City & Business: Regulation, yes, but not strangulation

Brussels must be a very interesting place to be at the moment. No, seriously. Those "busy bureaucrats of Brussels", to quote Bob Crandall, the combative American Airlines chairman, have managed to focus the business world's attention by sharpening their regulatory swords and plunging them into anything that looks remotely like a big target.

At the moment, the EC competition commissioner, Karel van Miert, holds the future of the airline and drinks industries in his hands; soon he may have the global accountancy and defence businesses to play with.

Not for Mr van Miert the diligence and diplomacy that used to characterise regulators - and can still be found in spades at the UK's Monopolies and Mergers Commission. Instead, Mr van Miert has tended to jump feet-first into situations and lay out how he expects the businesses to change their terms. While this candour is refreshing, there is a sense that political agendas - even personal ones - are being served at the expense of good business practice.

The proposed alliance between American Airlines and British Airways is looking more distant by the day. Most people will not weep at the prospect, but Mr van Miert's almost partisan opposition to the deal has begun to damage his credibility. Taken with the showdown with Boeing over the McDonnell Douglas takeover, which history may well judge was not a victory for the EC, and it becomes clear that any chief executive officer considering an ambitious strategic link-up will have to make a pilgrimage to Brussels to see the great man.

There is now an element of machismo creeping into all regulatory debates - who can make the pips squeak more? While Mr van Miert has been the champion of this art, other regulators are not immune, particularly Clare Spottiswoode, whose actions to regulate the gas industry have caused unending woe for British Gas (now BG and Centrica, thanks to her).

The central problem with regulation is the same as it has always been. If you accept that regulators are necessary, in creating them you must allow them as much freedom as possible to carry out their duties in the public interest - including defining what that public interest is. That means in practice that if they start interfering with an industry, it is hard to get them to stop, even if their interference turns out not to be in the public interest. The regulator has virtually become the chairman of the board.

Making a merger add up

THE partners of Price Waterhouse and Coopers & Lybrand will this weekend be reflecting on their futures. For some, notably the Coopers partners, it will be a confident reflection - the logic of combining two weak US operations, the consolidation of top dog status in the UK and the added warm feeling of having their own man at the top of the organisation and - possibly - the British operation, though no decision has yet been taken on that.

Price Waterhouse partners could be forgiven for thinking they are facing a takeover from a larger, though better placed rival, and many will consider seeking new pasture, with hordes of PW and Coopers employees just below partner level who will never now see partnership.

The issue that remains to be addressed is whether the accountants' merger is in the interests of the client. As the surprising news of the merger was digested, suggestions that there would be regulatory interest surfaced, and equally quickly "competition lawyers" emerged to say that in fact the merger would face little in the way of competition hurdles.

At the same time, the spin from both PW and Coopers is that this is a merger driven by client needs, not necessarily those of the firms themselves. Clients want a worldwide service from a single organisation, whose presence in some markets will be of particular use to companies hoping to expand and lacking coalface experience in these markets.

But this would ignore a more central client issue: having a choice of auditor, tax adviser and consultant. Every merger reduces client bargaining power, and reinforces a hegemony that cannot be healthy for corporate Britain. There is a more pressing case for anti-trust investigations into the business of auditing than there is into consolidation in the drinks industry or gas pricing. This is not to say that regulator machismo should be allowed once again to take centre stage. A sensible, measured inquiry will do. To act otherwise would not be prudent.

Short-sighted shortage

BRITAIN is facing a potentially damaging shortage of labour, according to a survey out today. As any economist knows, a shortage in this department will lead to wage increases among those lucky enough to have the skills, which will feed into the economy as the double whammy of price inflation and increased consumer spending.

It will lead to hand-wringing about how the state fails to educate its youth and what is needed to improve our schools and universities so that those entering the workforce can read, write, add up, operate Windows 95 and answer the phone in a polite way.

But what "skills" are in short supply? People who answer job ads often find themselves applying for jobs for which they are not qualified. They might not have enough experience, or may not have gone to the "right" university. They may not be pre-qualified for a job, but it does not take a leap of faith to think that they might learn how to do it with a bit of training.

But why is there a skills shortage? In the last recession, companies which had not cut funding for their training programmes did so with gusto, leaving an entire block of school and university leavers without on-the- job education to augment their schooling. They are now paying the price for such short-termism - literally - in fatter wage packets for qualified staff.

The problem is that companies do not have the time or inclination to take on and train enough people. They would rather do neither: merely contract the skilled labour as and when required and avoid complexities like employee rights, the additional costs of employment, and of course the training budget. The folly of this attitude is clear, and now the consequences are coming home to roost.

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