Localisation

I've often berated the European Commission's vain attempts to catalyse cross-border markets using Directives. The law follows commerce. And recent sociolinguistic research has shown that the way language evolves locally has not been altered by, say, the global distribution of Hollywood films, immigration or mass-market travel. So it was interesting to see Schumpeter put "the case against globaloney" based on World 3.0, the new book by Pankaj Ghemawat that demonstrates how thin the evidence is that globalisation has really taken hold - a must-read for Eurocrats.

Image from Translation-corner.

Usual Suspects Bottom Out EU Consumer Scoreboard

You may wonder why a blog focused on how we seize control of our consumer experiences devotes so much space to our frustration in the personal finance space.

Because, as the latest edition of the EC's Consumer Markets Scoreboard confirms, it's our biggest source of angst.

Bank current accounts and credit products, investments, pensions and securities all feature in the bottom 20% of the "Market Performance Indicator", with investments, pensions and securities coming in lucky last.

Real estate services, internet service provision and railways also get a pasting; as well as secondhand cars, clothing and footwear, meat, and house maintenance/ improvement goods.

An incredible 31% of consumers find it fairly easy to compare investments, although only 34% of consumers think they deliver what's promised. A naive 26% of us are as likely to trust investment providers as used car salesmen.

Yet 76% of us don't bother to switch providers...

As a result, until the usual suspects get their act together, we face an endless stream of edicts emanating from the Brussels bureaucrats, adding more and more to the complexity for both providers and consumers alike. A great deal more proactive work in this area by providers may help stem this tide. Switching providers might also help.

In the meantime, internet service providers and the "meat market" can also expect the joy of EC market study questionnaires.

Could An EU Contract Law Catalyse A Single Market?

Not content with the dog's breakfast of European consumer and retail finance directives, the European Commission now wants to harmonise all contract law in the European Union.

The latest fry-up is yet another futile attempt by the EC to catalyse cross-border retail markets of the same scale as national markets within the EU. This is spawned partly by a dogmatic interpretation of single market policy. But it also reflects the difference between the common law view of the world (do anything until the government says 'stop') with the civil law view (wait for the government to tell you how it can be done).

I'm an avid fan of cross-border markets, but long experience and the EC's own research has shown that they can't simply be mandated. Regulation is the least significant of the numerous barriers to cross-border retailing. Cooking up a bunch of extra regulation that doesn't solve a real problem merely adds legal costs for everybody to no end. Or worse: it's ironic that the EC's changes to VAT on electronic services from 2015 actually removed a significant driver for firms to structure their activities in a way that boosted cross-border e-commerce in the first place.

When will this expensive, Quixotic tinkering end?

Well, economic reality may be pointing away from a single European market of the scale envisaged by the EC. Some describe the north-south divergence in the EU and others herald a return to national currencies, or at least regional versions of the Euro.

But if, as I suspect, this latest Green Paper is intended as a frantic signal that the single market is not dead, there'll be plenty more such concoctions before the whole thing finally comes apart at the seams.

Internet of Things... A European Prophecy

This just out from the European Commission: "Internet of Things: an action plan for Europe".

My apologies to the authors, but it seems to be a recital of various technological innovations concerned with RFID and the semantic web, attempting to link them to various pet EC initiatives in vague, mystical terms under a Pythonesque EU slogan. It concludes:

"As this document has described, IoT is not yet a tangible reality, but rather a prospective vision of a number of technologies that, combined together, could in the coming 5 to 15 years drastically modify the way our societies function."

Rather reminds me of this:

I guess it's all an attempt to put governments at the centre of the innovation process. What that will do to innovation is anyone's guess. Bizarrely, I see the EC is already requiring an opt-in before your milk can tell your fridge that it's past its use-by date. Lest you be "taken unawares by the new technology."

Please facilitate, don't regulate. You will only slow the pace of innovation.

Black Swans and Risk in Retail Financial Services

In a recent speech, the EU Commissioner for Consumer Affairs, Meglena Kuneva, signaled 5 current priorities in relation to retail financial services:

1. Address the way investment products are designed, described and marketed to consumers; and ensure that new proposals in relation to the sale of credit and mortgages "meet the high standards of modern consumer policy".
   


2. Strengthen the strict rules and enforcement on the misselling of retail investment products, in the light of "clear indications that the laws that are meant to protect consumers were insufficient and may have been repeatedly violated."
   


3. Complete by the end of the summer an in-depth study of banking fees and charges to consumers which appear to be unfairly hitting consumers.
   


4. "Start with regulators a new debate on the correct balance of risk and reward on Main Street. It seems that in recent years, risk has been significantly outsourced to unwary consumers. The question is what amount of risk and toxic products are we willing to tolerate in the retail financial market?"


5. Start a serious discussion on the regulatory oversight structure that is needed to generate accountability to consumers and to ensure consumer protection principles are consistently implemented across retail markets.

The nub of all these priorities lies in the highlighted question. I'm equally fascinated by it, even though the answer to it must surely be "nobody knows." It's part of the process of democratising the financial markets. However, as a starting point for the discussion, I'd be more comfortable with the statement that risk has simply landed on unwary consumers (and taxpayers, more importantly), rather than that it was somehow "outsourced" to them, implying intent and activity on the part of someone else. Otherwise we risk focusing on who outsourced the risk, and how, which is necessarily facing the past, not the future. Nailing those who broke the law should not be part of this debate. The fact is, the law failed to protect consumers and taxpayers from risk in the financial markets.

To put it another way, it was a mistake for us ever to have believed that we had successfully outsourced our own personal financial risk to banks, employers and governments.

The credit crunch is a Black Swan event - a surprise event that has a major impact and is [being] rationalised by hindsight, as if it had been expected. Inquiry into the why's and how's is therefore largely academic, albeit tantalizingly so. To take a counterfactual approach, one might ask whether it would have occurred if the CDO had been strangled at birth in 1987. The CDS also played a role, so we might consider the implications of it's death on a whiteboard in 1997. And we might ask the same in relation to Gordon Brown's rhetorical adoption of the so-called Golden Rule - that the government would only borrow to invest rather than to fund current spending, and in doing so it was "prudent" to maintain debt levels below 40% of GDP (implying it was also prudent to borrow up to that limit).

But we will never really know the cause of the credit crunch. And nothing we do will necessarily prevent another one.

Yet it seems likely and perfectly natural that we consumers and taxpayers will continue to rein in our expenditure, and take steps that we believe will maximise the sustainability of our income, for as long as it takes for us to feel we are able to survive another major financial disaster. As markets seem to "recover" in parallel, it will become harder and harder not to become lulled into thinking that our self-discipline is working, and that, at some ominous peak, we are finally safe...

So the real challenge is: how can we ensure that we consumers and taxpayers always understand that each of us personally bears the risk of financial disaster?

You are on your own. Pay less. Diversify more. Be contrarian!

EC's Consumer Markets Scoreboard

Meglena Kuneva, the EC's Commissioner for Consumer Affairs, appears to be trying hard to compile meaningful data on "how markets ultimately perform and deliver to citizens".

The Consumer Markets Scoreboard - only in its second edition - provides data on prices, complaints, degree of satisfaction, switching rates and safety. However, it finds that "more quality data are needed to develop a solid consumer evidence base... The current evidence... is still not enough to draw definite conclusions."

Nevertheless, the report makes a series of "observations", including:

• "consumers are less satisfied and experience more problems with services than with goods markets. The most problematic surveyed sectors are energy, transport (bus and rail) and banking services."
  
  
• "in the banking sector switching is low and offers difficult to compare. The substantial variation in bank fees between Member States is not explained by differences in expenditure levels". In the first half of 2009, the EC will "assess the problems consumers face resulting from a lack of transparency in retail financial services."
  
  
• higher switching rates (e.g. in the market for car insurance) means "consumers are less likely to report price increases". Though I'd observe that the number of TV ads for the plethora of price comparison web sites focused on car insurance suggests there is still plenty of fat in that market - 25% of consumers reportedly switch, but prices are reported as steady.
  
  
• "Cross-border retail trade is stalling. The proportion of consumers shopping cross-border has not increased since 2006, while the proportion of retailers selling across borders has declined. Nevertheless, while 25% of consumers have shopped cross-border in the last 12 months, 33% are considering doing so in the next year. If harmonised consumer regulations were put in place across the EU, 49% of retailers would be interested in selling cross-border. This would be a significant improvement compared with the 20% that currently sell cross-border. Online shopping is becoming more widespread but cross-border e-commerce is not developing as fast as domestic online shopping."
  
  
• "While complaints data are important to detect malfunctioning, the absence of complaints does not always mean that there are no problems... in some markets consumers have a low tendency to complain even though they experience problems, for example, in bus and rail and some food markets such as fruit and vegetables." Source: IPSOS consumer satisfaction surveys 2006 and 2008.
  

The report cites the following "Action points for 2009:

• A market study on the retail electricity market.

• A chapter on online geographical market segmentation in the retail market study which will analyse the problems consumers have when shopping online across borders.

• A communication on enforcement which will set out a global strategy to ensure the effective enforcement of the consumer acquis.

• Development of a regular collection of average prices of comparable consumer products and services by Eurostat and the national statistical offices.

• Development of a voluntary harmonised methodology to classify consumer complaints.

• Work to develop appropriate indicators to measure enforcement and empowerment with national stakeholders."

EC to Ask First, Shoot Later

Great news. In her recent blog, the European Commissioner for Consumer Affairs, Meglena Kuneva, has said:

"In January, I will publish a report on the realities of cross-border e-commerce for consumers in Europe and investigate what the real barriers to shopping online in another Member State are. Once the problems are identified, they are easier to resolve."

This is indeed a welcome departure from the Commission's approach to facilitating cross-border e-commerce over the past 8 years or so, which resulted in firing out a plethora of European directives that only 7% of EU citizens have been able to enjoy.

Time, at last, to focus on the analysis and resolution of the root practical causes of why cross-border appears to be growing so slowly - if that is truly a problem in itself.

Of course, there is no single “e-commerce market”. Rather, every market has its online segment, and each develops differently from its offline counterpart as well as online segments of markets for other products. Drawing together the “vertical” analysis may help identify which areas of e-commerce may be more ripe for early progress and/or especially difficult practical problems on which work/education needs to start now if a market is to materialise in the longer term.

For example, it is worth considering that the May 2007 study by Civic Consulting revealed the main barriers to a single European market for consumer credit to be “different language and culture; consumers’ preference for national lenders; credit risk for lenders – no access to creditworthiness information; problems related to tax, employment practices etc.; difficulties to penetrate local market; different consumer demand in different Member States; lack of consumer confidence in a brand; differing stages of development of consumer credit; and lack of adequate marketing strategies.” The study concluded that “a single market for consumer credit cannot be expected to be created by harmonisation of legislation alone, and this is a long term rather than a short or medium term perspective.”

Nanny Home Office to Record Everything

The Home Office continues to build an all-seeing Nanny State at our expense, regardless of proportionality, competitive and low-cost communications or the need to conserve our taxes to support the financial system.

The proposed Data Retention Regulations require UK public network providers to retain data that identifes the source, destination, date time and length/size of every single phone call and email on their networks, as well as the type and location of the device involved. Using that data, authorities can of course find the content in, ahem, 'other systems'.

"... We [the Home Office] consider that these measures are a proportionate interference with individuals’ right to privacy to ensure protection of the public. Previous debates have concluded that the retention period is a significant factor in determining proportionality. In the draft Regulations at Annex A, we propose to continue with a retention period of 12 months."

Failing to mention, of course, that the Home Secretary can extend the retention period to 24 months, merely by written notice. And ignoring the fact that the cost is in secure storage, retrieval and deletion, for which the Home Office is now infamous.

This particular initiative has been handed to us (with Home Office complicity) by European Directive 2006/24/EC, conceived amidst the panic of the 'war on terror'. So, of course, it must be well considered and completely necessary today. It's also a natural extension of the Regulatory of Investigatory Powers Act 2000 (RIPA!) which David Blunkett introduced to such a warm welcome and which has been critical to Local Authorities' success in their war on dog-fouling [checks shoes for 3rd time today]. But just to add weight to its claim of proportionate impact on our human rights, the Home Office cites a vast empirical study undertaken by independent experts:

"During a two week survey in 2005 of data requirements placed by the police, there were 231 requests for data in the age category between 6 and 12 months old. 60% of these requests were in support of murder and terrorism investigations and 86% of the requests were for murder, terrorism and serious crime, which includes armed robbery and firearms offences."

So, we need this giant database and retrieval system for names, dates and places for every single communication on a British network in order to support about 200 data requests a month. Well, clearly the new regulations weren't needed to enable these requests to be made in 2005. And history appears not to record how critical the results were to solving a crime. Murder is an ironic justification, given how firmly the Home Office is holding the pillow over our faces. However, while the unsolved murder rate has nearly doubled over the past decade to 52, the Tory response missed a golden opportunity to justify investment in some enormous database to prove the exact time I called last night to say I'd be home to read stories. Instead, they merely blamed this rampant surge in mayhem on "police being overwhelmed with red tape, bureaucracy and government targets that distract officers from protecting the public." I feel their pain.

Ah, yes, the cost. The good news is that the taxpayer is to reimburse the network providers the "additional costs for retaining and disclosing all communications data". The Home Office claims this will amount to a suspiciously precise "£68.44m capital, £39.40m resource over 8 years", whatever that really means. Is the £39.4m perhaps an annual figure? Is it inflation adjusted? It assumes no investment in public sector systems, so that must be hidden elsewhere. Weirdly, it also assumes that electronic communications will cease in the UK in 8 years time, rather than grow exponentially. Perhaps the database will enable Plod to figure out whodunnit.

In the meantime, the Home Office claims it will avoid the disproportionate impact of all this on small firms. This assumes that either (a) there will be no more small firms providing network services in the UK (sad, but now plausible) or (b) small firms will be able to carry the cost of investing in the additional storage and retrieval systems until their requests for reimbursement are lodged with the Home Office, processed, approved and finally paid. Either way, start-ups and other competitive, low-cost network providers can't afford to play in that sort of bureaucratic game.

Next: average speed camera networks.

PS: the Society for Computers and Law response to the proposals can be viewed here.

Civil Law View of State's Role Slows EU Growth

Last Tuesday, I played a very small part in the closing panel discussion at the Society for Computers and Law 3rd Annual Policy Forum. The focus of the Forum was the European Commission’s painful review of the 15 or so Directives it has set up to regulate retail communications (and content/e-commerce) over the past decade.

It was an excellent event, and here is the link to the presentations.

Huge credit goes to Chris Marsden for persuading a stellar line-up of international speakers over the 2 days. Credit is also due to Mark Turner of Herbert Smith and Caroline Gould of the SCL for hosting the event and taking care of the endless practicalities.

For what they are worth, the points I made during the closing discussion were:

• The European Commission continually states its belief that regulation is required to catalyse cross-border retail markets in Europe. As it was explained to me in International Comparative Jurisprudence at law school, that’s because the European, civil law, view of the world is that people should only do what the State says is acceptable, whereas the common law view is that the law should follow to regulate commerce/behaviour as necessary to resolve market problems.

• However, while national e-commerce has surged, the evidence of the past 10 years is that the EC’s approach to cross-border markets hasn’t worked and will not do so until more the more practical obstacles to cross-border trade are cleared. As set out in my previous post, Civic Consulting found that these include language, culture, consumer preference for national products, lack of shared data on creditworthiness, tax/employment differences, difficulty in penetrating foreign markets, differences in consumer demand, lack of confidence in foreign brands, different stages of market development, lack of adequate marketing strategy.

• Regulators can play a role in early market phases. In fact, they would gain the trust and the buy-in of market participants to any regulatory measures that may eventually be required if they first helped facilitate market participants’ efforts to remove the practical obstacles to cross-border trade and learned something about the markets they’re trying to regulate along the way. Regulating first will either prove futile, or risk creating further obstacles. In the meantime, it will needlessly interfere with national markets.

Because of the jurisprudential difference I mentioned, these points seem to find favour with the common law members of the audience, rather than our civil law friends. Ironically, EC officials don’t seem to see it as within their remit to care whether or not regulation actually will deliver a single market. They simply have a mandate to churn it out in line with the EU’s single market policy, and fuss around with reviews when it doesn't work out. The practicalities are ignored. As a result, we are doomed to wait a much longer period of time for cross-border retail markets to develop, if they ever really will.

EU Choking on its Own Consumer Law

Having committed rather too late to the principles of "better regulation", it's only right that the European Commission should now seem to be choking on the dog's breakfast of consumer laws it has served up over the past 13 years (bearing in mind it takes 5 years to pass an EU directive).

Officials are reforming a plethora of electronic communications directives, and reviewing the 8 directives that make up what is (weirdly) known as the "Consumer Acquis" (which for some reason excludes the constant review of the E-commerce Directive). And, of course, it's overseeing the implementation of the Audio Visual Media Services Directive which overhauled EU television regulation in December '07.

With any luck, the Commission might realise how truly gargantuan a meal this has been for the average European citizen or small business to digest, let alone for the lawyers who have to produce bite size summaries for the busy executive's bin.

Has all this amounted to the catalyst for a cross-border consumer market that the Commission hyped, sorry, hoped? Not according to the Commission's own research. Nor could it, for the practical reasons previously mentioned. There is a facilitative role that the Commission can play, but that involves understanding the problems, their root causes and potential solutions before regulating.

More in this vein next Monday/Tuesday at the SCL's Annual Policy Forum!

"Distance" selling - secret rules exposed

I've been involved in helping people sell at a distance secretly now since lawyers were first told it was okay in a coded document (97/7/EC) leaked by the European Commission in 1997.

Now I see that two equally shadowy entities, OFT and TSS, are trying to let the cat out of the bag so that virtually anyone could comply.

What a pair of do-gooders.

They say that 66% of people selling remotely have never found the laws that require some bumf on their web sites, which could land them in hot water with local officials.

Well, don't think the official hot tub sessions will stop there, folks. There's a lot of regulation that has been released by the European Commission in code that only lawyers can read. Allegedly, because it helps create confidence in doing business across the length and breadth of the EU.

Join the Quest for the Source of EU Legislation

This is the Last Straw. I've just seen "micro-enterprise" defined in a document called "2005/0245 (COD) LEX 797" as:

"an enterprise, which at the time of conclusion of the payment service contract, is an enterprise as defined in Article 1 and Article 2(1) and (3) [oh, don't forget 2(3)!!] of the Annex to Recommendation 2003/361/EC".

I'm thinking of launching a Quest to find those responsible for this latest gobbledigook and demand to know in plain English what "micro-enterprise" was intended to mean, without referring me anywhere else.

But where to start?

In 2005, the UK's Better Regulation Commission produced a fascinating, literal "map" of what we might really loosely describe as the 'European Union legislative process'. See especially page 14.

I'm not being sarcastic here. The report is a veritable base camp from which to begin the quest for the source and true meaning of EU legislation. It provides a guide, pack animals, tents, rope, torches and other basic tools. The rest of the specific search is down to good eyesight, a laptop or PC, broadband, physical fitness, strength, caffeine, food, and several towels that can be soaked in ice cold mountain springs and wrapped tightly around one's head. Oh, and a journey to Brussels. With a lobbyist.

Are you in?

It will be very crowded, but ours will be lonely work. Listening amidst the din of countless institutions and committees for the mystical whisper known as the "Social Dialogue". For it is only in that stream of semi-consciousness that we may dare to even hope to find the truth of the coded messages embedded in the "stakeholder input", "advice", "green papers", "proposals", "adoptions of proposals", "opinions", "consultations", "co-decisions", "common positions" and, ultimately the Regulations and Directives that emerge six or seven years later to drive us to distraction.

No?

Yeah, sod it. I'm staying in London to earn a crust.

EU Regs Won't Catalyse Cross-border Markets

The European Commission's plans to regulate to create cross-border consumer markets will only limit innovation and growth. Faciliating solutions to more practical problems inhibiting the organic growth of markets would be more helpful.

The European Commission recently announced its decision to propose new EU consumer rules in an attempt to create cross-border retail markets in the EU. The member of the European Commission responsible for consumer policy, Mrs Meglena Kuneva, said:

“I am convinced that consumer policy is uniquely well-placed to help the EU rise to the twin... challenges of growth and jobs and reconnecting with its citizens... The Commission’s vision is to demonstrate by 2013 to all EU citizens that they can shop from anywhere in the EU, from a corner shop to a website, with confidence and equal protection. And we will also show to all retailers that they can sell anywhere on the basis of a single, simple set of rules.
We are a long way from those goals now…”

A long way indeed.

A study by the European Consumer Network on cross border complaints pointed to problems with delivery (46%) and defects or lack of conformity with description (25%) as the two main problems.

Furthermore, Eurobarometer discovered in October 2006 that while 27% of EU citizens shopped online in 2006, only 6% made a cross border purchase online. It also found that consumer perception is focused on more practical concerns: "... it is harder to resolve problems such as complaints, returns, price reductions, guarantees etc” (71%); “there is a greater risk of falling victim to a scam or fraud” (68%); “there is a greater chance of having delivery problems with goods or services” (66%); “there are more problems returning a product they bought at a distance within the "cooling-off" period” (65%). From a business standpoint, “the biggest perceived obstacle to cross-border trade is the insecurity of transactions (61%)… potential problems with resolving complaints (57%)… difficulties in ensuring after-sales service (55%) and extra delivery costs.” A further 43% of respondents cited language differences as an obstacle to cross-border trade. Such issues may point to problems with enforcement of existing laws and contracts, but not to any fresh regulatory opportunities.

Similarly, a May 2007 study by Civic Consulting reveals that efforts to construct a single European market for consumer credit by introducing a new consumer credit directive are flawed. According to the consumer organisations and national banking associations who were polled, “the main [non-regulatory] barriers hindering selling of consumer credit products in other EU Member States are different language and culture; consumers’ preference for national lenders; credit risk for lenders – no access to creditworthiness information; problems related to tax, employment practices etc.; difficulties to penetrate local market; different consumer demand in different Member States; lack of consumer confidence in a brand; differing stages of development of consumer credit; and lack of adequate marketing strategies.” The study concluded that “a single market for consumer credit cannot be expected to be created by harmonisation of legislation alone, and this is a long term rather than a short or medium term perspective.” As such, “the supply side of the market… does not expect increased demand and therefore economic growth from the proposal.”

In short, the European Commission is proposing a regulatory solution for problems that have no regulatory solution. And worse, for those of us who do share an ambition to create cross-border markets, is that, ironically, regulation in this area is likely to stifle innovation and constrain growth rather than promote it. As has been observed by Marsden et al. (2006) in connection with the reform of the TV Without Frontiers Directive, prescriptive regulation tends to cause markets “to develop towards more closed and concentrated structures”. This is because larger participants can afford compliance costs, lobbying efforts and have the bargaining strength to shift liability onto suppliers and consumers in a way that smaller market participants cannot – “hence, incumbents and regulated actors have incentives to drive up regulatory costs in other parts of the value chain”. Complex regulatory regimes may also either avert venture capital investment from attempted innovation in the regulated activity or ensure that it “will only flow to those companies considered to have the ability to ‘play a good game’ with the regulators”.

If the European Commission must play a role in creating cross-border retail markets, then it should help foster solutions to the real obstacles, bottom-up amongst market participants, not pose new ones.