A bi-monthly, internationally circulated e-newsletter of the CUTS-Centre for International Trade, Economics & Environment (CUTS-CITEE), which has been designed to disseminate information about the “7 UP Project”, in addition to reporting interesting newsitems, which have been reported across the globe on competition and other related issues.
The 7-Up Project is a 2 year research and advocacy programme being conducted by the Centre with the support of DFID, UK for a comparative study of competition regimes of seven developing countries of the Commonwealth.
EDITOR’s NOTE
The 7-Up project has now completed its first phase. The first phase culmination meeting was held in Goa, India on 7th & 8th September. The last two months of the first phase of the project have been rather hectic. The country researchers were busy revising their reports on the basis of the comments received from the National Reference Group (NRG) meetings of each of these countries as well as from the core researcher of the project. Coordinating these activities and preparing for the culmination meeting involved major engagements in terms of management of the project.
Meanwhile, the global computer industry was getting ready for finalisation of the largest merger in its history. Unless there are regulatory hitches, Hewlett-Packard (HP) and Compaq will form the second largest computer company in the world. With combined revenue of around $87.5bn, it will be just behind IBM and way ahead of the $33bn Dell. In recent years, computer hardware industry has experienced slowing down of demand and as a consequence, a brutal price war. Both HP and Compaq have a great past but a worrying present. Thus consolidation seems to be inevitable. The question arises: What will be the fallout in the market? What does it mean for the consumer? If some industry-watchers are to be believed, the cutthroat computer price war may soon get tougher.
So the consumers can expect further cuts in computer prices in future. But for how long? The same industry-watchers also believe that there is going to be shake out in the industry, leaving only the Global Big Two. What next! Will the Global Big Two continue to fight each other or will it be the end of price war, setting a classic example of “competition kills competition”? Only the future can tell!
Happy reading!
7-Up Team, CUTS
I. PROJECT PROGRESS
The months of July and August were the last two months of Phase- I of the 7-Up Project, as it is popularly known. The project entitled “Comparative Study of Competition Regimes in Select Developing Countries of the Commonwealth” is being implemented by CUTS, Jaipur with the support of DFID, UK. The countries selected for the study are India, Pakistan, Sri Lanka, Kenya, South Africa, Tanzania and Zambia.
The Project has just stepped into its second phase and the following is a brief report of its progress during the months of July and August 2001.
1.Draft Phase-I Report
In the third quarter of Phase-I of the Project, the partners and the researchers prepared Phase-I country reports based on the field survey done by them. The field survey was based on a comprehensive questionnaire addressed to the competition authority of their country.
During the period under review, the Phase-I Country Reports were sent to Prof. Rakesh Basant, the core researcher of the Project, who compiled and collated them and prepared the Draft Phase-I Report. This synthesis report pools together the analysis/information contained in the seven phase-I country reports. The aim of this report is to gain insights into the capability of the existing institutional framework for the enforcement of competition regime and the links between economic development and competition policy. In order to do that it focuses on two questions:
- How the structural and policy differences affect competition policy requirements?
- Given these requirements, what are the emerging substantive and administrative needs of competition law?
The rest of the paper is divided into six sections. The next section summarises the socio-economic profile of the 7-Up countries to provide a developmental context to the subsequent discussions. The public policies adopted in the project countries are discussed in Section 3. Given the development needs and public policies, Section 4 attempts a broad-brush evaluation of competition policy related requirements in the project countries. Some inadequacies relating to the scope of competition law are summarized in Section 5. Issues relating to capabilities of the competition authority and the associated administrative framework are discussed in Section 6. The final section makes some brief concluding observations.
2.Phase-I culmination meeting
As the first phase of the project has come to an end now, the culmination meeting of this phase was held in Goa, India on 7-8th September. The purpose of the meeting was to take stock of Phase-I and chalk out a plan of action for Phase II. The meeting involved:
- sharing learnings from the phase-I country report of each project country;
- discussion on the compiled and comparative analysis of all these reports;
- lowlights & highlights of the Phase-I; and
- brainstorming on shaping Phase-II
International experts from various organisations such as the UNCTAD, WTO, OECD, European Commission, World Bank, Consumers International, International Development Research Centre also participated as resource persons, besides partners and researchers, to take stock of the progress of the project and share their experiences about the subject.
II VIEWPOINT: COMPETING OVER COMPETITION
Strong competition policy is a real necessity for those striving to create democratic market economies, says Joseph Stiglitz
Finally, Europe is taking competition seriously, as the decision to block the merger of General Electric and Honeywell demonstrates. Competition is the basis of a dynamic market economy. Yet, as Adam Smith recognised, firms inevitably seek to restrict it: more profits can be made by creating a monopoly rather than through better products. The Microsoft case in America brought home both the variety of abusive practices and the chilling effect anti-competitive behaviour can have on innovation. So government must “set the rules of the game” to maintain a fair playing field, and vibrant competition.
Europe’s commitment to competition comes none too soon. After a new era of vigorous anti-trust enforcement under the Clinton administration, the Bush administration seems to be backing off from that line. At the same time, conservative members of the US federal courts, many appointed during the Reagan era, are increasingly restricting the government’s power to oversee and curtail predatory business practices.
The Clinton era anti-trust team exposed and successfully prosecuted some major price fixing conspiracies that reached across international borders and cost global consumers billions of dollars. They attacked, for example, predatory pricing by airlines, in which established airlines drove out low cost carriers not only by cutting fares, but by adding substantial capacity – at great losses; but once the low cost carriers were driven out, the big airlines raised prices and cut back on service once again.
The recent spat between the United States and Europe concerning the Honeywell and GE merger brings home several points. Most importantly, it shows the virtues of strong competition in competition policy. For, Europe’s competition authorities picked up the ball that the Bush administration had fumbled badly.
America’s secretary of the treasury, perhaps the senior economic official in the world’s largest economy, is often seen as the semi-official spokesperson for global capitalism. In his old capacity as boss of Alcoa, treasury secretary Paul O’Neill did what any good captain in industry would do when faced with falling prices; he turned to government for a hidden bail-out in the form of a global aluminium cartel. Today his government public relations people, indeed, tout that cartel as one of his great successes.
What is good for Alcoa, however, is not necessarily good for America or the world. Higher aluminium prices were passed on in the price of every coke and beer can and every new airplane. So what makes for good profits – creating global monopolies – does not make for good public policy. Now the Bush administration is seeking to create a similar cartel in steel. While Secretary O’Neill may preach that the problems of the world arise not from too much but from too little of market economy, trying to create a new global cartel in steel only makes sense for big steel businesses. It will earn him kudos from those quarters, but hardly earns him credentials for speaking about what truly makes a market economy work.
It certainly does not give him the right to say that the European Union’s recent decision blocking the merger of Honeywell and General Electric was “off the wall”. The suggestion that the EU’s decision somehow intruded on American sovereignty was another demonstration of the extent to which corporate interests have grabbed the economic agenda.
Every government has the right – indeed, the obligation – to ensure that there is competition within their borders. The European Union was simply doing what it should do, following well established procedures. The fact that it did not let corporate influences dominate its decision is testimony to the leadership and integrity of Mario Monti and Romano Prodi and the integrity and commitment to competition in Europe.
A century ago America created its competition laws because of the concern that monopoly interests would seek to dominate markets by “capturing” government. The ready profits from monopoly can buy influence in high places, if not through bribes, then through big campaign contributions. This is why those injured by monopoly were given, under America’s early anti-trust laws, the right to sue, receiving treble damages if victorious. It was an early piece of legislation directly empowering people, and reflected a healthy, and deserved, scepticism about the ability of government to address these concerns. Today, with globalisation, we have another check: independent competition authorities check each other.
One of the most important roles for government is creating the “rules of the game” which enable a market economy to work. Among the most important rules of the game are those about competition. Nowadays, what typically tries to pass as a “free market economy” is a corporatist economy in which government uses its powers to advance the interests of business, often at the expense of consumers.
Many developing and transition economies, indeed, were told: open up your economy to international trade and that will suffice to ensure competition. That advice was misguided. Trade liberalisation with monopoly importers only served to transfer some government revenues into the pockets of the monopolists. In Russia, Secretary O’Neill’s international aluminium cartel resulted in a blood bath as rival groups fought over who got the monopoly profits, and out of that turmoil a single monopolist emerged. Monopoly interests have bought and corrupted governments throughout the world.
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.
(The author, professor of economics at Columbia University, was formerly Chairman of the Council of Economic Advisers to President Clinton, and Chief Economist and Senior Vice President of the World Bank; The Economic Times, 28.08.01)
III PUBLICATIONS
1.ReguLetter
It is a quarterly newsletter of the CUTS Centre for International Trade, Economics & Environment covering developments relating to competition policy and economic regulations. The purpose of this newsletter is to provide a forum to understand the issues clearly and promote a healthy competition culture in the world. The fourth edition (NO. 4 September 2001) contains an article on the Zambian Competition Law, an article on “Why a Multilateral Competition Policy” and some interesting newsitems like EC becoming tough on cartels, compulsory licensing in drugs, price caps on electricity, etc. (Annual Subscription $15/Rs. 50)
2.State of the Indian Consumer
It is a study that was taken up by CUTS with financial assistance from the Ministry of Consumer Affairs, Food & Public Distribution, Government of India, to assess the situation of the Indian consumers in light of the United Nations Guidelines on Consumer Protection after about one and a half decades of its adoption. While making the actual assessment, the study has considered the eight consumer rights that have been derived from the Guidelines and included in the Consumer Charter adopted by Consumers International as the reference points. It has surveyed the existi ng legal provisions and policies of the Government in ensuring those rights and then analysed the implementation of those provisions and policies in India.
This is the first time that the implementation of the UN guidelines has been examined in India. The study will help other countries, particularly in the developing world to shape a comprehensive consumer protection regime. (ISBN: 81-87222-21-2; $25/Rs. 200)
CONTACT US
CUTS Centre For International Trade, Economics & Environment (CITEE)
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Email: cuts@cuts.org