Competition is the Vitamin C of conventional economic theory: there’s no economic problem that can’t be solved by a dose of more competition.
As you might expect, I’m less than convinced by this “one cure fits all” approach to economic policy. Competition in banking led to a “race to the bottom” in lending standards–both to households in the last decade after the Wallis deregulations, and back in the 1980s, (when then Treasurer Paul Keating allowed 16 foreign banks to enter the market, who then duly lent bucketloads to such responsible businesses as Bond Corporation and Qintex). What we need now is less lending, not more, and we’re hardly going to get a reduction in supply out of an increase in competition.
I’ll be posting more on this shortly, but for starters, here is an interview “Bank Competition Will Only Make Things Worse”, recorded with Phil Dobbie of BNet Australia.
