The social impact, limits and downside risks of enacting a competition law and policy

within a society

Hanoi, 23-24 April 2004Dr. Patrick Krauskopf, Vice-Director, Swiss Competition

Commission

Dr. Pascal Raess, Swiss Competition Commission

Structure of Presentation

1. Competition Law & Policy

2. Legal / Economic / Social / Cultural Frameworks

3. Social Impact

4. Limits & Downside Risks

5. Conclusion

1. Competition Law & Policy

• Competition law encompasses– Horizontal agreements– Vertical restrictions– Abuse of dominance– Merger control

Competition Policy

• … is much broader than competition law:– Deregulation– Privatisation– State-aids and subsidies– Trade policy– Investment policy

Consistency problem

2. Environment for competition Law & Policy

• Legal framework

• Economic framework

• Social framework

• Cultural framework

Legal Framework

• Private property

• Contract law

• Transparent procedure rules

• Intellectual property rights (IPR)

• Etc.

Economic framework

• Markets should be opened to competition (privatisation, deregulation)

• Private sector / public sector distortions should be removed

• Subsidies / State-aids should be carefully analysed

• National preference

Social framework

• Labour mobility

• Unemployment « insurance »

• Regional policy

• Education

• Health

Cultural framework

• Profit as driving economic force

• Entrepreneurship

• Legal and economic training of the relevant Government bodies / enforcement agencies

• Civil society awareness (consumers, businesses, etc.) Competition culture

3. Social Impact (I)

• Unemployment decreases in the long run (although it might increase in the short run)

• Costly transition period (structural change)

• Sectoral prices might decrease (improved competition, increased productivity)

Social Impact (II)

• Internal migration (e.g. rural urban)

• Redistribution of wealth (e.g. via privatisation)

• Environmental policy (e.g. pollution, externalities on health)

• Land use policy

4. Limits & Downside risks (I)

• Potential contradictions with industrial policy (e.g. building « national champions »)

• Potential waste of comparative advantages with nations without Competition law (attracting FDIs becomes more difficult)

• Advocates of « one shot » introduction of new competition law vs. « phased » introduction of new competition law (i.e. merger control and abuse of dominance in a second phase)

Limits & Downside risks (II)

• « Unrealistic » business expectations: Competition law aims at protecting competition (not companies, notably SMEs)

• « Unrealistic » Consumer expectations (« Deflation », sharp rise in purchasing power)

• Institutional design of authorities responsible for competition law and policy enforcement (trans-parency, accountability, independence)

Limits & Downside risks (III)

• Lack of training & experience of new competition authority

• Scope of competition law is too limited

• Application of « Per se » rules

5. Conclusion

• Competition law & policy is only one aspect of economic policy / Consistency with other policy goals

• The benefits more than compensate potential harms• Risks of errors are limited with a « rule of reason »

approach• Capacity building• Long term cooperation