Competition Law and Policy, the Millennium Development Goals and Poverty Allieviation in Economies i

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Competition Law and Policy, the Millennium
Development Goals and Poverty Allieviation in
Economies in Transition

• Simon J. Evenett, www.evenett.com

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Contents of this presentation

• A brief account of two major objectives of
  development policy poverty alleviation and the
  Millennium Development Goals (MDGs) and
  associated targets.
• Characteristics of transition economies that are
  particularly relevant for competition law and
  policy.
• The impact of competition law and policy on
  poverty alleviation and the MDGs in transition
  economies.
• Concluding remarks and policy recommendations.

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Development goals

• Simon J. Evenett, www.evenett.com

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Development goals

• In addition to better economic performance, which
  includes the more efficient allocations of
  societal resources, national policymakers and
  international development bodies stress the
  importance of
• alleviating poverty.
• attaining the Millennium Development Goals by
  2015.
• Competition law and its enforcement can affect
  the latter two objectives, as will be explained
  later.
• Whether competition law should solely target
  poverty and the MDGs is, however, another matter.
• Next we define what these social objectives are.

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Poverty alleviation

• Goal to reduce, and ultimately to eliminate, the
  number of persons living below a certain
  threshold standard of living, often specified in
  terms of a stated income per capita per day.
• Two widely used poverty lines are income levels
  of one and two U.S. dollars per day.
• What matters is not just the income level but
  also what goods and services that income buys,
  and as we shall see this is one way in which
  competition law can influence poverty levels.

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Millennium Development Goals (MDGs)

• Endorsed by Heads of States at the UN in the
  Millennium Declaration in September 2000.
• 8 Goals, 18 Targets, and gt40 Indicators.
• MDGs tend to be ends not meansso MDGs themselves
  dont tell nations what should be done.
• MDGs are not legally bindingyet are very
  influential in guiding national and international
  policymaking.
• MDGs prominence creates non-economic objectives
  for competition law and policy.
• Contrasts with sole focus on promoting efficiency
  or consumer welfare.

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What are the 8 MDGs?

• Eradicate extreme poverty and hunger.
• Achieve universal primary education.
• Promote gender equality and empower women.
• Reduce child mortality.
• Improve maternal health.
• Combat HIV/AIDS, malaria, and other diseases.
• Ensure environmental sustainability.
• Develop a global partnership for development.
• No one claims they cover every aspect of
  developmente.g. economic growth.

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Characteristics of transition economies that are
particularly relevant for competition law and
policy

• Simon J. Evenett, www.evenett.com

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The legacy of pervasive state intervention and
competition law

• Many economies of transition have the following
  features, which have important implications for
  the design and enforcement of competition law
• Rushed privatisations and de-monopolisationyet
  often strong links are retained between firms and
  government ministries (or other regulators).
• Poorly thought through deregulation.
• A legacy of cooperation between producers, not
  competition.
• Large concessions made to foreign investors.
• Limited private sector development.
• Undemanding consumers and buyers.

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Firms avoiding competition Russian experience.

• From a 2005 Russian document presented at the
  OECD
• In some core Russian industriesthe market can
  be characterised as a tight oligopoly with high
  concentration ratiosThe concerted behaviour of
  these companies is facilitated by extensive
  information exchange between the major actors in
  the course of numerous seminars, experience
  exchange workshops and other similar events.
  These meetings are rooted in the Soviet tradition
  of periodic seminars and meetings betweens
  representatives of enterprises of the same
  industry formerly governed by the same
  ministryCombined with detailed knowledge of the
  demand side of the market, it provides them with
  the possibility of cartel behaviour without
  explicit agreements

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The legacy of pervasive state intervention the
consequences

• This legacy has the following adverse
  consequences for customers
• Limited choice.
• High prices.
• Poor quality and customer service.
• Slow rates of innovation.
• Firms feel less pressure to competeand sometimes
  government ministries feel protective of the
  producers they used to control directly.
• In sum, a weak culture of competition prevails.

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Implications for competition law and enforcement

• A full set of powers is required by the
  competition agency, including
• anti-cartel measures (for when take steps not to
  compete),
• merger review (to assess the pace of corporate
  restructuring),
• abuse of dominance measures (to tackle entrenched
  incumbents who, amongst others, frustrate new
  entrants),
• competition advocacy
• to impress on government the benefits of proper
  privatisation, concession awards, de-regulation,
  and de-monopolisation.
• to impress upon customers their rights and align
  expectations with that of a market economy.

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Steps taken by the Romanian Competition Council
to promote a competition culture

• Engage with the mass mediathrough magazines,
  newspapers, the Councils annual report, press
  releases.
• Organise seminars and conferences to promote
  competition policy.
• Cooperate with regulators during the process of
  privatisation and deregulation.
• Undertake consultancy with experts.
• Adopting a policy of setting fines that
  discourages violations of the competition law.
• Source Romanian paper circulated at the OECD
  (2003).

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Implications for competition law and enforcement

• Competition agencies have a full agendaand
  should expect to deal regularly with government,
  firms, and consumers.
• Critical importance of the funding and
  independence of the competition agencywithout
  them, there are serious limits on what the
  competition agency can achieve.
• Successful agencies should expect to come under
  considerable political and corporate pressure.
• Important to establish links with sympathetic
  parties in civil society (perhaps consumer
  organisations and newspapers), in government, and
  in international development agencies.

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How competition law influences poverty
alleviation and the MDGs

• Simon J. Evenett, www.evenett.com

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Identifying the impact of competition law and
enforcement

• Actions by a competition agency can help in the
  fight against poverty and in attaining the MDGs,
  but often do so indirectly through their effect
  on markets.
• That is, competition agencies can take steps that
  make the operation of markets work for the
  benefit of the poor.
• Some argue that greater competition between firms
  enhances economic growth, so taken together then
  competition agencies can stimulate pro-poor
  growth.
• Through competition advocacy competition agencies
  can influence the decisions taken by governments,
  but again the influence is indirectnamely
  influencing the decisions of another party.
• Competition law is no less powerful because it
  operates indirectly.

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Pro-development effects of competition law on
markets four prevalent examples
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Bid-rigging on School Building Contracts in
Fuijan Province, China

• A primary school building project was put out to
  a second tender.
• Acheiving universal primary education is an MDG.
• 10 construction firms qualified to bidbut
  colluded instead.
• Losing bidders agreed to be compensated by
  winning firm.
• Raised the cost per square metre from RMB296 to
  RMB 324, or by 9.5 percent.
• After an investigation the successful bid was
  invalidated.
• Source China (2001), page 9.

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Concluding Remarks Implications for competition
law and enforcement in transition economies

• Simon J. Evenett, www.evenett.com

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Recommendations

• To contribute to fighting poverty and to
  alleviating the MDGs competition agencies have to
  take on a full agenda and require a broad set of
  powers.
• Critical importance of the funding and
  independence of the competition agencywithout
  them, there are serious limits on what the
  competition agency can achieve.
• Successful agencies should expect to come under
  considerable political and corporate pressure.
• It is important for the competition agency to
  establish links with sympathetic parties in civil
  society, in government, and abroad (other
  competition agencies, international development
  agencies, etc.)