The recent collapse of Carillion provided another opportunity for politicians to consider the degree to which the state should intervene in the economy, although this wider issue didn’t fall within the scope of the subsequent joint parliamentary inquiry by the Work and Pensions and BEIS Committees – so another opportunity was lost. It’s probable that the shadow chancellor, an avowed Marxist-Leninist, has some well-worn views on the matter, and the policies of the Labour Party do chime with the views of a sizeable portion of the electorate, particularly regarding the privatisation of natural monopolies — those where there is little real hope of establishing any genuine competition.
Beyond debates about former state-run utilities, regulators are struggling in the face of rapidly evolving industries, exacerbated by the step up in global mergers and acquisitions M&A, a point borne out by news that the German pharma/chemicals giant Bayer (ETR:BAYN) has received conditional approval from the US Department of Justice for its $66bn (£56.6m) deal to acquire Monsanto (US:MON). For the takeover to proceed, however, Bayer will be required to offload around $9bn in agricultural businesses and assets to rival German chemicals group BASF (BAS:DE).
As part of the largest enforced divestiture in US antitrust history, the assets include Bayer's soybean and vegetable seed segments, as well as its Liberty herbicide business, all of which currently compete with Monsanto products. But it’s still surprising that a deal of this magnitude received assent given that the merger of Dow Chemical and DuPont finalised at the end of August 2017, just three months after state-controlled ChemChina completed its $43bn acquisition of Swiss chemical and seeds group Syngenta.
Even with the forced divestments, the merged entity will hold dominant positions in the proprietary seed and crop protection markets. Monsanto has regularly used its dominance in one product line to effectively force cross-selling in another; the benefits of a proprietary seedstock will only be fully realised when used in conjunction with a specific fungicide, etc. The consolidation of the world’s seed, chemical and fertiliser industries continues apace, but there are fears that it could potentially diminish competition and technical innovation. The danger also exists that the concentration of economic power in the hands of a few large corporations works against the interests of individual farmers and consumers – not to mention investors, potentially as overconcentration eventually leads to stagnation in equity markets.
The examples provided by the privatised state utilities in the UK and the Bayer/Monsanto merger demonstrate the definitive role played by often woefully under-resourced regulators in providing an equitable market for investors, although it’s interesting to note that around the same time Margaret Thatcher’s government was implementing the ‘Littlechild’ regulatory mechanism in the privatisation of the UK’s telecoms monopoly, the pro-business Reagan administration was ordering the break-up of the giant AT&T network under the Sherman Antitrust Act. You could argue that the fortunes of the US entity have certainly waxed in the intervening period, while a current dividend yield of 7.5 per cent shows the jury is out where BT (BT.A) is concerned.
The point is that anyone can see that the regulatory frameworks established in the UK were essentially a fudge; an attempt to give natural monopolies (certainly in the case of water and power utilities) a free market veneer, but in the case of telecoms markets, their evolution wasn’t bound up with government-fostered competition, but rather on new technologies and digital platforms, many of which emanated from outside the telecoms industry and were unforeseen at the time of privatisation.
