Thursday, February 01, 2007

Deregulation: Brown should look before leaping

While the smoke of scandal and arrest swirls around Tony Blair and his various party hacks, minions and campaign tools, a little noted effort by Chancellor of the Exchequer, Gordon Brown, put forth the argument that deregulation is "key to prosperity" for the EU. To some degree, he may be correct. Businesses always thrive without regulation. Lost in such statements, however, is that regulation usually is there for a reason. Regulations do not sprout from the ground. The question, however, is who this potential prosperity will benefit.

Indeed, Brown sounded every bit the clone of similar deregulation proponents in the United States, who never saw a rule or law governing the behaviour of business they didn't like. But the striking note sounded by Brown was to be found in the industries he cited as presumably the principle beneficiaries of any move to deregulation: financial services, energy and telecoms. It seems Brown hasn't bothered to pay attention to the massive accounting fraud, various financial meltdowns, and near-monopolization that was seen on this side of the pond in those very industries when given the deregulation green light in the US.

Enron, of course, is the first scandal that springs to mind, which also embroiled complicit accounting firm Arthur Andersen as well as several financial institutions. Ironically and in the wake of deregulation of the energy industry and after loosing investors an estimated $200 billion, the Sarbanes-Oxley Act grew out of this and was the most significant enhancement to federal securities law since the New Deal.

Then there was WorldCom, another disaster ultimately wrought by accounting scandal, a happily complicit financial industry and deregulation of the telecom industry. After the company's assets were found to have been inflated by $11 billion, investors again were pummeled by bankruptcy.

And who can forget Tyco and the enigmatic Dennis Kozlowski, who led that company into another monster financial meltdown via "accounting irregularities" by siphoning some $600 million from company coffers. Tyco was also accused of nondisclosure of $8 billion in investments and, in 2002, its stock tumbled by 50%. These are just three of many. Furthermore, in the wake of the Telecommunications Act of 1996, the media conglomerates have all but eliminated independent media companies.

It would be advisable for Mr. Brown to take a look at what has transpired in those very industries he cites when they were given the big happy fun ball of deregulation. More often than not, the reasons those regulations existed in the first place will eventually make themselves all too well known.


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