Vested interests mar sound competition policy

The Financial Express, May 27, 2007

Political will and consumer advocacy are important for success of competition regime, say Pradeep S. Mehta

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.

In India, the Planning Commission has been advised on a National Competition policy for inclusion in the Approach Paper to the 11th five-year plan by a working group. This has recommended several progressive measures to promote competition through policy responses. They include a competition assessment of all policies and laws; competitive neutrality — providing a level playing field to private enterprises when they are competing with public sector, etc. It does not include any concrete recommendation to identify the opposition to any measure and how to deal with it.

Dealing with opposing interests would depend largely upon the political climate. This needs to be buttressed by the government’s commitment to growth as a political objective, which exists. However, growth on its own cannot lead to equity. The Prime Minister has acknowledged this recently by expressing some concern on crony capitalism—a few firms leading to an oligopolistic situation. How will the government deal with them over time, will depend upon how the political arrangements underpin the process.

In developing countries, including India, 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 diffused interests of ordinary, often poor, consumers and producers. Generally, economic vested interests, which dominate political power, limit economic growth by curtailing economic opportunities which help in poverty reduction. Benefits of competition only reach the well-connected and entrenched parties, rather than the deserving ones.

Commencement of economic liberalisation has witnessed considerable policy changes, with increased reliance on market forces. Alongside policy changes, several developing and transition economies have adopted competition laws, including India, as a follow up to 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 the 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.

Competition policy is part of this governance system to improve the investment climate, which aims at improving growth and thereby help the whole economy. 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 curbing the dominance of economic and political power that currently dominates the landscape.

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. 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 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 policy, it is essential for them to understand the differences of history, legal tradition and ideology of state-market relations and the associated cultural challenges.

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 assist this, through consumer organisations, by undertaking competition advocacy on behalf of the disadvantaged, suggests DFID, UK’s governance adviser, Max Everest-Phillips in a CUTS’ research study on the Political Economy of Regulatory Regimes in the Developing world.

One thing which is quite evident is 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 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.

—(With inputs from Dr V V Singh)

This article can also be viewed at: