BY MIKE WOOTON


One of the main risks of privatization, particularly of public utilities is the risk of commercial matters coming before public duty. The well-l being of the “public” can be put at risk by private sector commercial considerations, leading to the potential for “economic terrorism”. A regulator may not agree to a claim by a private sector body for, say a rate increase or change in contract terms. If this cannot be readily resolved it is possible here for the private sector organisation to simply cut off its services. It’s similar to the recent banking escapades in which the banks just “had” to be bailed out by government.

Of course trade unions can use the same tactics. Strikes are a withdrawal of labor for a grievance. In the public sector it affects the “public” again; in the private sector it may or may not affect the public, perhaps just the targeted business. Margaret Thatcher dealt with the power of the unions in the UK by simply marginalizing them. Union power is in a way easier to deal with than business power—you can bust the unions, if you have the will. You cannot so easily bust the private sector, particularly when you have devolved a lot of your governmental activity to it. You create a dependence to which the public (and the regulators for that matter) can become hostage. It seems to me to be something of a dilemma as to how you would actually encourage the private sector to invest in order to do what was once the function of government, and make a reasonable profit out of it, and at the same time not leave yourself open to extortion. I cannot in my wildest dreams believe that the corporate morals, or business targets of the private sector would in fact ensure that everybody just did what the regulator says, or for that matter “what is right” without at times being tempted to impose the ultimate sanction (cut off whatever service is involved).

The franchise allowing the private sector to fulfill government’s functions would not be attractive to investors if it did not allow for even handed dealing in the event of a difference of opinion. The private sector needs to know it will be fairly heard. But if the private sector doesn’t like the decision of the fair hearing then what? Can it be allowed to cut off its service? Certainly it cannot, that is an abuse of privilege. Here in the Philippines people would firstly claim that the hearing was not fair and because of that they took the only option open to them to cut off the service. This being the Philippines nobody would ever be quite sure whether the hearing was fair or not!

Regulators have an overriding role as arbiters, and by definition to fulfill that function in an evenhanded and fair way. A strong and fair regulator is something which has to be seen to be properly in place in order to encourage investment, otherwise the private sector will believe itself to be beholden only to government and the political forces around it. The regulator is there to protect the interests of investors and to protect the interest of the public. It’s not an easy role to fulfill well—and in the Philippines with its powerful and all pervading political and business forces—its even more difficult.

The Rule of Law does not operate well in the Philippines. I guess most people are aware of that, and for several different reasons. If a private sector business operating a utility in the public interest has a difference of opinion with the regulator, then he just switches off. At least that is what happened in Palawan last week—the power went off because a power producer had differences with the regulator. Who is looking after the public interest in that case? It’s the “law of the gun” again, as happens so often here, the system doesn’t work as it should so people simply take the law into their own hands with a reasonable chance of avoiding being brought to book for doing so. And power normally prevails. The mainly accepted approach with terrorists is that you do not give in to their demands. Through this they see that their actions are not effective and eventually stop doing it. This should work with economic terrorism as well as the more usual kinds.

Mike can be contacted at This e-mail address is being protected from spambots. You need JavaScript enabled to view it