Every little helps ... impoverish our way of life

The chain is draining our local communities, says long-time Tesco critic Andrew Simms

'Wherever something is wrong, something is too big,' wrote Leopold Kohr in The Breakdown of Nations. He couldn't have imagined in the 1950s that, half a century later, high street grocers would have grown to dwarf whole countries.

In April this year, Tesco's annual profits broke the £2 billion barrier. Its turnover of £37.1bn would rank it about 53rd in the World Bank's listing of 184 national economies, putting it ahead of Bolivia, Belarus and Bulgaria combined.

There are economic, social and cultural reasons to worry about this. It matters economically because major chains with the lobbying and legal resources to run rings around the planning system tend to act like giant vacuum cleaners, sucking money out of the local economy. Pound for pound, the supermarkets will typically recycle less consumer spending back into the local economy compared with genuinely local stores that source more of their goods closer to home. On the same basis, supermarkets can be less than half as efficient in terms of generating employment.

The disproportionate power that supermarkets wield among suppliers and smaller competitors implies the death of an open market. There are impossible barriers to entry; suppliers are forced to operate on margins that cannot provide a livelihood, but are too frightened to complain; and the Competition Commission's 2000 inquiry highlighted anti-competitive practices that tilt the playing field steeply away from smaller retailers.

For example, as Tesco moved into the convenience store sector, record closure rates were reported for independent local shops. In the past year, 2,157 have gone out of business, compared with figures in the hundreds for previous years. And each time one of these shops closes, more of the fabric of the local community is worn away. Everyday human contact, the swapping of local information that seems normal in corner shops, becomes impossible in the suffocating regimentation of a chain store.

So why do the regulators appear so impotent as we sleepwalk from the memory of markets controlled centrally by the state to the reality of markets controlled centrally by a handful of dominant corporations?

Partly it's due to an arbitrary threshold that says a 40 per cent market share is necessary to control prices to the consumer. This is flawed not only because it overlooks the higher level of dominance that exists in many of the places where people actually live and shop, but because it defines the role of regulators too narrowly. Their job is to prevent abuse of power against suppliers as well as consumers, and to prevent a situation of 'collective dominance' emerging among supermarkets.

The Competition Commission observed in 2000 that an 8 per cent market share gives a supermarket the potential to abuse its power over suppliers, so why should any higher market share be tolerable?

One leading industry lawyer points out that collective dominance occurs when there is only limited competition and common policies are followed. 'The fact that the supermarkets never compete on adjacent sites demonstrates the former,' he says, 'and the fact that they all engage in similar anti-competitive practices illustrates the latter.'

The economist JK Galbraith said that regulators were eager in youth before rapidly advancing to complacent middle age, and then becoming either senile or an arm of the industry they used to regulate. Will the OFT prove to be an exception?

· Andrew Simms is policy director of the New Economics Foundation