DEVELOPMENT: Competition Policy May Enhance Development

By Julio Godoy Reprint | | Print |

Julio Godoy

PARIS, Feb 18 2002 (IPS) - The international enforcement of competition among private enterprises may help reduce the power of cartels which will in turn enhance the development chances of the less industrialised countries of the world, according to experts meeting in Paris.

Representatives of 61 countries and 10 international agencies came together on Feb 14-15 in the Second Global Forum on Competition and Development, made possible by the Organisation of Economic Co- operation and Development (OECD).

A study conducted by Simon J. Evenett, an economist with the World Bank, and presented at the Forum, indicates that developing countries in the year 2000 imported over eight percent of all foreign goods to the value of 81.1 billion U.S. dollars from 14 international cartels.

This sum represents 1,2 percent of the gross national product of the developing countries. According to Evenett, the breaking up of cartels may lead to falling international prices of industrial goods and thus help developing countries to increase their own purchasing power.

A cartel is a group of independent business firms covertly working together to increase profits by not competing with each other, by settling equal prices to their different products.

Evenett showed that during the 1990s, prices of international goods felt between 20 and 40 percent, after cartels were broken up following the enforcement of competition law.

However, the enforcement of competition law should be a continuous process, for firms that built broken up cartels persist in trying to control the market, “by merging, acquiring one another, or engaging in strategic alliances and joint ventures,” Evenett concludes. “Therefore, post enforcement monitoring may be needed.”

Despite this evidence, many developing countries continue to see competition policy as a undesirable measure.

At the end of the forum, Frederic Jeny, president of the Competition Council at the OECD, resuming the findings of the discussions underlined that “developing countries see competition policy as a luxury that may have negative impact for the own development perspectives”.

Jenny said that “in many countries in Africa, Asia and Latin America, competition is seeing as causing lower profits and therefore affecting the local enterprises”.

Participants to the forum said competition policy should be seen as an anti trust policy, as a means to free the market of monopolies, thus empowering consumers through lower prices and product differentiation.

Market economists define competition as “the process of rivalry among firms that leads to reward good and punish bad economic performance”.

Frederic Jeny said that “competition policy should include market liberalisation and economic deregulation leading to opening to free trade”.

But Jeny underlined too that “a competition law must be a central factor of this policy” to guarantee rivalry among firms.

Before the Second Forum on Competition and Development, the OECD demanded selected countries in Latin America, Asia and Africa to describe their present national policy situation, and to evaluate their needs on technical assistance to create or improve competition enforcement structures.

Additionally, the OECD asked how national administrations reacted to cartels, and other official forms of co-operation among private enterprises, such as mergers and so called strategical alliances.

In their answers, most countries participating in the forum recognized that their national policies define competitiveness in the local markets as a priority. At the same time, the countries acknowledged that this declaration has been rarely completely fulfilled.

Another conclusion of the forum was the need to increase formal co-operation among countries to enhance competition.

“We have learn that formal co-operation in matter of competition only takes place among some developed countries, mostly because it is a matter of confidence in each other and because it needs institutions,” Jeny said.

“Confidential information must be exchanged, on companies, policy objectives and similar factors, and this needs formal structures that most of the time still don’t exist in developing countries,” he added.

To get over this void, the Forum has planned to launch a world wide debate on institution building to define the right structure for a national competition agency and its goals.

This debate should also help to determine whether a competition agency should be a government or an independent institution.

Additionally, the forum has set as objective to research the effects of competition on smaller economies, both in legal as well as in real economic terms.

Most countries of the world can be defined as “small economies”.

This debate is important, Jeny said, because a small country doesn’t have the legal and financial capability to set up efficient competition agencies nor to fight cartels back.

This round table should present its findings on both subjects during the Third Forum on Competition and Economic Development to take place next October.

Another theme of the Third Forum will be the evaluation of the competition agency recently established in South Africa. This evaluation was asked for by the South African commissioner for competition, Menzi Simelane, present in Paris.

“We want to know whether what we’re now doing at the competition commission is right or wrong,” Simelane said to justify his requirement for evaluation.