Liberalization - SpeedyLook encyclopedia

Privatization and liberalization

Liberalization is not inevitably synonymous with Privatization of the original state enterprise; the State is not constrained to give up the control of the state enterprise by introducing competition into an economic sector. The European example shows however that liberalization is almost systematically accompanied by a privatization of the Monopole public history.

Even if the the Treaty of Rome proclaims the neutrality of what became the European Union with respect to the forms of property of the companies, of many aspects of the EU law go against the public property. With regard to the methods of financing, any capital growth by issue of shares acquired by the State is regarded by the European commission as a disguised, discriminatory and anti-competitive government aid (an argument often proposed to mean the need for the privatization of the state enterprises).

The public statute is also criticized because it complicates the acquisition of foreign companies, in a context of constitution of a market liberalized on a European scale. Indeed, because it prohibits the acquisition of companies per exchange of actions, it constrained with a purchase in cash, which requires an important financial reserve or an increase in debt. So of many voices rise to dispute the relevance of a policy directed towards the international one, these arguments are nevertheless regularly advanced to show the need for a privatization.

Measurements of liberalization of the European commission, without forcing with privatization, thus support it strongly. But privatizations are more generally the fruit of a consensus largely shared by the political officials of the majority of the countries of the European Union on the superiority of the economic material liberal policies, than any demonstration theoretical or practical undeniable does not come to support. Liberalizations thus often provide the ideal framework to the privatization of the old public monopolies. Moreover, the product of the sales of the state enterprises is often the occasion to face in a specific way to the shortage structural of public funds.

The liberalization of the sectors of natural Monopoly

The liberalization of the markets of telecommunications

Three methods are generally used to introduce competition into the sector of telecommunications:

competition on the basis of installation: a new company of telecommunications builds a network by using its own installations to reach its customers (without using the corporate network of telecommunications in place);
the dissociation of the elements of the network: to allow the new entrants to build certain parts of the network and to buy the access to the essential equipment near the historical telecommunications operator, for example local loops. The framework of this dissociation is fixed by the law and the access to the network remained in “natural monopoly” is controlled by an regulatory agency (the ART then ARCEP in France);
resale: competitor operators obtain a service at a reduced price or the large one of the company of telecommunications in place and resell then this service to their own customers.

Examples of liberalization in the world:

the first movement of liberalization of telecommunications began with beginning of the year 1980 in the United States and in Great Britain. In the United States, initially, the operator dominating AT&T refused to grant a nondiscriminatory access to his network to the concurrent companies for the communications long distance. Pursuant to the Antitrust law, a contentious procedure led, in 1984, with separation structural of the operations long distance of AT&T of local telecommunications and with the creation of the " Bells" baby;. The Federal Communications Commission (FCC) is in charge of the sectoral regulation of the US market.

In the European Union, it is in 1989, under the French presidency of the Council of the European Union, that the decision of a progressive opening to competition was made. In 1993, the European commission decides that the European markets of telecommunications should be completely open to competition on January 1st, 1998. The directive 90/388/CEE - amended by the directives 94/46/CE, 95/51/CE, 96/2/CE, 96/19/CE and 1999/64/CE - fixes the principles of the liberalization of the sector of telecommunications. The lawful base is applied under the control of the National Regulatory agencies. Convergence between telecommunications, technologies information and the media, and the development of Internet, led to the adoption of a new European framework for telecommunications on March 7th, 2002. This one consists of five directives: directives known as " cadre" , " autorisation" , " accès" , " service universel" , " private life and communication électronique".

It is difficult to draw a real assessment of the opening to competition from the sector of telecommunications. It is particularly true in France. The French consumer indeed profited at the same time from a fall of the prices and a diversification of the offer of service, i.e. of freedom of choice. A parliamentary report points out " thus; that in ten years, the evolutions of the sector are indeed spectacular: the price for the consumer will have, on average, decreased of a little more than 30% and the users will have been multiplied by nearly 2,5 between 1998 and 2005. Thus, the surplus for the consumer increased of more than 10 billion euros over the period (figures of ARCEP) . " However the sector of fixed telephony as mobile very mainly remains oligopolistic and the cartellization had to be dammed up by court orders. It is thus very difficult to determine if the fall of the prices and the appearance of new services are ascribable with the liberalization of the sector or the spectacular technological advances made during the decade in the field of telecommunications.

The liberalization of the markets of electricity and gas

The opening to the competition of the markets of electricity and gas was carried out mainly to the the United States and in the European Union. It constitutes a typical case of liberalization of activities known as of networks, in natural monopoly. Indeed, for economic reasons and environmental obvious, multiplication of the networks of electricity (lines HT or VHV) or gas (gas pipelines and infrastructures). Consequently, these activities of transport and distribution are not put in competition, but are placed under the responsibility of managers of distribution and grid systems (GRT and GRD). The introduction of competition is carried out consequently on the activities of trade, production and supply. It makes it possible to set up the freedom of establishment for the producers and the suppliers, and the freedom of choice of suppliers for the consumers. To allow an equal access to the users of the networks, that they are the producers, the traders (" traders") or the suppliers, a tariff of use of the networks is fixed by the regulatory agency in load of energy (in France, it is about CRE). Guarantees of independence with respect to the whole of the users of networks are also required and controlled by the regulatory agency.

In the United States, the process of opening of the markets goes back already to twenty-five years. The opening of electric industry to competition took place in 1978, while the opening of the market the large one in electricity was carried out in 1992. As underlined it Sophie Meritet, " the opening of the retail market is more recent and knew difficultés". It is not applied besides in the whole of the American States. The federal regulatory agency is the FERC (Federal Energy Regulatory Commission). Each State also has a regulator: the PUC (Public Utility Commissions).

the European Union began its process of opening from the markets of electricity and gas in 1999, pursuant to directives of 1996 and 1998. Initially, this opening concerned only the professional consumers. In France, the opening to the very large-scale consumers was carried out since 1999, and on July 1st, 2004 for the whole of the professional consumers. The opening to competition for the retail market (for the particular consumers) was envisaged by the European directives of June 2003 and must be effective at the latest on July 1st, 2007, as it is the case for France. Each Member State has a regulator, charged to take care of the good performance of the markets thus opened. The European regulators are gathered within two authorities: the ERGEG and the CEER.

The liberalization of air transport

With the the United States, the liberalization of the air sector followed the Airline Deregulation Act of 1978. Within the European Union, three “packages” of liberalization, whose last came into effect on January 1st, 1993, led to the opening of the market to competition. It rose from it a fall of the prices proportional to the number of competitors present on the same route. The price of the tickets on the most competing lines cannot however be the only criterion of costing or benefit of the process of Libéralisation.

increase in the inequalities of access to the public service

In terms of maintenance of the Public service, the liberalization of the American air sector was a obvious, revealing failure consequences of an abandonment of the Péréquation. The airports of 172 American cities were thus dedicated to closing, involving the disappearance of many lines hitherto subsidized. The prices of certain lines, served in loss by the companies strongly increased. The enclavement which resulted from this reconfiguration from the network and the raising of prices of transport for the users concerned are not taken into account in the studies on the total trend of the price of the tickets. It appears quite as difficult to evaluate the economic costs of the loss of often driving infrastructures in the local economy for the cities concerned.

the resurgence of the monopolistic situations

The two principal variables of adjustment to reduce the costs in this type of activity are the economy of scale and the compression of the salary costs. Following liberalization, the large companies thus often reconstituted a position of monopoly by making sure control of a principal airport (or “hub”) (thus TWA with Saint-Louis or American Airlines with Dallas). They practiced a Dumping on the prices in order to prevent the emergence of possible competitors on the sectors which they controlled. In 2001, out of the hundred companies create since 1978 in the United States, five only had survived.

the chronic instability of the sector

The economic costs generated by the chronic difficulties of the old national companies are not negligible. The federal office of the Belgian Plan estimated into 2001 that the bankruptcy of the Belgian company Sabena would involve a fold of 0,65% of the Belgian GDP in 2002 and the loss of 17.000 employment. In April 2005, the clear debt of the Italian national company Alitalia amounted to 1,83 billion euros. Its rescue plan, subsidized by the Italian State, involved the loss of 3.500 employment, without producing effects on the annual losses of the company. Simultaneously with these job losses, it is however necessary to put the creations carried out by new or existing companies.

the degradation of the work conditions

On the social plan, the appearance of the companies with low tariffs and the subcontracting of the technical tasks on the ground degraded the work conditions considerably. Before its fall, Air Freedom employed a third of its personnel in limited time contract. Ryanair, the conveyer low cost installed in Ireland, leads a marked anti-trade-union policy by proposing rises in wages only to its only not syndicated employees.

The young European companies are inspired explicitly by the model states-unien, initiated by the Continental Airlines of Frank Lorenzo.

In 1984, Frank Lorenzo deliberately declared its company in bankruptcy to cancel the trade-union agreements before starting again its activity by massively reducing the wages of the whole of its personnel; the consequences of this episode for the American air sector made say to the former astronaut and owner of Eastern Airlines, Frank Borman that “in the final analysis, the decree of the deregulation, in the absence of another thing, was the greatest law antisyndicale ever adopted by the American congress. ”

a fall of the prices subsidized by the public money

To attract certain companies, the public authorities are from now on constrained to offer preferential conditions, financed by the taxpayers. The Ryanair airline company thus based its development on obtaining more or less disguised government aid; one estimates the amount of these assistances to 150 million euros per annum.

a degradation of the level of service

Associations of consumer note a degradation of the relations between the users and the conveyers which results in the absence of answer to the requests of the customers and the weak taking into account of the complaints. The Head office of competition, the consumption and the repression of the frauds noted a clear increase in the number of the complaints during the last years: with the number of a few units per annum at the end of the years 1990, they are today, on average, of several per week (out the complaints directly related to disappearance of certain companies).

The liberalization of the railway markets

August 1st The the United Kingdom, the Japan and the New Zealand liberalized their network in the years 1990. From New Zealand renationalisé it

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