Regulation through to 2020

A brief glimpse of the first 4,000 years of regulation may be found here.

This web page summarises the main developments in regulation and deregulation from the late 1900s to 2020.

1964-2003  The Changing Face of Competition Law

There was a time when business people were sent to prison for selling goods below the prices set by manufacturers.  The subsequent development of competition law through to 2003 is nicely summarised in a lecture by Peter Freeman

And Eleanor Fox analysed the interrelationship between power and markets in her very interesting paper POWER: Trust and Distrust.  In short, she sees the development of competition policy on both sides of the Atlantic as a tussle between three concerns or perspectives:

  1. A concern with the economic power of corporations and a strong policy goal to harness their power for the good of the people,
  2. A commitment to laissez-faire; keeping government out of the business of business; a belief that the free market unhampered by governments (apart from cartels, even antitrust) will deliver the most welfare to people, and
  3. Industrial policy: a belief or acceptance of government’s ascendant role, which it may fulfill in the form of government/big business partnerships, removal of antitrust constraints, commands to produce, commands to price low, commands to stop competing; a skepticism that the market, even with antitrust and a social welfare net, can deliver what the people need.

1969-1974-1998  IBM,  AT&T and Microsoft

These were the big three anti-trust cases in the USA which many regard as having prevented major monopolists from killing small competitors.  Here is a list of the products 'saved' in each case

(1) IBM:--  software as product,  Apple,  Microsoft,  Intel,  Seagate,  Sun,  Dell,  Compaq
(2) AT&T:--   Modems,  ISPs,  AOL,  the Internet and Web industries
(3) Microsoft:--  Google,   Facebook,  Amazon

But it's worth noting that some disagree with this analysis, and argue that the US government's activities did no more than distract a dominant incumbent with a failed  13 year (!!) lawsuit (IBM), impose an ineffective conduct remedy (Microsoft), and break up a government-granted national monopoly into regional monopolies (e.g., AT&T).   In truth, the argument goes, the dynamic nature of competition between tech companies far outweighed the effects of antitrust enforcers tilting at windmills.  Disruptive products were ignored whilst big tech focussed on improving their legacy technology to serve high-margin customers. But once the disruptive technology improved to the point where it could serve the whole market, it was too late for the incumbent to switch technologies and catch up. 

My own suspicion is that the truth lies somewhere between these competing views of anti-trust history.  If Big Tech had not been scared and/or distracted, it could have taken more dramatic steps to squash emerging completion, once it had noticed the threat.

1983-  The Birth of Utility Regulation

The 1983 Littlechild Report established the institutional basis for regulating the post-privatisation telecommunications industry, and set the pattern for future utility regulation

The subsequent arrival of the gas regulator Ofgas kick-started a further policy dynamic.  Working alongside the Office of Fair Trading and the Monopolies and Mergers Commission, the regulator began a string of successes that transformed the gas industry, once the Cinderella of the energy sector, into its poster child.  As well as forcing much greater efficiency (and hence lower prices),  the regulator also hugely improved service quality, for instance by forcing gas companies to pay consumers £25 every time they failed to visit after agreeing appointments.

There were essentially three important policy debates or issues over the subsequent decades.

  1. Would regulation eventually be replaced by effective competition?  Regulation was for many years seen as a means of 'holding the fort' until competition arrived, but competition often took a long time to arrive - or never did - see further below.
  2. Should utility regulation have a social purpose and non-economic policy objectives?  See 'Too Many Objectives,' below.
  3. How should risk be allocated between investors, customers and wider society.  Should current air passengers be asked to pay for Heathrow's third runway, for instance, even though will probably never use it themselves?

1.  It Often Took a Long Time for Competition to Arrive

The regulator's attempts to encourage strong competition for British Telecom (later BT) were initially relatively unsuccessful until mobile telephony and the internet took off.

Gas and electricity competition proved easier as distribution companies competed with each other to buy the cheapest energy from oil/gas exploration companies, electricity generators etc.  But the pipes and wires remained price-controlled natural monopolies

Water competition was badly delayed, partly because of weak legislation.  Eventually, however, large industrial customers could choose to buy their water from a range of suppliers.  Domestic customers, however, are still not able to choose another supplier, mainly because successive governments have chosen not to legislate.

2.  Too Many Objectives

As the advantages of politically independent regulation became clear, regulators came under pressure to expand their activities, including so as to protect consumers.  One UK utility regulator observed that his postbag was full of letters which could be summarised as ‘This can be regulated, you are a regulator, let’s regulate it!’  George Yarrow made the same point at greater length:

The process is partly governed by what i will call the 'first law of regulation':  supply creates its own demand.  Establish a regulatory office with responsibilities and power, hang a sign outside the door, and pretty soon there will be plenty of interest groups knocking on that door trying to convince the inhabitants to do this or that about something or other.  Once an agency is established, politicians can also find it to be a convenient substitute for some of the awkward decisions that might have to be taken (e.g. those that will lose votes whatever way the decision is made).  More generally, one of the lessons of utility regulation to date is that duties and responsibilities tend to grow over time.

Politicians, at the same time, decided it would be a great idea to ask regulators to get involved in social and environmental issues such as protecting the socially disadvantaged from high energy prices (but increasing prices for others), improving water purity (whilst increasing water bills) and climate change (adding the extra cost of fossil-free energy to everyone's energy bill).  Sadly, therefore, many utility regulators became little more than adjuncts to their sponsoring government departments, increasingly tasked with making political choices whilst being politically unaccountable.

Irwin Stelzer summarised the issues very well in his 2005 Social or Economic Regulation? speech.

3.  Risk- Sharing

Many privately-owned large infrastructure projects, such as Heathrow's third runway and the Thames Tideway Tunnel are inherently very risky for investors because they are very expensive and will not generate revenue for many many years.  If they are to be built, therefore, either the government has to invest (or lend money) or else current customers need to be forced to pay via increase in regulated prices, such as landing charges and water bills. 

The Need for Deregulation

When it became clear that utility and other forms of regulation were not going to wither away,, successive governments took the view that regulation was an unwelcome constraint on wealth creation and should be stripped back as far as possible, hence many years of deregulation and better regulation.

2020

The High Court ruled (in the Beckwith case) that the Solicitors Regulation Authority had strayed beyond its remit in deciding that a solicitor had been guilty of professional misconduct when engaging in a drunken but consensual sexual encounter with a junior female colleague.

China launched what was probably its first serious antitrust investigation - into Alibaba, China's Amazon-equivalent and its largest tech company.

And - last, but certainly not least - the UK's Brexit transition period came to an end on 31 December 2020.

Further developments are summarised here.

 

Martin Stanley

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