There is concern in the competition community on both sides of the Atlantic right now about the future of independent antitrust authorities.
In the UK, we have seen the removal of the chairman of the Competition and Markets Authority because ministers were concerned that the agency was insufficiently focused on the government’s economic growth priority. Meanwhile, in the US, the Department of Justice has said it will cease defending the independent status of the Federal Trade Commission, so that in future it would be easier for the president to remove commissioners from office.
Last week I was at a dinner with a group of London-based competition lawyers and economists, and amidst the concern with the current situation, some contrasts were drawn with the positive role played by my old boss, Gordon Brown, in enshrining the independence of the Bank of England and the CMA under the last Labour government.
Reflecting on the discussion, I thought I’d draw on my experience in government to write about why politicians are sometimes, unusually, prepared to give up some of their power to these strange bodies. By this, I don’t mean what are the economic and constitutional arguments for independent regulation (which I have written about separately here). Instead, I mean – as a matter of practical politics – what makes a difference as to whether politicians find those arguments convincing? And what could the competition community – both enforcers and practitioners – do to increase political support for that independence today?
The first reason an elected government will be prepared to delegate power to an independent body is necessity. When the Thatcher government privatised British Telecom in the 1980s, ministers had no particular interest in how BT would subsequently be regulated. But they received clear advice from their investment bankers that unless the tariff-setting process was going to be beyond political control, the flotation would not succeed. The government of the day did not care much about independent regulation, but it cared very much indeed about a successful privatisation, and the former was a fundamental prerequisite for the latter.
The second, related reason is expediency. When the bill to create the Federal Trade Commission was going through Congress in 1914, it became clear to the administration of Woodrow Wilson that it would be hard to win legislative support for banning lots of individual specified forms of “unfair competition”. The easier way to get the bill passed would be “to prohibit unfair methods of competition and to leave it to whomever was administering the law to determine whether a method in a particular case was unfair and harmful or not.” This in turn led to a desire for more guardrails around the new agency, including through the role of the five commissioners and broader judicial oversight of its decisions.
A third reason is if independence itself becomes a political priority. Under the leadership of Tony Blair and Gordon Brown, New Labour was deeply committed to establishing its economic credibility. Giving operational independence to the Bank of England became a totemic example of Labour’s shift in this area, and it could then be applied in other areas, including to the competition authorities.
A fourth reason for granting independence is to transfer risk. Conservative and Labour ministers in the 1980s and 1990s found themselves in the political firing line when they were faced with decisions on a number of controversial merger cases. As secretary of state, Norman Tebbit and Peter Mandelson each concluded that it was better for their hands to be tied in these situations, and for the competition authority to be the one to answer on merger cases instead.
Finally, once independence has been granted to an institution, ongoing political support will be made easier by favourable external circumstances. Bank of England independence was followed by a decade of low interest rates and energy privatisation by nearly two decades of falling energy prices. This made it much easier for the institutions to establish their legitimacy and for a political norm to develop of non-intervention.
Now, there is an interesting thing that all the above factors have in common.
None of them is currently present in the UK.
Ministers feel no great pressure from the markets to back independent regulation. They are more likely to hear from bankers and investors that independent regulators are part of the problem, not the solution.
Nor is there any political incentive to support independence, either because of legislative horse-trading or for reasons of political symbolism. Indeed, in recent years there has been far more rhetoric against “unaccountable bureaucrats” than in favour of “independent institutions”.
And ministers have been increasingly inclined to see regulators more as generators of risk than mitigators of it, causing political problems in sectors ranging from energy to water and tech.
This would all suggest that we are not living in particularly propitious times for independent regulation.
However, I would not bet against circumstances changing. If the recent turbulence at the CMA has indeed led many boards to conclude that any merger will now be cleared and that they can lobby ministers to ensure this happens, it may not be long before ministers once again see the merits of decisions being taken at arms-length from them by an independent agency.
In the meantime, there are things that regulators/enforcers and private practitioners can themselves do to increase political support for independent decision-making.
For regulators, the quid pro quo for the (historically and constitutionally extraordinary) grant of power without direct democratic control is that it should be used carefully and within tightly defined boundaries. Here there is a trade-off. The more that a regulator tests the boundaries of its authority, the more problems it can solve and the quicker it can do so, but this can come at the cost of undermining long-term and broad-based support for its independence. When I was at the CMA, I think we were right to want to correct for historic underenforcement, but by moving quickly and at times surprisingly, a degree of backlash was inevitable. The same was true in the United States. It can be quicker to achieve policy change if you do not need to secure a political, academic and business consensus for it, but this also invites criticism of “overreach” from a “runaway agency” and it means the policy change can be more easily unwound.
Practitioners should not underestimate their own power either. Competition policy in the UK has historically been of low political salience, with change driven slowly by civil servants and influenced by lobbying from businesses and lawyers. In the 1980s and 1990s, that lobbying tended to be for greater independence for the competition authorities. But in recent years that changed and the lobbying of ministers and officials has been for the CMA to be “reined in”. However, the risk with encouraging central government interest in a field to which ministers pay attention only fleetingly is that it can create Frankenstein’s monster. You lose control and the interventions you get might be quite far from the ones originally intended. Now that the CMA leadership has committed to improving its engagement with businesses and their advisers, both within and outside individual cases, there is an opportunity for practitioners to work with the CMA to improve the operation of the regime, while encouraging the Department for Business and Trade to back independent competition enforcement.
Independent regulation is unusual, historically and constitutionally, in both the American and British systems of government. For that reason it is also fragile. Politicians will back it if they think it serves a useful purpose but not if they think the political risks to them outweigh the benefits. And their assessment of those risks will be strongly affected by the behaviour of regulators and of businesses. Maintaining broad-based support for independent regulation and enforcement requires politicians, regulators, businesses and their advisers all to exercise a degree of self-restraint. If that self-restraint proves impossible, political decision-making is inevitable.
