EC pares down plans for telecoms super-regulator Dec 2008
"The European Commission has agreed to pare back plans for a telecoms super-regulator, following a European Parliament vote in September.
12/10/08
EU Public Affairs Monitor - 02/12/08
9/30/08
EU Commission Monitor - 30/09/08
"The European Union yesterday called on Member States to participate in a major review of the accounting directives for small biz firms to help reduce the administrative burden on SMEs. Charlie McCreevy, who is the EU Commissioner for the Internal Market and Services, said that during this “difficult period” of ongoing economic doom and gloom the small biz world, which many tech multinationals have increasingly punted their goods at in recent years, could be easily overlooked." [TheRegister]
EU bids to dominate future nebulous buzzword: 'We don't know what Web 3.0 is, but we must have it' 29/09/08
"The European Commission has called out for help on how it can "put Europe into the lead of the transition to Web 3.0". It doesn't seem sure what web 3.0 is or could be in the future - it just knows it wants it. To that end, it's today launched a public consultation inviting opinions on this forthcoming "next wave of the Information Revolution."" [TheRegister]
9/29/08
EU Commission: Enterprise and Industry Monitor - 29/08/08
Published: 21/09/2007 19:17 CET Deadline: To be announced
This on-line questionnaire has been designed to register your problems and suggestions on administrative burdens. Your input will be taken into account in the preparation of EU measures reducing administrative burdens. Contributions and feedback from the Commission will be summarised in periodic reports published on the Enterprise and Industry website. [Europa]
Speech at EU conference: Reducing red tape for Europe (26/09/2008)
Vice President Günter Verheugen
Speech at EU conference: "Cutting Red Tape for Europe" [Europa]
Reducing burden for SMEs: Simplification of EU rules on mergers and divisions proposed (25/09/2008)
The European Commission has put forward a proposal for a directive that will further reduce the administrative burdens on European public limited-liability companies in the area of mergers and divisions. Under the proposal, companies would benefit from simplified requirements on reporting and on publication of draft terms. The proposal complements the two packages of "fast track" measures that were put forward by the Commission in March 2007 and April 2008. These measures will contribute to the objective of reducing administrative burdens on EU companies by 25% by the end of 2012. The total savings potential of the measures proposed so far in the area of company law, with the current proposal, is brought to 1 billion €/year. [Europa]
Open access to research results will boost business and innovation
The European Commission has launched a pilot scheme which will provide open access to research results funded under the EU’s Seventh Framework Programme for Research (FP7). The pilot includes fields worth about 20 per cent of the FP7 programme budget and will make it easier for researchers and businesses to access results in areas such as health, energy, environment and ICT. The aim is to ensure that results of publicly funded research can be disseminated and exploited as widely as possible. [Europa]
Venturing across borders to support innovative SMEs (25/09/2008)
Finding finance is one of the greatest challenges facing SMEs. The European Commission and Member States are working together to create the right conditions for cross-border venture capital funds and markets to develop. [Europa]
2009 to be the European Year of Creativity and Innovation (23/09/2008)
The European Commission welcomes the news that today the European Parliament, meeting in plenary session in Brussels, has, by adopting its report, supported the Commission proposal that 2009 be designated as the European Year of Creativity and Innovation. [Europa]
Helping entrepreneurs IMP3rove their innovation management (23/09/2008)
As its name suggests, IMP3rove helps boost the capacity of SMEs to manage innovation. This EU-funded project is developing a range of tools and practices to encourage SMEs to recognise the importance of innovation management and to apply its techniques to improve their firm’s competitiveness. The project covers a wide range of sectors, including information and communication technologies, knowledge-intensive services, biotechnology, space, and food and beverages. [Europa][Europa]
Open call for tenders - Reference No EACEA/2008/04
Study on the entrepreneurial dimension of cultural and creative industries
The aim of the study is to better understand the workings and specific needs of enterprises, particularly SMEs, in cultural and creative industries. The study must focus on environmental factors, especially regulatory, that influence the development of these enterprises, and also on the issue of access to funding and entry barriers. Particular attention must be given to research and development. Deadline: 14/10/2008 [Europa]
5/9/08
EU Commission: Information and Society 05/09/08
The Commission today called on the Parliament and Council to support a new drive to cut red tape and allow greater flexibility to make European high-tech research more effective. It was responding to the 'Aho report', the most comprehensive evaluation of EU ICT research yet, looking beyond the management of research to evaluate its impact on innovation. The report highlighted that EU research could be of greater benefit for European competitiveness by involving and supporting high growth companies and providing better links between research and venture capital. The Commission, which has launched several initiatives to involve leading companies in research (IP/08/910, IP/08/824, IP/08/785), is committed to making the information and communications technology (ICT) research it supports more effective in terms of delivering business opportunities. It is also launching a public consultation that will feed into proposals to this end in early 2009. [Europa]
Opening soon: a digital library for Europe 11/08/08
Europe's cultural diversity in books, music, paintings, photographs, and films open to all citizens at the click of a mouse via one portal – this dream of a European Digital Library could become reality this autumn. However, further efforts by the EU Member States are needed, said the Commission today in a new Communication on making available digital versions of works from cultural institutions all over Europe. Digitisation of cultural works can give Europeans access to material from museums, libraries and archives abroad without having to travel or turn hundreds of pages to find a piece of information. Europe's libraries alone contain more than 2.5 billion books, but only about 1% of archival material is available in digital form. The Commission therefore called on Member States to do more to make digitised works available online for Europeans to browse them digitally, for study, work or leisure. The Commission itself will provide some € 120 million in 2009-2010 for improving online access to Europe's cultural heritage. [Europa]
Supporting social tourism 21/08/08
The Tourism Unit of the European Commission’s Enterprise and Industry DG is promoting the exchange of good practice on social tourism through a series of conferences and workshops, launched in 2006, as part of the Commission’s drive to promote tourism in the context of the Lisbon strategy. The most recent, in Brussels in April 2008, was on the topic ‘Facilitating the growth of the youth and senior citizen tourism markets’. In addition to various actions supported by the Commission, good practices in tourism by local authorities and private sector from several parts of Europe were also reviewed. [Europa]
3/9/08
EU Commission: Competition - 03/09/08
The aim of the study is to better understand the workings and specific needs of enterprises, particularly SMEs, in cultural and creative industries. The study must focus on environmental factors, especially regulatory, that influence the development of these enterprises, and also on the issue of access to funding and entry barriers. Particular attention must be given to research and development. [Europa]
3/10/05
What Factors Account For The Pressure To Change Regulation From A “Command And Control” Approach To “Incentive-Based” Regulation?
Despite the potential benefits of privatisation there has been the spectre of price fixing, lack of investment and the disenfranchising of the poor, as firms may reduce welfare in order to make higher profits. Consequentially the Government created regulators such as OFWAT (water) and OFGAS (gas) to monitor the privatised firms’ industries and place demands on them. Regulators had roles such as enacting price ceilings or investment requirements, encouraging competitiveness and preventing the socially disadvantaged from loosing their services. Regulation also extended to the public sector, with huge guidelines to inspect areas such as education and the NHS and the ability to make changes to correct faults.
However, there are many problems associated with such regulation. An OECD report concluded that “The regulatory task of designing a pro-competitive system of regulation based on the separation of potentially competitive and natural monopoly sections of this type of sector was an unfamiliar one for governments and presented enormous technical and economic difficulties.”[1] Regulation had grown too large, with regulators increasing their organisations excessively as a result of poorly thought out policies which often duplicated costs because of mutual and overlapping interests between regulators. In 1997 there were between 14,000 and 20,000 regulator organisations, with annual costs of between £750m and £1bn.[2] The costs of regulations can be so great that it reaches ten percent or more of GDP in some countries.[3]
An overburdened regulatory network can easily create incoherent and time-wasting policies as a result of complex and uncoordinated procedures. Over time it can get progressively worse. The OECD argued that regulation becomes more complex as “pressures to compete and to coordinate are imposed on regulators at the domestic level” and that it gets worse as governments don’t give enough “attention to reviewing, updating, and eliminating unnecessary or harmful regulation.” [4]
The most striking reform of regulation introduced by Labour was Modernising Government in 1999. In order to address the aforementioned concerns, which even Labour had been previously guilty of, there have been some streamlining of policies and a removal of many burdensome regulations to avoid duplication and enable more effective policy direction. This opinion is backed up by an OECD report in 1997 which found that “reducing red tape and government formalities can produce substantial payoffs in government efficiency and economic cost-savings.”[5] As a result there have been mergers of departments, such as the coordination of electricity and gas regulation and fire safety reforms have been unified so as to create one simple risk-based fire safety regime.
However, the move from the more aggressive style of giving demands to firms and public organisations to the “light touch enforcement of regulation”[6] is likely to be more effective. Described by Hood, James and Scott as an aspiration to combine “the iron fist of Draconian central interventionism with the velvet glove of self-regulation,”[7] it involves transferring the main thrust of legislative effort on areas of higher risk and underperformance and allowing areas of low risk or strong performance to have less stringent reviews. For example, in 1997 OFSTEAD (the regulator for education) allowed plans for less stringent inspection of the best performing schools. Also the savings from risk-based audit and inspection of local government by the Audit Commission was reported to save £24m in government expenditure each year.[8]
There has been stronger pressure from the business community than the Government for a relaxation of its heavy-handed approach to some industries, as they have a strong financial incentive for deregulation. For example, the Government suggested that licensing reforms alone could save businesses £1.9bn in costs in the first ten years and an annual saving of £6.5m in court costs dealing with business tenancy reforms.[9] In other countries it can be even more beneficial, such as
There is a constant concern that some regulators get too heavily influenced by the firms they are in charge of. They fall into the regulatory trap, whereby the regulator ends up setting ineffective rules but protects the interests of some firms in the industry. Gabriel Kolko[13] even went on to suggest that
Growing economic and legal integration in markets such as the European Union as a result of the European Commission and the European Court of Justice have increased importance on governmental policy and as a result they have modified “the range of options that governments can realistically pursue.”[15] Recent initiatives to improve the regulatory environment in the European Union and creation of a more unified market include the Commission’s White Paper on European Governance in 2001, which outlined an initiative to establish a new, coherent regulatory impact analysis. The European Court of Justice’s ruling in the Cassis de Dijon case in 1979 meant that one Member State’s goods could not be prevented from entering another in the absence of compelling national policy grounds (such as consumer safety). Consequentially there is less heavy regulation over quality standards in some states compared to others as firms have the financial incentive to comply with European standards in order to avoid the possibility of being refused import of goods.
There is a claim that economic interdependence as a result of globalisation and economic integration in the EU would result in countries having to lower their regulatory standards in order to attract (and maintain) capital and highly skilled labour in what is described as a race to the bottom. Using the prisoners dilemma, whereby two governments would end up with the worst outcomes through attempting to counter each other Radaelli cites how “the jurisdictional competition creates a position where everybody is worse off.”[16]
However, this is only a small factor explaining why there may be a desire to deregulate and create more incentives for firms. Radaelli highlights how welfare does not wither away, nor get distorted (by regulatory competition) to the point of the welfare system collapsing. This is backed up by Garret[17] and Swank[18] who also concluded that regulatory competition does not create such a bidding war. Heriter[19] even claimed that in order to assist their own industries governments would attempt to raise European standards to their own level in order to raise the cost of foreign producers so that domestic firms would be more competitive.
Business has been highly influential and the most eager in pressurising the UK Government to reduce its interventionist regulatory style in favour of a more incentive based system which offers leeway to efficient and competitive firms and public authorities. However, for a long time much of this pressure had fallen on deaf ears and was seen by the Government as a simple desire to extract extra revenue or an attempt to capture its regulator. It was a while before the Government came to realise that although regulation is highly important and is probably its strongest tool it had gone too far and that it was affecting its ability to make coherent and effective policy and at a large cost, as well as creating hugely unnecessary costs on business. Supranational institutions such as the EU are creating a more level playing field and have encouraged the reforms further. However, the effect of the race to the bottom for competitive regulatory standards is quite limited.
[1] OECD Regulatory Policies in OECD Countries: From Interventionism to Regulatory Governance, (
[2] Quoted from Hood et al. Regulation Inside Government (
[3] Quoted from OECD Regulatory Policies in OECD Countries: From Interventionism to Regulatory Governance, (
[4] Ibid. p109
[5] OECD Report on Regulatory Reform, Vol 2, (
[6] Regulatory Reform: The Government’s Action Plan Internet (www.cabinetoffice.gov.uk/regulation) 2003.
[7] Hood, James and Scott, Regulation of Government: Has it Increased, is it Increasing, Should It Be Diminished? (Blackwell Publishers Ltd) 2000. p283
[8] Quoted from Regulatory Reform: The Government’s Action Plan Internet (www.cabinetoffice.gov.uk/regulation) 2003.
[9] Ibid
[10] OECD Regulatory Policies in OECD Countries: From Interventionism to Regulatory Governance, (
[11]
[12] Pelkmans and Galli Regulatory Reform and Competitiveness in
[13] Kolko The Triumph of Conservatism (Free Press) 1977
[14] Hood Explaining Policy Reversals (Open University Press) 1994
[15] Radaelli The Puzzle of Regulatory Competition (Journal of Public Policy,
[16] Radaelli The Puzzle of Regulatory Competition (Journal of Public Policy,
[17] Garrett, G Partisan Politics in the Global Economy (
[18] Swank Global Capital, Political Institutions and Policy Change In Developed Welfare States (
[19]
1/13/05
Do Public Private Partnerships Work?
Since the 1970s governments have sought to restructure and reduce the size of the public sector. Public choice theorists argue that bureaucrats are motivated to increase their budgets as much as possible in order to increase their status, as they are judged by the size of the budget that they control and by how much they can increase it. However,
Various initiatives have looked at reducing the inefficiency of public services and public companies. The Conservatives main solution was a movement from the hierarchical public sector to more market based solutions through privatising government owned industries, as it was considered the most efficient way of operating services. Some public services, such as social security, health and the prisons were considered as being unsuitable for privatisation and issues were raised over equity, such as by Lawton and Rose who asked: “Would it be acceptable for a police force to concentrate its resources on preventing crime in an affluent middle class area with articulate and vociferous residents at the expense of a run-down inner city estate?”[3] Organisations such as the Secretary for Health and Social Security dismissed privatisation, as social security operations are not capable of being self financing. However, contracting out was considered, as it was felt to be cheaper, would avoid the need for direct government management and lead to “tighter monitoring of outputs and greater internal drive and incentives to rationalise and innovate.”[4] This is a shift in policy, as government seems no longer interested in implementing policy but is merely interested in formulating it. Using the analogy of steering Osbourne and Gaebler recognise that government as the steerer has strengths in some areas, such as policy management and ensuring equity, while the private sector as the rower is better at performing complex tasks.
In 1991 a report by the Inspector of Prisons concluded that the management was the cause of the Manchester Prison riots and that it should be put out to tender. Flynn goes on to suggest that the tendering process produced quick changes to management and the regime as the managers “realised that it was not going to be credible to promise an improved regime in the bid document if such a regime could not be demonstrated in practice.”[5] He goes on to say how this threat of losing the prison to the private sector provided an incentive to produce a better service and how the “success of the process led some to believe that market testing in this case was just a mechanism to reduce the power of the Prison Officers Association to resist operational changes.”[6] However, this was not the case as the programme of competition continued, with private companies being invited to run new prisons without a counter bid from existing employees of the prison service, with the stated aim of improving the service and not to save money.
Measures such a part privatising measures did result in a shake-up of the management of the prison service. However, as Flynn concludes, it did not solve its problems. He finds that “recent inspectors’ reports have indicated that some of the problems identified by Woolf, such as long hours in cell, insufficient rehabilitation work, counselling and education persist.”[7] Most PPP contracts don’t leave a streamlined management system. “Once a contract is signed, with a specification it is difficult to change the service”[8] claims Flynn. Although he recognises that it may not be important with services such as refuse collection and street cleaning with services such as homecare or nursing “the details of the service are a result of the relationship between the service user and the provider which cannot be described in a detailed specification.” [9] In the case of the Underground the analogy of Osbourne and Gaebler breaks down, as there are too many people attempting to steer because there are now three companies maintaining the London Underground’s tracks. This results in uncoordinated management, massive disparities in service and duplication of costs and as a result a fragmented system. Consequentially, significant economies of scale are lost and the cost of production goes up.
It is claimed that once private firms are in charge of public services there will be significant improvements to cost and service because they are motivated to increase their profits. It is generally considered that public services are economically inefficient because of larger staff levels, as public services have to take into account welfare and that there is no profit incentive from the people running operations to cut costs. “Given three quarters of local government costs being paid in wages and salaries” explain
However, it is difficult to assess whether job cuts are necessary in order to increase efficiency or just a way for the new firms to make some extra profits. “Reductions in staff numbers, organisational changes and new working practices will continue for some time to place individual civil servants under stress” claimed one Parliamentary Ombudsman, who also claimed that “there is a risk that fewer staff will lead to slower service and to more mistakes because civil servants will have less time for thought to enable them to pursue considered and prudent action.”[14]
The Underground PPP contract was finalised during a period of low profitability for national rail companies following the Hatfield rail disaster. As a result the companies were able to argue for being exposed to less risk. As a result Tube Lines, one of the private firms involved is expecting to earn at least £1.1 billion (more if targets are actually met!) over the thirty year contracts, a huge return on its initial investment of £180 million, not even including consultancy fees.[15] The Government will have to pay out more to companies if they struggle with losses as a result of unforeseen disasters. For example, the part privatised air traffic control system (NATS) which takes its revenue from the number of travellers suddenly turned from being a highly profitable company into a struggling one as a result of the September 11th terrorist attacks in
The Underground contract punishes the private firms when there is a short term disruption to services and it is similar in structure to subcontracting on national railways. However, the result is that firms would be likely to attempt to maximise short-term profits rather than quality and safety, and this would jeopardise the long-term viability of the whole system. Subcontractors have an inventive to cut corners and skimp. For instance, on the national railways the regulator has often increased the problems by fining the rail operator when faulty track and signals make trains late. If the Underground were to be closed down for repairs or its use restricted it would have to pay compensation, and consequentially the firms have the incentive to avoid closing lines. Preparations for the PPP on the Underground have jeopardised the systems safety[16] and there had been many strikes prior to PPP being completed by Underground workers over safety concerns, with the RMT claiming that safety demands for part-privatisation on the Underground had not been made. For instance, Balfour Beatty, one of the firms was drawn into a row over the Hatfield derailment has also appeared in the Environment Agency’s ‘Hall of Shame’. Adtranz, who produces the trains, had been criticised by Railtrack and British train companies for delivering faulty trains.[17]Jarvis has previously been criticised and fined for health and safety breaches.[18] These firms were all considered despite these concerns being raised by employees, the Mayor, Transport for
The Government prefers PPP because the Private Finance Initiative relieves the Treasury of having to borrow the money to fund large-scale projects such as building new hospitals, as private firms have to raise their own money from the banks. The Government is committed to keeping a stable budget and avoiding the need to raise taxes whilst also increasing investment and creating lasting improvements to public services. PFI enables there to be a much needed large short-term increase in investment without the political headache of raising taxes or creating huge amounts of debt. As Flynn describes it, “if a building is bought, the expenditure is accounted for over the life of the building, rather than the cash spent on buying it in the year in which it is purchased.”[19]
Although initially PFI creates only a small burden on the taxpayer in the long run it creates a larger problem. The Government is able to borrow at very low rate of interest compared to private firms, as it is considered to be of a significantly lower risk. Firms are taking risks when they borrow money to invest and consequentially they will demand a return on their financial risk. An executive involved in a PPP deal comments on its potential for large profits: “We buy all the equipment for a project up front, provide all the resources to do the work and charge back our costs, plus an agreed profit, to the Government. What always isn’t realised is that, in return for putting the money up – in other words providing a loan to the government – we are allowed to charge commercial interest rates plus an agreed percentage. Inevitably, this is at a much higher rate than the Treasury’s borrowing rate, which is extremely low because of its credit rating.”[20] To make things worse the privacy of the agreements mean that none of the full details ever emerge.
Public-private partnerships appear to work only in very limited circumstances, such as in cases where there is urgent need for reform in order to reduce costs or improve services, or as a short-term method of increasing investment in public services. However, there appear to be a number of strong reasons why PPP is unsuccessful. Many reductions in costs have often appeared to be only one-off and in the instances where it has been through reducing the size of the labour force there is a potential reduction in flexibility. It is also difficult to assess where these motivated private firms have made improvements to services. The contract agreements also tend to be highly weighted in favour of the private firms, with only limited risk being moved from the public to the private sector. This appears to happen as a result of governments’ apparent inexperience and rushing contracts without examining the repercussions fully. Although Private Finance Initiatives are an enticing way to increase investment in public services they can end up be too costly over time compared to the lower borrowing rates that the Treasury can call upon. Openness in decision-making is important in order to create accountability. PPP’s complex contracts result in it becoming increasingly difficult for users of services and policymakers to work out who is to blame for costly or poor services and what can be done about it. The main problem is that many of the benefits that the private sector offer can be provided through an improvement or overhaul of the public sector and at a lower cost, as there is no profit margin raising the cost of services. Ultimately there appears to be too many inherent risks associated with public-private partnerships.
[1]
[2] Ibid. p.112
[3] Ibid. p.157
[4] Department of Social Security, Department of Social Security Agency Study,
[5] Flynn, N Public Sector Management (Prentice Hall, 1997) p. 86
[6] Ibid.
[7] Ibid.
[8] Ibid. p. 131
[9] Ibid
[10]
[11] Szymanski and Wilkins, Business And Strategy Review (1992) p. 112
[12]
[13] Ridley, Local Government Chronicle (1989)
[14] The Times, 21.03.96
[15] This was suggested in an article in the Political Economic Review,
[16] This was suggested in an article in the Evening Standard,
[17] This was suggested in an article in the Evening Standard,
[18] Ibid.
[19] Flynn, N Public Sector Management (Prentice Hall, 1997). p. 118
[20] Computer Weekly,
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