Beware the new princes - bureaucrats armed with new legislation

The word ‘regulator’ occurs more and more frequently in the econo-political world of today and no one appears to question the proliferation of regulations and regulators. Each new act of Parliament spawns more regulators. For each process of ‘managed reform’ another prince is created. These faceless bureaucrats rule by decree on almost every aspect of our economic lives, including how we may conduct business, with whom we may transact, what pop-singers we may listen to: the list is endless…and growing.

Evidence of power
The power of these new princes should not be underestimated. Recently, the European competition commission stifled the merger between General Electric and Honeywell, despite its acceptance in the United States. The reason given was that the merged company would gain “dominant positions on several markets”. Microsoft has also been victim to the power of these interfering officials who hatched the spurious case against their Internet Explorer and its bundling inside the Windows operating system. Locally, radio company ownership and broadcasting programmes are dominated by strict rules, forcing complex arrangements for investors (especially foreign investors) wishing to invest in our media companies. And our telecoms industry is strangled in regulation. So much regulation in what is described as a market economy.

“Market failure” versus “bureaucratic failure”
Most people seem to believe that the regulators are needed to watch over a market that would otherwise “rip off” or harm the consumer in some manner. Their mandate (regulators claim) is to protect us, to ‘fix’ where markets fail. However, the regulators have no accountability for their mistakes. We do not see the terms “regulatory failure” or “bureaucratic failure” being used, although evidence of such failures abound.

Last year the Competition Commission disallowed a merger between the JD Group and Ellerines on the grounds that it would reduce competition in the furniture trade. One year later we find that the Ellerines shareholders have seen the value of their shares decline by 30%, while JD shareholders have lost 11% over the same period. Ellerines is concerned that if it cannot make cost savings quickly enough it will be unable to cater for its low-income consumers and may have to drop out of that market, hurting the very people the Competition Commission is supposedly trying to protect. South Africans were also not allowed to discover whether they would have cheaper banking this year if Nedcor and Standard Bank had been allowed to merge and rationalise their businesses. How are we to know that the decisions of the Competition Commission and Finance Ministry in these two cases will benefit the consumers in the longer term?

Right of recourse
The problem facing a firm confronted by a stubborn prince is that it often has no right of recourse, or if it has, the right of recourse is prohibitively time-consuming and expensive. To whom do GE and Honeywell appeal? Often, the same piece of legislation that creates the regulator creates the appeal process, which cannot offer the checks-and-balances associated with other legislative processes. Though globalisation is sweeping away socialist practices, our politicians seem reluctant to let go. Forced to liberalise on the one hand, they hold grimly on to the reins with the other. For the closet interventionist, the regulatory board is a new home.

Will the princes dominate our lives?
South Africa is currently fighting a battle of ideas. On the surface the most important differences appear to be about race, the environment and similar issues. However, a more fundamental tussle is taking place – whether individuals in South Africa are to control their own lives or whether they are to be dominated by an omnipotent bureaucracy – a coterie of highly paid princes that are accountable to no one. We find ourselves at an important juncture, with support for, and opposition to, the “omnipotent bureaucracy” cutting across national, party political, race, gender, language and other lines. There is a real danger that liberty will be lost if the princes win the day. For each “reform” we find another board or commission being created to “manage” the market. ICASA, SATRA, PASA, the Competition Commission, the Competition Tribunal, and the CCMA – the list of acronyms is endless.

Outside South Africa there does appear to be some light at the end of the tunnel. For example, in the recent Microsoft case, the U.S. Supreme Court wrote that it was unclear how, “current monopolisation doctrine should be amended to account for competition in technologically dynamic markets”. In essence, they questioned whether it was possible for officials to decide if “bundling” was, or was not, bad for the consumer. An interesting local development is the extension of the Competition Commission’s powers (Section 3 amendment) giving it equal jurisdiction with the regulator in regulated markets. Feasibly, it now means that the public could pitch the Competition Commission against ICASA, for creating monopolistic (or duopolistic) market conditions in the telecoms sector. Prince against prince?

Conclusion
It is not unusual for citizens to have politicians interfering in their daily lives. The 20th century was an ideological battleground between free markets and socialist intervention, with the former eventually dominating. However, citizens who value their liberty need to retain a vigilant eye lest these hard-fought gains be lost. In the 17th century, the concept of checks and balances was introduced into political structures to protect citizens from the arbitrary acts of their leaders. Yet today we have very little recourse against faceless bureaucrats who interfere with our economic lives on a day-to-day basis.

Entrepreneurs are stymied by petty, obfuscatory rules, annoyingly guided through the process by officials who don’t realise they are the reason for the complexity. They would cause us less harm if they just simply moved out of the way. Machiavelli produced a handbook for princes to guide them on how to rule their subjects. But who will teach the citizens of today how to defend themselves against the new princes? Urgent analysis is required for there is a danger that our free-market gains will be lost to bureaucratic interference. The so-called third way of a highly regulated “free market” is not only a contradiction in terms; it is nothing less than socialism by stealth. New measures have to be devised to reel in this uncurbed and unwanted government power.

Source: Neil Emerick is the Technical Director of Universal Knowledge Software (Proprietary) Limited. This article may be reprinted without prior consent but with acknowledgement. The patrons, council, and members of the Free Market Foundation do not necessarily agree with the views expressed in the article.


FMF\17 July 2001