs 400).

So, of the nineteen Irish companies in the top fifty in terms of turnover, only six could be said to be interested in an Ireland with consuming, well-paid workers; the rest are more concerned with cheapening their production costs in Ireland or employing workers elsewhere. [NL]