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Rethinking regulation By Martin McIvor August 2002 The failings of public service and utility regulation in the UK can be traced to the Conservative privatisation programme in which it has its origins, and the Thatcherite philosophy that lay behind it. Privatisation was a deliberate displacement of collective direction and control by competitive market mechanisms, taking crucial social and economic issues out of the political process. The accompanying model of independent regulation was part and parcel of this policy of depoliticisation. Selling off the country's power, water and telecommunications infrastructures created vast new private monopolies, dwarfing anything around them in size and market power (the sale of just the first 51 per cent of British Telecom was six times larger than any previous issue on the London stock exchange). Regulators were appointed for each industry, purportedly to protect the consumer against the inevitable drive to maximise shareholder profit: Ofgas and Offerr for gas and electricity (since merged into Ofgem), Ofwat for water, and Oftel for telecommunications (now being merged with broadcasting regulators as Ofcom). The flaws in this regime derived from the excessively narrow concept of regulation upon which it was based. For the Thatcherites, the whole enterprise was based on a dogmatic faith that market forces will always produce the best outcomes. The purpose of the regulators was simply to ensure that these were brought to bear. In the view of Professor Stephen Littlechild, a key academic advisor on the process and later himself appointed to regulate the electricity industry, regulation was "essentially a means of preventing the worst excesses of monopoly ... until competitive arrives". And because regulation was conceived in such narrowly economic terms, it was seen to be an essentially technical exercise that could be safely handed over to technocrats and indeed ought to be insulated from political interference. The serious problem with this approach is that we are talking about natural monopolies, which are moreover crucial infrastructures of our economic life and essential services upon which we all depend. This raises a whole range of issues such as equality of access, industrial and economic strategy, and environmental sustainability, for which markets are little help and frequently a hindrance. But the regulators have been fixated upon the introduction of competition as if it were an end in itself, rather than at best just one possible means of advancing the public interest. The consequences have been predictable, with similar patterns seen across the power, water and telecommunications sectors. Cost-related charging has broken up the flow of cross-subsidisation that is essential to sustaining a genuinely universal service, reducing prices for more lucrative activities (such as services to business) but raising them for those that require more investment (such as delivery to more remote and lower volume residential users). Foreign companies and rival start-up operators were heavily favoured while the original privatised monopolies were denied freedom to expand and compete overseas - hence, for example, the pointless proliferation of incomplete and underused local telephone networks and no national broadband cable network. And it was Littlechild himself who in the early 1990s decreed that electricity generators' existing coal volumes flouted competition rules, sabotaging at a stroke any broader concerns for a coherent national energy policy. And these huge areas of public policy have effectively been hived off from all democratic accountability and control. A report this year from the Centre for the Study of Regulated Industries at Bath University, Who regulates the regulators?, notes that this amounts to another of the Tories' great unsung constitutional innovations: the creation of a whole new species of "unelected and powerful public officials", "analogous to quangos", though exercising "far more power". The regulators are "not directly accountable to a particular minister or to government or parliament itself" and are appointed by "a decision making process that is hidden from the public eye". They "have tended so far to be predominantly white, middle aged, professional men". The Labour government has made some modifications to the Thatcherite regulatory model, formalising social and environmental obligations and strengthening the role for consumer representation. But the legislation which followed the 1998 Green Paper on utilities turned into a notorious fudge, much of the original proposals aborted (water and telecommunications were taken out completely) and others diluted. And the experience with the new postal services regulator Postcomm has demonstrated all too clearly how crucial issues of accountability and political direction remain unresolved. Yet again we have seen an unaccountable and all- powerful regulatory agency driving through an accelerated introduction of competition, in the face of all expert opinion that this will undermine the universal service, and clear opposition from parliament, trade unions and the public. Meanwhile the government has sat on its hands, refusing to intervene on the grounds that this is all a matter for the regulator. Professor Cosmo Graham, Director of the Centre for Utility Consumer Law at Leicester University, sees this as part of "a wider policy of the current Labour Government ... to remove certain crucial decisions from the influence of elected politicians ... without creating any alternative means of input from the public." He cites the devolution of monetary policy to the Bank of England and "de-politicisation" of merger control as part of the same trend, one which sits uneasily with Labour's rhetorical commitment to a democratisation of Britain's constitution. Clearly, a fundamental rethink is required if we are to see the way beyond the current confusion of contradictory policies, part-inherited from a discredited experiment in free-market dogmatism. The imminent creation of new communications and broadcasting super-regulator Ofcom, and the inclusion of the regulation question in Labour's current National Policy Forum cycle, provide an opportunity to revisit these issues. "Regulation" is one of those words, like "modernisation" and "reform", that circulates today's spuriously pragmatic "what works" policy discourse as if its meaning were clear to everyone, but which in fact is utterly vacuous until the aims and objectives it is to serve are spelt out. The question of "more" or "less" regulation, even "good" or "bad" regulation, is meaningless until we ask the question: regulation for what? And the answer can only be a political, indeed ideological one. For the Tories, regulation meant little more than the administration of the market system, and the administering of market disciplines. The Labour government has come halfway to recognising an alternative view of regulation, as the proper public care of industries and services that are fundamental to society's well-being. But these wider social, economic and environmental objectives are intrinsically matters for public debate and political accountability. A more expansive notion of the purpose of regulation must then go hand in hand with its reintegration into democratic decision-making structures. A start would be for government to take more responsibility for the regulators' activities, and for parliament to be given more power to scrutinise their functioning. Rolling policy frameworks need to be issued which set out strategic objectives for an industry and set targets for service standards and equity. The regulators then need to be answerable to dedicated select committees of MPs and their record debated on the floor of the House of Commons. The system of appointments to regulatory bodies also needs to be opened up and democratised, to ensure that regulators are truly representative of the communities on whose behalf they are operating. At the same time the process needs to be opened up to pressure from below, through full transparency and freedom of information, and new forms of public participation. There are lessons to be learned here from the American model of "Regulatory Commissions", which make decisions through public hearings, open to all, at which utilities' investment and pricing plans are cross-examined by consumer groups, trade unions, local communities, and even potential competitors. In a book to be published by Pluto later this year, Democracy and Regulation, seasoned US experts Greg Palast, Jerry Oppenheim and Theo MacGregor show how much more effective this has proved than Britain's market- driven pricing in keeping charges low and service quality high. Regulation may seem a dry and technical subject - but that is precisely what the Thatcherites would have wanted you to think. Reconceived and redirected, it could open up exciting new ways of reasserting popular control over our social and economic future. Certainly the battle over regulation will increasingly become a crucial front in the struggle to defend notions of a public realm and social interest from the invasive imperatives of private capital and the market. Published in Red Pepper magazine, August 2002 Martin McIvor is Director of Catalyst |
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