Labour’s ‘third way’ puts industry in no man’s land

The Government’s meandering between state intervention in UK business and privatisation is creating a damaging climate of uncertainty.

Anyone who has ever run a business knows how hard it is to delegate. I don’t just mean the allocation of management tasks – I mean the whole business of letting go, of not meddling constantly in middle-management decisions and, indeed, of letting middle managers make and learn from their own mistakes.

So it’s with some sympathy that we must view the Government’s attempts to devolve power from Westminster and, in particular, the schizophrenia with which it allegedly wants market forces, as it were, to decide who runs for the local assemblies in Wales or London and then seeks to impose its own favoured candidates. It happens in corporate structures all the time.

But we can have rather less sympathy when government policy towards industry itself becomes schizophrenic. Control freaks have their place, whether at Cabinet or board tables, but they really do have to decide where their spheres of influence ultimately end.

Last week’s botched attempt to declare a workable sell-off of National Air Traffic Services (Nats) appears to suggest that the Government is far from clear where it stands in the gamut between interventionism and free markets. It is difficult to see how a worse compromise between Thatcherite privatisation and effective regulation could have been devised. It is, simply, the worst of both worlds.

It is said in Whitehall circles that the Treasury told John Prescott that he couldn’t have anything like the sort of investment he needed to fulfil his overarching plans for a national transport infrastructure. But then there were the Government’s equity ownerships of nuclear reprocessor BNFL and Nats to be traded.

News that BNFL falsified quality control data at Sellafield, with ministerial calls last week for a management shake-up, may come back to haunt its privatisation, which depends partly on safety and environmental targets being met. But that’s as nothing compared with the damning report on the privatisation of Nats from the Parliamentary Select Committee on Transport.

This Labour-dominated committee slams the plan to sell a 51 per cent stake in Nats as the “worst of all possible options” and claims that private sector operational control would either have to cuts costs, thereby jeopardising safety, or raise prices, putting airlines and airports in the UK at a competitive disadvantage.

A better alternative would be the Canadian trust structure, which would maintain necessary regulatory standards, while freeing Nats to raise capital in the markets. But the Government needs money as much as Nats needs investment. And it wants regulatory control. Hence the mess.

Why should this concern us? Surely the grand relationship between state finance and public utility regulation is of no concern to the marketer in the street?

Well, actually it should be of considerable concern. Political schizophrenia affects the micro-economy just as much as the big picture. The Competition Act takes effect next month and brings with it the most fundamental shift in competition policy since the last war, empowering the authorities in the shape of the Office of Fair Trading and the Competition Commission as never before, to the extent of dawn raids and fines of up to ten per cent of turnover.

This would appear on the surface, like the Welsh Assembly or the London Mayoral elections, to be a devolution of power from the Government’s centre. But Trade & Industry Secretary Stephen Byers is nothing if not an autocrat. The Competition Commission, for example, has held that Birds Eye Wall’s should be prohibited from exercising its ice-cream market dominance by selling product direct to retailers. But Byers overruled the commission.

Similarly, Byers last year overrode a report that found that Milk Marque, which controls more than half the UK’s milk supplies, had exploited its domination to fix prices. A “voluntary” agreement was reached with Milk Marque, which is to break itself into three regional operations. That may go some way to serve the competitive purpose, but a political deal hardly smacks of devolved, arm’s-length power.

It works the other way around too. The OFT last year advised the DTI that cable company NTL’s proposed &£8.5bn purchase of Cable and Wireless Communications presented no competition issues and, indeed, promised to break the pay-TV duopoly of BT and BSkyB. Byers still referred the deal to the Competition Commission. Of course, that decision may have had nothing whatsoever to do with the influence of Rupert Murdoch. But it’s difficult to see what it is to do with.

Meanwhile, we supposedly have hands-off competition legislation being enacted next month. As so often with this Government, we can’t be sure what the policy is, only that the Government wants direct control over it.

The uncertainty in which that leaves some of our prosperous industries is unnerving. Microsoft is currently taking some flak for marginalising Sun Microsystems in the business and Web-server market by making Windows 2000 incompatible with Sun’s technology.

It is true that this issue will probably be resolved by anti-trust authorities in the US and in Brussels. But burgeoning software manufacturers in Cambridge’s Silicon Fen are hardly likely to know where they would stand in the current UK competition climate.

That climate is prescribed neither by state intervention nor by free markets. Perhaps vacillation, self-interest and inconsistency amount to a third way.

George Pitcher is a partner of issue management consultancy Luther Pendragon.

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