application of administrative law to privatizations
APPLICATION OF ADMINISTRATIVE LAW TO PRIVATIZATIONS
IN THE NETHERLANDS
application of administrative law to privatizations
Inge C. van der Vlies,* Suzanne W. Stoter[*]IV D 2
and D.A. Lubach*[*]
Preliminary remarks
Administrative law in the Netherlands is applicable to any action with regard to the execution of public law power. Public law power is defined as authority to decide on the behaviour of another person. Application of administrative law is not entrusted to governmental bodies only. It can be applicable via acts of privatised organisations as well. The most important matter is though, the application of administrative law with regard to privatised organisations. Privatised organisations are largely regulated by administrative law. In the process of conversion from a state organisation towards a privatised company, administrative law is applicable in all stages.
In this essay we will describe in what length and to what decree administrative law to protect the public interest is developed, as regulations on privatisation largely provide a mixture of private law and public law aspects. As regulations for privatisations are growing, a system of checks and balances is elaborating. Special supervisory bodies or special guarantees for private law bodies, obtaining a monopoly on a privatised market, are developing. These will be discussed as well.
1General overview of administrative law
The Constitution of the Netherlands is written and, with all due respect, could be characterised as a pamphlet, under recognition of its broader meaning. It protects the right of property, but it does not contain detailed articles on issues as property, freedom of negotiation or administrative law. Property rights are not dependent on protection by the Constitution only, international treaties offer protection as well. Nowadays protection as is regulated in EC Treaties, is often called upon.
Furthermore a law with a nearly constitutional status is relevant within the context of privatisation, namely: the general administrative law Act. This Act contains general norms with regard to decisions of all administrative authorities and enforcement of public law power in the Netherlands.
A privatisation is regulated by a specific Act for the privatisation as such, enforced by many Decree-laws and ordinances, and an Act with regard to the supervision. Transition law is laid down in the Acts.
The legal way to privatise on state level is to design a Bill, laid out by the ministry that is charged with the policy upon the moment of privatisation. All ministries have been called upon to undertake privatisations. To enable the various ministries to fulfil the operation of privatisation successfully, a knowledge centre is vested in the ministry of Finance, Interdepartementale Begeleidingscommissie Privatisering (IBP), i.e. the interministerial advisory service for privatisation. Though consultation of this centre is not obligatory for other ministries, this centre is often approached. It published a guidebook, under the responsibility of the Minister of Finance, containing the main issues in privatisation. The guidebook suggests the use of a checklist, which mentions amongst other checks, the following:
-Is the state activity, taken into consideration the Constitution and the current laws, a suitable candidate for privatisation,
-Is influence of the Government necessary, after privatisation,
-Which conditions follow from the rule of law,
-Which conditions should be met from a legal and organisational point of view?
Though the limitations, set by the Constitution, are rather marginal, they offer indications about the level of regulating. Taxing, for example, could never be completely privatised, as the Constitution prescribes taxing by an Act.
The choice between different forms of government withdrawal could also be guided by the decree of the desirable ministerial accountability, indicated in the second checkpoint. In case of rejection, the parliament cannot hold ministers accountable for any aspect of activities, performed in the market. The choice for a complete withdrawal of the state is not unavoidable. Other forms of privatisation are in many cases to prefer, if some aspects of the activities have to remain under the influence of the government.
Knowledge of parties concerned should be timely called for, before starting the operation of privatisation as such. Looking for assistance facilitates acting in compliance with the last checkpoint of the guidebook, on legality. For example the minister of home affairs should always be given the opportunity to assess the effects of a privatisation for the legal position of civil servants, the minister of social affairs for the effects on pensions and labourconditions, et cetera.
2The political and economic context
States are recommended to limit their duties in order to perform fewer tasks better. Privatisation has been part of the political debate in the Netherlands since 1981. Elements of a centrally planned economy have been replaced by a market-oriented approach. Privatisation is supposed to generate a more effective management of the topic.
The continuing integration as is foreseen in the legal policy of the EC, forces to increase competition. Growing competition is anyhow a characteristic of the international market. The government of the Netherlands has to cut back its redistributional role, which was rather large. Furthermore considerations with regard to allocation of resources and productive use of activa are relevant.
The governmental administration is often stigmatised as a more or less ponderous body, slowing down the management of a topic instead of running it in a more economic way. By privatisation the obstacles, characteristic for governmental way of handling, vanish and make room for a more goal-oriented way of working. Making profit is not the main issue, but more or less the spin off, resulting from a more effective way of working. Privatisation might by the way reduce the complaints of private businesses about unfair competition by state-owned companies.
Comparable considerations are decisive in leaving a number of organizations in the private sphere. Only some of their activities will be regulated by statutory law. This was the case for example with De Nederlandsche Bank N.V. (The Bank of the Netherlands, u.c.) and de Stichting Toezicht Effectenverkeer (Foundation Supervision Stake trading). In the end regulations are similar, be it to regulate a former state organization, or to regulate a traditionally private organization.
Three main forms of privatisation are used to focus on the differences:
-rejection: complete transition from the public sphere into the private sphere, be it gradually. Rejection can be achieved by selling a going concern to a private company or by selling stakes of which the state was the holder.
-Contracting-out: production of a good or a service is entrusted to a private company, possibly with the transference of staff,
-liberation: a profitable stateactivity is transubstantiated into a legal and economic autonomic body, which can be a private company or an agency under public law.
Rejection as such is in more complicated cases introduced by a process of gradually withdrawal of the government, as is usual with the third kind. Outplacement regards a way of handling only; it does not need special legislation.
3Controlling agencies
Privatisation is regulated per issue, though some general guidelines are now developed. Standards and controlling of actions by privatised companies have to be regulated. The methods to set standards are various and linked with the nature of the privatised activity.
In case of outplacement a form of private control only might be sufficient. If liberation is at stake, it is largely preferable to lay down some norms in an Act and to charge a Supervisory Board with most of the assignments of ruling and controlling. Minister are deemed to be less fit for the details of these tasks, while they might be influenced by political preferences, with a potential to affect the functioning of the open market. To minimise the negative effects of ministerial interference, an agency could be charged with the power to control the companies in certain markets. To ensure an independent control, instituting an independent supervisory Board might be the best way. Boards usually have the authority to regulate, recommend certain policies and to impose an administrative sanction on the legal body or bodies within its working field. Boards, composed of professionals, are granted with public law authority. Their decisions are contestable before the administrative law courts. Apart from these Boards, every legal person in private law shall have, in compliance with private law, its own organization that includes controlling committees.
4The safeguarding of public interests
4.1Methods
The Research Council for Government policies (WRR) dedicated a study on the effects of privatisations on the public interests. The main issue was, in the view of the WRR: the contribution of public and private responsibilities should be established, with due respect for the obligation of the government to perform an overall responsibility for the public interest. What should be considered as the public interest is changeable, due to international relations, the development of technology and political views. The preferences for certain methods of safeguarding and weighing them are therefore also changing.
Methodically speaking, safeguarding of public interest could be achieved by the following:
-rules (from Acts or contracts);
-competition;
-hierarchy;
-creating values.
Most cases of privatisation will need regulating by Acts, not only for the conversion itself, but to keep certain standards alive in the market as well. The necessary refining in the rules is dependent on the subject of the privatisations.
The public interest might be served by competition, but only under specific conditions. Even if the competition is real, the public interest might need more guarantees. If privatisation leads to competition for the market only and not to competition in an open market, competition is in fact void. The choice between several candidates for the rights of a monopolised market might be real the first time the market is available for a temporarily concession, but that will certainly not be the case the next time the concession will be put for auction in one way or another (for example the case of the Netherlands railway infrastructure). The position of the company that got the concession in the first place is almost unbeatable for other competitors in a second or next round.
Hierarchy as a safeguard includes supervision of a political authority over the actions of a privatised company. Statutory law should regulate powers for a minister, who is made accountable. This construction can only respect privatisation and safeguard the public interest as well, if the supervision is not prohibitive to the development of the privatised company. Too close supervision might mock the privatisation. Notable is also the fact that national authorities are losing their position in the ranking in favour of international authorities, in case of the Netherlands especially in favour of the EEC. Hierarchy will then involve other political levels.
A reliable condition for safeguarding the public interest might be also the professionalism of the employees. Some companies or institutions cannot function without people with a high education, like hospitals. In such a case the public interest will probably not be damaged, while the standard of the services will be sufficient. Professionals will likely develop values to maintain the standards of their profession.
A combination of two or more methods of safeguarding is in most cases the best way.
4.2Checkpoints
Reorganizing public and private responsibilities should always be started with the public interest in view. The best possible way to serve public interests should be the aim of such reorganisations. Though views on the best way to serve public interests, might differ: the debate on the what of privatisations should not prohibit the development of the best possible way how to do it. The WRR endeavours to contribute to good procedures in privatisations. It is for this reason, the WRR developed five main checkpoints for good governance in privatisation:
-democratic legitimisation,
-equity before the law,
-legal certainty,
-efficiency,
-efficacy.
Democratic legitimisation holds two items: democratic steering and democratic accountability. To accomplish his accountability towards parliament, a minister should have the power to give directions to the privatised company: without power no accountability (and v.v.). The necessary power can be contributed in various ways. Aside from the various methods in the public domain, other forms of founding democratic legitimatisation are feasible. In a more traditional vision an immediate link between responsibility for the public interest and public domain, might be deemed as the only possible way. Though democratic legitimisation for the public interest is essential, accountability within the public domain is not the only way to achieve it. Other methods are feasible. It might be made obligatory for the companies to publish annual reports, to respond to special representative or independent councils and to operate with an objective supervisory board. With certain creativity democratic legitimisation might be provided in a different, but effective way. It can be seen as a challenge in privatisation to make privatised companies more responsible towards society. Guarantees should however not develop into a detailed network of rules, which will make the privatisation void.
The strains of the principle of equity before law might corner the options of a company too sharply and restrict it too much to operate effectively on an open market. And moreover, from the other hand, competition might lead companies into infringement of the principle. A commercial insurance company is to be expected to exclude risk groups, though behaviour like that is not socially correct. Of course an attitude like that could be prohibited by law, but making detailed rules on how to run a company might affect the companys position on the open market, or have more effects on the functioning of the open market as such. For these reasons the government might refrain from conversion of state activities into an open market system, if the principle of equity before the law is at stake.
Legal certainty is partly connected with predictability of actions of the administration. The administration is tied to public law rules and citizens know what to expect by reading the rules. To draw the conclusion that public law has a monopoly in legal certainty, would be incorrect however. Two remarks could be made. Private law companies are bound to produce certainty towards the public as well. And the public legal certainty is limited in itself. It cannot be denied, that rules leave room for interpretation and civil servants are partly free to act in compliance with their own common sense. This is a phenomenon known as the discretion of public authorities. The freedom of private companies is guided by law that can set minimum standards for quality and maximum levels for prices. With respect to the principle of legal certainty it might be possible in many cases to find a balance between the need for legal certainty and reasonable freedom for market options. If too many rules are needed however, the government should refrain from transformation of state activities into open market competition.
With regard to the last two checkpoints might be remarked: a new mix between government and market as coordination mechanisms (Bovenberg, 1999) should be created. Whether a public or a private organisation of a service is effective or efficient depends mainly on the character of the service. Electricity was due to be traded on a monopoly market, because the infrastructure was technically too less sophisticated to allow competition (E.E. ten Heuvelhof, a.o.). Nowadays infrastructures with regard to electricity allow competition without losing the availability of electricity for everybody. This makes privatisation feasible. In theory social welfare might be privatised, with substantial financial support of the government. It is however not predictable that such a transformation will favour efficacy and efficiency. In situations like that a good reason to privatise is hard to find; the challenge is not in the decision to privatise or not, but to be sought in finding a good institutional frame for management of the product.
5Private corporations with public tasks[1]
5.1Introduction
Some forms of privatisation do not imply a total rejection by the government of the tasks which were formerly carried out by organs of the government themselves. The objective of privatisation of these tasks, which are still regarded as important in the general interest of society, is not as much to get rid of any governement influence, but mainly to carry out these tasks in a way that is supposed to be more efficient or market conform. The motives of privatisation are dealt with in chapter 1.
Being privatised, the form in which these tasks are carried out is those of private legal bodies, mainly public[2] companies limited by shares (NV) or private companies with limited liability (BV). Sometimes the form of a foundation (stichting) is used. These three legal persons are regulated in chapter 2 of the Civil Code (BW). Hereafter we will focus on the two types of companies and leave the foundation aside.
In a considerable amount of cases the government wants to maintain a certain degree of influence in the way these tasks with a general interest and therewith a public character are carried out by a private organisation.
In Dutch law organisations with a mixed character, such as in France le societe deconomie mixte, are not developed. And apart from the public organisations governed by legislation prescribed in the Constitution, general rules on organisations with a public law character are underdeveloped. Of course there are a lot of so-called independent administrative bodies (zelfstandige bestuursorganen) more or les comparable with administrative agencies. But when we privatisation is at stake the form can only be a legal body according to private law.
This implies inherently a certain tension between the private form of the legal body and the more or less public content of the tasks that have te be executed.
In general this has to do with the relation between private and public law in the Dutch legal system. Departing from the viewpoint that government can use private law to execute public tasks, the important notion is developed over the last decades in both case law and legislation, that when administrative authorities do so, a mix of private and public law is applicable.
In this respect and not the least for the subject of this paper it is important that we discern between two major fields of private law. I.e contract law in general and the law governing private legal bodies.