“The Future Ain’t What it Used to Be - 20 Years of Competition Law and the Challenges Ahead”
30 September 2013
Posted by: Author: Angel Gurría (OECD)
Author: Angel Gurría (OECD)
Dear Minister, Ambassador, Ladies and Gentlemen:
It is a great pleasure to participate in this Conference to mark with you the 20th anniversary of competition law in Iceland. Our economies have changed a lot during the past twenty years. The global economy has also been transformed by information and communication technologies, new players and new sectors. Throughout all these changes, the role of competition has become more and more important as an essential input for dynamic and inclusive growth.
We are approaching the sixth year of the most severe economic crisis of our lifetimes. This crisis has exposed massive regulatory failures and flaws in our theories, frameworks, policies and systems. But it has also exposed, throughout the recovery effort, the need to strengthen the competitiveness of our economies. If you add to this the fact that more and more countries have been flirting with the temptation of protectionism, then there is no question that competition policy should be a top priority in our agendas.
The Key Role of Competition
Strong competition is an optimizer for our economies. First of all, it is the best catalyst to increase our productivity. Because a strong competition framework generates the right incentives to attract the most efficient firms into our markets. It is clear that firms and all kinds of economic actors facing more competition experience faster productivity growth. Firms facing competition also tend to be better managed. This has been confirmed in a wide variety of empirical studies.
A strong competition policy can also be a very effective tool to promote social inclusion and reduce inequalities, as it tends to open more affordable options for consumers, acting as an automatic stabilizer for prices. In my own country, Mexico, we estimate that about 30% of household spending takes place in markets with weak competition where prices are up to 40% higher than what they would be if strong competition prevailed. The poorest families are the most affected, as they spend up to 42% of their income in uncompetitive markets. The Mexican government is now promoting greater competition in key sectors, through a revamped reform of its competition law and a new telecommunications reform. These changes can have a very positive impact on the finances of the most vulnerable, helping promote more inclusive growth.
Competition is also essential to promote innovation. Firms facing competitive rivals innovate more than monopolies (although after such competition a firm may of course end up with a monopoly through a patent). Competitive mechanisms can even help deliver on other strategic objectives, like environmental or health benefits. It all depends on good design. If companies are rewarded for producing the things we value, competition between them gives them the incentive to do so still better. Equally, if markets reward bad behavior, then companies will behave badly.
Competition in Financial Markets
Nowhere is that clearer than in financial markets, and Iceland knows this very well. You experienced the harsh consequences of bankers lending without prudence or even reason. If competition had worked in the way it does in a normal industry, these risks would not have been taken in the first place. But employees of the banks took excessive risks with shareholders’ money, and banks as a whole took risks because they thought they would be bailed out by taxpayers.
The financial crisis tested many of our governance processes, particularly competition law enforcement. Bailouts and emergency mergers required competition authorities to take almost instant decisions on the legality of situations that they would otherwise consider over months (if not years) in normal times. The OECD’s Competition Committee, where Iceland is a valued member, helped them to debate and co-ordinate the way they responded to these unprecedented challenges, and to work together to understand the bigger economic picture.
This takes me to the last point of my presentation: in a globalized economy, where markets have become virtually borderless, the coordination of our competition policies becomes essential.
Competition in a Global Economy: A Need for Multilateral Coordination.
The world economy is increasingly integrated. Markets and value chains cross borders more freely than ever. So competition law enforcement needs to work seamlessly across borders too. At the OECD, through our Competition Committee, but also through other bodies and tools, we are helping countries produce legal instruments that will make it easier for competition authorities to work together, reducing costs and uncertainty for business, but also providing more effective protection for consumers and all the other beneficiaries of competition.
One area where we need to intensify our co-operation is in investigating international cartels. The globalization of business and the consequent rise in the number of cartels with international scope makes co-operation between competition authorities imperative to the success of domestic enforcement. In this area, we are facing several coordination challenges: like the need for effective mechanisms to facilitate information sharing between the investigating authorities; the need for coordinated investigative steps; and how to deal with a growing reliance on confidentiality waivers in cases of simultaneous leniency applications. The OECD is helping countries address these and other coordination issues through its Global Forum on Competition and its Policy Roundtables on Competition.
Let me conclude by highlighting the need to address one of the greatest threats to competition at a global scale: what we call Base Erosion and Profit Shifting (BEPS). In other words, the tax planning strategies that big corporations put in place to exploit gaps and mismatches in tax rules to make profits "disappear” for tax purposes. This is one of the most powerful distortions to competition, as businesses that operate cross-border may profit from tax "clever engineering” opportunities that give them a competitive advantage vis-a-vis companies that operate at the domestic level.The OECD, with the support of the G20, has been helping countries address this challenge by building an internationally coordinated approach which will facilitate and reinforce domestic actions to protect tax bases and provide comprehensive international solutions. And we are making important progress: at the last G20 Summit, leaders fully endorsed the OECD BEPS Action Plan and welcomed the establishment of the G20/OECD BEPS project.
Ladies and Gentlemen:
Competition is much more than an economic concept. It is a key value to promote human progress. This is not rocket science: competition is good for our economies because it fosters efficiency, innovation, productivity and social inclusion. Just as anti-competitive conduct promoted by powerful vested interests tilts the rules of the game in favor of a happy few, discouraging entrepreneurship and innovation and stifling growth. A functional, efficient and inclusive market economy has to have a strong competition policy and framework. Let’s help each other build these pillars.
Iceland has 20 years of accumulated experience in this field, with great achievements in areas like enforcing regulations in times of crisis, ensuring consumer protection, and investigating previously unexamined markets, like fossil fuels (to mention a few). We want to learn from you, both from your accomplishments and mistakes. And I take this opportunity, this celebration of 20 years of your competition law, to reiterate the OECD’s commitment to support Iceland in its efforts to design, promote and implement better competition policies for better lives.
Thank you very much.
This article first appeared on oecd.org