Vested interests mar sound competition policy
Saturday, 30 June 2007
Pradeep S Mehta and V. V. Singh
GOOD intentions of the government in pushing reforms anywhere are often thwarted by vested interests. Thus any policy to be adopted for accelerating growth must concomitantly identify the opposition, their concerns and solutions.
The commencement of economic liberalisation has witnessed considerable policy changes, with increased reliance on market forces. Alongside policy changes, several developing and transition economies, including India, have adopted competition laws as a follow-up action on their market-oriented economic reforms. In addition, most of these countries have adopted regulatory laws in several sectors, opened up for private players, which were hitherto reserved for public sector only. This upsurge of interest in competition and regulatory laws in developing economies reflects the substantial changes that have been taking place in their economic governance system.
Existing evidence suggests that the dimensions of governance that matter are the government's commitment to growth as a political objective and overall political climate in a country. An environment to this effect is created by sustained political leadership and what matters everywhere is how the political arrangements underpin the process. In developing countries, adoption and implementation of competition and regulatory laws is politically charged, as its objective is to constrain concentrated political and economic power while helping the more diffuse interests of ordinary, often poor, consumers and producers.
It would not be wrong to say that economic vested interests, which dominate political power, limit economic growth by curtailing economic opportunities which help in poverty reduction in developing countries. Competition benefits are often directed to well connected and entrenched. For example, the competition law in Mauritius states that anti-competitive agreements can be exempted from the provisions of the law, if the minister is satisfied that such agreements are beneficial to consumers. In Thailand, competition law has allegedly had very limited impact due to the unholy nexus between politicians and businessmen, and cronyism.
Competition policy is part of an investment climate aimed at improving economic growth and thereby helping poor. Competition policy should be more than a technical intervention in markets when competition challenges vested interests. As Joseph Stiglitz has observed: "Strong Competition Policy is not just a luxury to be enjoyed by rich countries, but a real necessity for those striving to create democratic market economies." An effective competition policy requires determination and administrative capacity to tackle at least some vested interests.
Competition policy must align with those political forces for change through economic growth while supporting the political stability on which sustainable growth dynamics depend. The political governance approach to competition policy suggests that competition policy must be judged not by economic efficiency gains alone, but by the greater aim of breaking the monopolies of economic and political power that currently prevent poverty reduction in developing countries.
This pursuit of political equity and fairness, as well as economic efficiency, requires that competition policy must build a culture of competition by gradually confronting vested interests that are sufficiently politically, as well as economically, significant. Here it can be suggested that competition authorities should focus on cases with strong vested interest element so as to build the credibility of the agency, rather than focus on economic impacts. Competition policy is, therefore, much more than a technocratic tool for achieving economic efficiency gains.
The 2005 Commission for Africa suggests that it is governments that "make markets and competition work". Governments can introduce competition principles into their own commercial activity. Some aspects of this do not depend on competition law. Competition policy may also emerge as a self-enforcing political bargain from repeated political interaction between consumers and producers based on a political settlement for economic growth.
Effective competition policy must be rooted in a local political context of the social contract between the people and the State that will shape the level playing field of fair competition. International experts may too often be overly keen to promote new laws as solutions but if developing countries are adopting competition law and policy, it is essential for them to understand the differences of history, legal tradition and ideology of state-market relations and the detailed cultural challenges. Developing countries' context is different from that of the developed countries and therefore customisation of regulatory endowment is necessary. Adopting OECD or US-style governance structures are being questioned in developing countries.
Competition policy in developing countries should be judged explicitly against its contribution to tackling the dominance of vested interests, for better growth and poverty reduction outcomes and for this a vibrant civil society and an active public interest law practice are crucial for building an effective political climate for reform. The adoption of competition policy can help create a culture of competition. Civil society demand can help, through consumer organisations, undertaking competition advocacy on behalf of the poor and vulnerable, suggested Max Everest-Phillips in a paper for a CUTS (based in Jaipur, India) research project on the political economy of regulatory regimes in the developing world.
It was concluded that political will and consumer advocacy are extremely important for the success of competition and regulation regimes in developing countries. The new challenge for fair competition is on how to make governments around the world more capable, more accountable and more responsible to deliver growth and welfare in a fair manner to common people. Therefore, the success of implementing competition law in most developing economies will depend upon how the gains are distributed, rather than on growth per se.
Moreover, regulatory authorities may not be able to do much in situations that call for change in government policy/rules. In such a politico-economic system, it becomes difficult for the competition and regulatory authorities to follow the objective of promoting efficient markets. Thus, developing countries have to align competition policy outcomes and incentives for politicians, so that adoption of competition/regulatory law gets political buy-in.
GOOD intentions of the government in pushing reforms anywhere are often thwarted by vested interests. Thus any policy to be adopted for accelerating growth must concomitantly identify the opposition, their concerns and solutions.
The commencement of economic liberalisation has witnessed considerable policy changes, with increased reliance on market forces. Alongside policy changes, several developing and transition economies, including India, have adopted competition laws as a follow-up action on their market-oriented economic reforms. In addition, most of these countries have adopted regulatory laws in several sectors, opened up for private players, which were hitherto reserved for public sector only. This upsurge of interest in competition and regulatory laws in developing economies reflects the substantial changes that have been taking place in their economic governance system.
Existing evidence suggests that the dimensions of governance that matter are the government's commitment to growth as a political objective and overall political climate in a country. An environment to this effect is created by sustained political leadership and what matters everywhere is how the political arrangements underpin the process. In developing countries, adoption and implementation of competition and regulatory laws is politically charged, as its objective is to constrain concentrated political and economic power while helping the more diffuse interests of ordinary, often poor, consumers and producers.
It would not be wrong to say that economic vested interests, which dominate political power, limit economic growth by curtailing economic opportunities which help in poverty reduction in developing countries. Competition benefits are often directed to well connected and entrenched. For example, the competition law in Mauritius states that anti-competitive agreements can be exempted from the provisions of the law, if the minister is satisfied that such agreements are beneficial to consumers. In Thailand, competition law has allegedly had very limited impact due to the unholy nexus between politicians and businessmen, and cronyism.
Competition policy is part of an investment climate aimed at improving economic growth and thereby helping poor. Competition policy should be more than a technical intervention in markets when competition challenges vested interests. As Joseph Stiglitz has observed: "Strong Competition Policy is not just a luxury to be enjoyed by rich countries, but a real necessity for those striving to create democratic market economies." An effective competition policy requires determination and administrative capacity to tackle at least some vested interests.
Competition policy must align with those political forces for change through economic growth while supporting the political stability on which sustainable growth dynamics depend. The political governance approach to competition policy suggests that competition policy must be judged not by economic efficiency gains alone, but by the greater aim of breaking the monopolies of economic and political power that currently prevent poverty reduction in developing countries.
This pursuit of political equity and fairness, as well as economic efficiency, requires that competition policy must build a culture of competition by gradually confronting vested interests that are sufficiently politically, as well as economically, significant. Here it can be suggested that competition authorities should focus on cases with strong vested interest element so as to build the credibility of the agency, rather than focus on economic impacts. Competition policy is, therefore, much more than a technocratic tool for achieving economic efficiency gains.
The 2005 Commission for Africa suggests that it is governments that "make markets and competition work". Governments can introduce competition principles into their own commercial activity. Some aspects of this do not depend on competition law. Competition policy may also emerge as a self-enforcing political bargain from repeated political interaction between consumers and producers based on a political settlement for economic growth.
Effective competition policy must be rooted in a local political context of the social contract between the people and the State that will shape the level playing field of fair competition. International experts may too often be overly keen to promote new laws as solutions but if developing countries are adopting competition law and policy, it is essential for them to understand the differences of history, legal tradition and ideology of state-market relations and the detailed cultural challenges. Developing countries' context is different from that of the developed countries and therefore customisation of regulatory endowment is necessary. Adopting OECD or US-style governance structures are being questioned in developing countries.
Competition policy in developing countries should be judged explicitly against its contribution to tackling the dominance of vested interests, for better growth and poverty reduction outcomes and for this a vibrant civil society and an active public interest law practice are crucial for building an effective political climate for reform. The adoption of competition policy can help create a culture of competition. Civil society demand can help, through consumer organisations, undertaking competition advocacy on behalf of the poor and vulnerable, suggested Max Everest-Phillips in a paper for a CUTS (based in Jaipur, India) research project on the political economy of regulatory regimes in the developing world.
It was concluded that political will and consumer advocacy are extremely important for the success of competition and regulation regimes in developing countries. The new challenge for fair competition is on how to make governments around the world more capable, more accountable and more responsible to deliver growth and welfare in a fair manner to common people. Therefore, the success of implementing competition law in most developing economies will depend upon how the gains are distributed, rather than on growth per se.
Moreover, regulatory authorities may not be able to do much in situations that call for change in government policy/rules. In such a politico-economic system, it becomes difficult for the competition and regulatory authorities to follow the objective of promoting efficient markets. Thus, developing countries have to align competition policy outcomes and incentives for politicians, so that adoption of competition/regulatory law gets political buy-in.