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Panta rhei, everything flows

Criticism is increasingly heard across the political spectrum about the distribution of products and services through “the market”, which actually means distribution in which the price mechanism of supply-and-demand plays a role. Sometimes, the criticism is of a fundamental nature, and it is the use of the market itself that is condemned (“health care is not a market” or “nationalize energy”). But more often, the criticism is directed towards market outcomes. Prices are too high (energy) or too low (unhealthy food), or the supply is too high (online gambling) or too low (health care). In any case, the clamor is for the government to step in swiftly and take control. New market rules are needed because the old ones are not up to the job. That’s understandable in itself, but the legislative wheels in Brussels and The Hague turn slowly. So patience is a virtue.

Nothing is forever

Providing the Dutch legislature with advice about market rules as well as enforcement of these rules are part of the ACM’s core competences. But despite many years of experience in this field, finding the right balance between business freedom and market regulation has proved elusive. Compromising between the two extremes of the spectrum remains a constant struggle. Different times also call for different rules. Sometimes, regulation stifles every new commercial initiative and innovation lags behind. At other times, stricter rules are needed because the outcomes are undesirable.

So there’s no point looking for rules that will work well once and for all. In most cases, market rules are already obsolete as soon as they come into force. That’s not down to ignorance or unwillingness but almost a law of nature. After all, supply and demand as well as the context in which they operate are constantly changing. The only solution is to allow rules and enforcement to evolve smoothly with those changes.

Take for example ACM’s licensing of energy suppliers. To break open the former costly and cumbersome energy monopolies, the rules had to provide opportunities for new firms with new business models. For a long time, that worked well. The Netherlands had a competitive, low-priced energy market. But the context changed. Some of those new firms may have been cheap (which was nice!), but they proved less than solid. When they encountered headwinds, they toppled over. That, in turn, led to financial problems for consumers and a good deal of social unrest.

Things are different now. Quite rightly, preventing bankruptcies of energy suppliers has become more important. ACM has therefore set stricter requirements for financial resilience, and firms have to demonstrate more robust plans. But let’s not be under any illusions. It’s possible that, in a few years’ time, consumer prices will be lower in other countries because their energy suppliers are able to try out new business models while bearing a lighter regulatory burden. If so, the requirements may need to be adjusted again. That's not a bad thing. It's just the operation of the law of nature.

Timely response to changes

Constant agility is therefore required, in terms of both rules and enforcement. But since legislative processes are slow by nature, market authorities have an important role to play. If the rules are enshrined in open (“principle-based”) standards, their interpretation can move in line with what the markets need to work properly. The licensing of energy suppliers is a good example. When the strings had to be tightened, there was no need to change the law, although in a democracy with the rule of law, this change of policy should first be consulted properly. A solid justification must be given for the change as part of a commitment to transparency towards society. This needs to be coupled with good communication and a reasonable transition period so that all parties – consumers and companies alike – have an opportunity to adapt to the new reality. It also requires the market authority to keep its eyes and ears open to identify and respond to changes without every incident triggering a change of course.

An agile market authority is not just nice to have. It’s actually important to have predictability and legal certainty. But the volatile outside world make it impossible for everything to stay the same. At the end of the day, no one would benefit from that. We therefore need to strike a balance between business freedom and market regulation, and between agility and predictability. In that context, we must abide by the ancient Greek adage panta rhei, everything flows. The world is constantly changing and everyone must move with it.

Martijn Snoep, ACM Chairman

Portret Martijn Snoep