Denise Kingsmill: A new role for regulators

Market controls need to have more regard for the public interest - as the News International scandal demonstrates.

by Denise Kingsmill
Last Updated: 21 Oct 2011

The only reliable, durable and perpetual guarantor of independence is profit.' James Murdoch's closing remarks in his speech at the 2009 Edinburgh Television Festival, set in the context of the calamitous breakdown of public trust and confidence in the media, police and politicians that has resulted from the implementation of this credo by the organisation he and his father lead, demonstrate why the public interest must become a greater focus of market regulators everywhere.

All markets require regulation. Market forces are red in tooth and claw and, unregulated, will lead to the survival of the fittest monopolist. However, the issues seen as the responsibility of regulators are usually limited to pure consumer benefits, which are thought to be synonymous with the public interest.

During my time at the Competition Commission, although one of our roles was to decide if a particular merger was contrary to the public interest, this was largely interpreted as ensuring a competitive market. There were other criteria outlined in the Fair Trading Act 1973 that could have been taken into account, such as the distribution of employment and enterprise throughout the UK, or environmental issues, but I don't, in more than 20 enquiries, ever recall even contemplating whether or not a merger should be set aside for these reasons. Although we had a public interest remit, we interpreted our role as that of a regulator of competition and took it for granted that the public interest would flow from this. This approach was formalised in the Enterprise Act 2002, when the public interest test was abolished, with one exception related to national security, and replaced by a pure competition test - 'does this merger lead to a substantial lessening of competition?' Since then, government has added two further exceptions relating to media mergers and, most notoriously, to allow the disastrous acquisition of HBOS by LloydsTSB.

So could regulators ever be the appropriate guardians of the public interest and, if so, how should they be held accountable? Through the courts perhaps? There are those who would argue Parliament is the appropriate body to protect the public interest. Could regulators also perform this function? Are they the best people to determine what the public interest actually is? Since they tend to be appointed on the basis of specific expertise, rather than their understanding of public interest issues they may, without clear guidance, have their limitations.

Regulators would need to establish and publish the characteristics of the public interest in each case. Clearly, this process would have to be fair and accessible, and give all stakeholders the opportunity to be heard and to challenge. And there would need to be transparency and neutrality in decision-making.

Public opinion would also have to be taken into account. Too often, companies think they know what consumers think, but they do not necessarily understand the way citizens think. There is a strong distinction between the public interest as related to consumers and the public interest as related to citizens.

There should also be a process by which regulators must determine whether there are majority views on issues being looked at, and whether or not there are strong minority views. Polling data could be used to determine the strength of public opinion in relation to any public interest issue in market regulation. Certainly, this would have yielded some very interesting and useful information in relation to a number of the enquiries I undertook at the Commission, such as cars and banking.

It would also be vital to identify any public interest risks and to assess the distribution of costs and benefits between competing interest groups when considering all regulatory options. A formal division of interests into individual, business and social could be useful in determining the appropriate balance. Consumers tend to want choice and low prices, business interests tend to be around profits, competition, and access to markets, while issues such as health and safety, employment and privacy are more social interests.

Weighing up the different interests in the media market, to take a current example, a regulator might easily identify that consumers wanted the latest and most innovative products at the lowest prices, whereas citizens might be much more interested in issues around free speech and privacy. The business interests would be profits and access to markets, while the social interests might be around issues of public taste or methods used in newsgathering.

I would propose that all regulatory authorities should have a consistent framework of assessing the public interest and that it should be mandatory to submit a public interest analysis as part of the regulation that they are imposing. In this way, the public interest would move up the regulatory agenda. This would greatly assist in determining how appropriate the market is for providing public services and also how markets should be regulated in the private sector.

Is it appropriate to destroy a local economy, losing jobs and specialist skills, which is the likely consequences of the Thameslink train contract going to Siemens, manufacturing in Germany, rather than Bombardier in Derby? The regulation of markets should surely include a greater role in the protection and provision of the public interest.

- Baroness Kingsmill is currently a non-executive director of British, European and US boards. She can be contacted on editorial@managementtoday.com.

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