TEXTILES ANTIBACTERIANOS

Privatisation has become one of the catchwords of the 1980s and 1990s. The enthusiasm of its adherents at times appears to be almost u n b o u n d e d . 133 it is not part

of the present task at hand to enquire into whether objectives such as "rolling back the state", "keeping government out of business", or creating a "property-owning democracy", to quote three of the maxims of the movement, are desirable goals in either economic or political terms, though the reader may discern some scepticism in

131. See Report on the Future Ownership o f Electricity Supply Authorities (Electricity Distribution Reform Unit, Wellington, New Zealand, March 1991); Energy Companies Act 1992 (NZ) and the subsequent litigation generated by the restructuring regime: Hamilton City Council v

Waikato Electricity Authority [1994] 1 NZLR 741; Thames Valley Electric Power Board and Waitemata Electric Power Board v NZFP Pulp & Paper Limited and others [1994] 2 NZLR 641; Waitakere City Council v Waitemata Electricity Shareholders Society Inc [1996] 2 NZLR 735. For a discussion of the 1992 Act see Palmer, Local Government Law in New Zealand (The Law Book Co Ltd, Sydney, 2nd ed, 1993), pp 674-679.

132. See for example Coombes, supra note 122, chapter 12, entitled "A New Style o f State Enterprise".

133. See for example Shirley, "The What, Why, and How of Privatization: A World Bank Perspective" (1992) 60 Fordham LR S23 at S31-S32, where the author states: "The present interest in privatization is no fad. What we now see is a restructuring o f the balance between the public and private sectors.... Lessons have been learned, however, and today's strategies reflect these lessons. Markets fail, but so do governments. The public enterprises were unable to meet all their ambitious goals; instead, they sometimes undermined the very objectives they were created to serve." Another example can be found in Veljanovski, Selling the State. Privatisation in Britain (Weidenfeld & Nicolson, London, 1987) at p 2. For useful general discussions of the privatisation process in Britain see Kay, Mayer and Thompson, Privatization and Regulation -

the UK experience (Clarendon Press, Oxford, 1986); Vickers and Yarrow, Privatization: An Economic Analysis (The MIT Press, Mass. & London, 1988).

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the following chapters as to whether privatisation is the cure-all that it is often claimed to be. However, the process of privatisation, and its implementation in practice, can have certain foreseeable influences on the need for a regulatory regime and on the form of regulation which it may be considered appropriate to adopt.

The transformation of industries or undertakings of a monopolistic nature from public to private ownership may lead to the abuse of a monopoly position if the transition does not take place in the context of a structure in which genuine market competition is brought into existence, or where appropriate regulatory mechanisms are not put in place. This is one of the areas in which the process of privatisation in Britain may have fallen short of the ideal, as will be discussed in subsequent chapters.

One of the persistent criticisms at a philosophical level of the privatisation process in the United Kingdom (apart from the more fundamental one, articulated in memorable terms by the late Harold Macmillan, Lord Stockton, of selling off the family silver to buy the groceries) revolves around the way in which the process was implemented. Several commentators have pointed to the overriding influence of Treasury requirements as a motivating factor in both the speed and form of privatization. Cox has drawn attention to the financial imperatives underlying the process. Other commentators have made similar points.

Similar observations have been made by some of the economic c o m m e n t a t o r s . ^^6 The political agenda, in the form of securing the allegiance of contented voters who have

134. Cox, "The Politics o f Privatisation" in Robins (ed), Politics and Policy-Making in Britain

(Longman, London, 1987) at p 156. Cox observed that the underlying rationale behind the privatisation movement was "the need to finance the PSBR [I^blic Sector Borrowing Requirement]" and that the objects o f privatisation were selected as being "anything that could be sold quickly and for a clear profit."

135. Simpson, "Regulatory aspects of utility privatization" (1992) 3 Util LR 183 at 184-185: "The political requirement has been to return nationalised utilities to the private sector and to do so in a way which assures a successful launch of the newly privatised utility on the stock market. In the United Kingdom, utility SOE's shares have been struck at prices designed to encourage wider share ownership, employee share participation and other more general political objectives. There has been a somewhat lower priority to reducing monopolistic powers, the most obvious example being the privatization of British Gas in 1985 which retained intact its vertically integrated monopoly."

136. See for example Veljanovski, supra note 133, at p 15; Kay, Mayer and Thompson, supra note 133, pp 65-67; Foreman-Peck, "The Privatization o f Industry in Historical Perspective" (1989) 1 6 JL aw & S o c 129 at 143.

subscribed for shares in highly profitable privatised enterprises, while at the same time weakening trade union power, may of course diverge fi’om what might objectively be regarded as desirable economic policy, as less charitable observers have pointed o u t J 3 7

It should be kept in mind here that a political choice between what may be described as collectivist and firee market approaches, at the two extremes, vrill have obvious repercussions on issues of regulatory design. In an era of privatisation, where the emphasis has shifted to the enhancement of private as opposed to public rights, such influences are pronounced. A philosophy which favours a free market approach may well also support minimal government interference in the functioning of the market. If it is assumed that the market is a cure-all in the long run (even if, as Keynes reminds us, in the long run we are all d e a d ^3 8 )^ and that the attainment of welfare goals will be assured by the trickling down of wealth maximised at the top of the social and economic pyramid (even if the pyramid proves to be remarkably absorbent in its upper layers), then mechanisms which seek to alter or modify market processes are unlikely to be greeted with e n t h u s i a s m . *39

Similarly, if the political agenda dictates that privatisation and the interests of shareholders in privatised industries are to be paramount, a mechanism which favours the interests of consumers is likely to be regarded with similar disdain. Where, as in the United Kingdom, there are few if any constitutional restraints on a process of unrestricted privatisation, *"*0 such an agenda may well lead to a situation in which the

137. See Grimstone, "Privatization: the unexpected crusade" [1987] Contemporary Record 24; Dobek, "Privatization as a Political Priority: The British Experience" (1993) 41 Pol Studs 24; Coxall and Robins, Contemporary British Politics (Macmillan, London, 2nd ed, 1994) at p 177. 138. See Keynes, A Tract on Monetary Reform (Cambridge UP, Cambridge, 1972, first published

1933), chapter 3, p 27: "But this long run is a misleading guide to current affairs. In the long run we are all dead."

139. For a more detailed account of the conflict between economics and distributional concerns in this area see Kelman, "On Democracy-Bashing: A Skeptical Look At The Theoretical and 'Empirical' Practice o f the Public Choice Movement" (1988) 74 Virg LR 199. The economist J K Galbraith, in his book The New Industrial State (Houghton, Mifflin Co, Boston, 4th ed, 1985), has described the trickle-down theory as being equivalent to feeding a horse a large quantity o f oats and waiting for some o f them to pass through to the road to be eaten by the sparrows!

140. See Daintith and Sah, supra note 130; Taggart, "Book Review o f Graham and Prosser,

Privatizing Public Enterprises, The State and Regulation in Comparative Perspective" (1993) 4 PLR 271 at 273-275; Veljanovski, "Privatization in Britain - The Institutional Constitutional Issues (1988) 71 Marq LR 558; McEldowney, "The Nationalization Legislation o f the 1940s

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regulatory regime subjugates the interests of consumers to those of shareholders and industry to an unacceptable degree. Such a situation can be reflected in a variety of ways, including unduly generous pricing formulas, a failure to enforce acceptable standards of service and a lack of effective participation structures which would allow consumer interests to exert a meaningful influence on the regulatory process. At a more fundamental level suggestions have been raised that much underlying political support for the privatisation movement has tended to come from multinational corporations and industrial elites, who have certainly been among its primary beneficiaries.

A regulatory regime based on a public interest standard could address many of these issues but might quickly come into conflict with the political priorities underlying a system of privatised ownership. Such a wholesale collision of values is not necessarily inevitable. However, greater recognition of the consumer interest would necessarily entail an accompanying degree of political willingness to recognise that share ownership in the privatised industries is not a cast iron investment to be protected at all costs from the normal vagaries of the market. A more moderate political approach, perhaps based on a recognition of the need to reconcile opposing stakeholder interests as far as possible, would certainly assist in bringing about the implementation of a more balanced regulatoiy regime. If the family silver is to be pawned in exchange for groceries, at least the previous owners should not be left to starve while watching their successors in title dining off the p r o c e e d s .

and the Privatization Legislation of the 1980s: A Constitutional Perspective" in Blackburn (ed),

Constitutional Studies: Contemporary Issues and Controversies (Mansell Publishing, London, 1992), chapter 4.

141. See for example the critique o f the privatisation movement in Martin, In the Public Interest?: Privatization and Public Sector Reform (Zed Books, London, 1993) at p 95 where the author notes: "Whether or not the greatest ever transfer o f public wealth into private hands has also been the greatest ever concentration of wealth to have taken place over such a period is impossible to judge, even in one country, let alone for the whole world. There is plenty of anecdotal evidence, however, that the best o f the assets in the South and East have gone to the North and West, and that transnational corporations and local élites have benefited more than anyone else."

142. As Johnson aptly puts it in his book. The Economy under Mrs Thatcher 1979-1990 (Penguin Books, London, 1991) at p 173: "The use of asset sales to finance public expenditure was regarded critically by many, including Lord Stockton (formerly Harold Macmillan), as 'selling the family silver*. Mrs Thatcher retorted that she was 'selling it back to the family' - although, if it was theirs, it was not clear why they had to pay for it."

The point of this discussion is not to embark, necessarily, on a criticism of the political imperatives underlying the privatization process (although the selling of state assets at a gross under value, if this occurs, might be thought to be a legitimate source of public c o n c e r n ^ 4 3 ^ simply to illustrate that the structure of a privatised industry has a direct bearing on both the necessity for, and the nature of, the appropriate form of regulatory regime which may be required. In particular, to take a concrete example, if public utilities with monopolistic characteristics are privatised in such a way that no adequate competitive structure or price setting mechanisms are put in place, the dangers of possible abuse of monopoly power and the consequent need for some form of regulatory activity to counteract this possibility, are all the greater.

One of the great paradoxes of the British privatisation movement, at least as this writer sees it, is that the professed goal of some of its most ardent supporters, the free marketeers, of allowing competitive market forces free rein, has been deliberately sacrificed in favour of overt political ends. Privatisation as a revenue-earning device has proved in many cases to be quite inconsistent with the concept of privatisation as a means of promoting effective market competition. These considerations will be examined further in subsequent chapters.

2.8 Summary

The following points emerge from the foregoing survey of the historical evolution of regulatory regimes:

• The history of regulation through delegated legislation gave rise to an increasing interest on the part of the courts in overseeing this regulatory

143. For examples of sales of public assets in the course of the privatisation process which were said to have taken place at a gross under-value see Coxall and Robins, supra note 137, at p 177. The previous Conservative government appears to have conceded as much. The previous Energy Minister, Lord Fraser o f Carmyllie, told the Trade and Industry Select Committee on Regulation on 3 February 1997 that "in retrospect one could have an argument about the appropriate share price." See article in The Times, 4 February 1997: "Government Concession on Energy".

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technique, a trend which ran in parallel with increasing judicial independence from the 17th century onwards;

The need for economic regulation of monopoly power revealed a divergence of attitude on the part of the judiciary in this area, ranging from reluctant acceptance to extreme hostility. These attitudes have more recently been reflected in the varying degrees to which modem courts defer to the decisions o f regulatory agencies;

The concept of a business or calling affected with a public interest led eventually to the development of the legal basis for modem utility regulation, including the twin requirements of provision of universal service at a reasonable price. These concepts were eventually taken up by the courts in all common law jurisdictions;

The legal concept of a corporation was initially bound up with the concept of a concession granted by the state, with attendant public interest obligations. However, this approach later gave way to a view of the corporation as being a private, commercial entity, a development which in tum gave rise to the need for extemal regulation of certain corporate activities;

In Victorian times the use of independent boards in certain specialised areas led to consideration being given to issues of accountability of those entities to Parliament and the degree of independence which they ought to enjoy;

The use of public ownership as a regulatory technique gave rise to the theoretical attractions of public accountability and the possibility of observance of social goals coupled with commercial efficiency, but these objectives were not always realised in practice;

The more recent emphasis on privatisation does not in itself avoid the need for extemal economic regulation. Political and structural factors remain important and private, as well as public, monopoly still needs to be regulated in the public interest. However, any such regulatory initiatives need to reconcile opposing stakeholder interests.