Competition policy and development: key issues for developing countries – a briefing

This paper provides a briefing for developing countries to apprise them of the main issues which are relevant for development and social welfare in relation to the present and prospective discussions on competition policy in the WTO, UNCTAD, OECD and other fora. Although this is the immediate backdrop for an examination of competition policy in relation to economic development, the topic is urgent and important in its own right, because of important new developments in the world economy and because of significant structural changes within developing countries themselves. The main analytical conclusions for developing countries which emerge from the theoretical and empirical analysis of competition policy and economic development in this paper may be summarized as follows: 1)It is important for developing countries to have a competition policy which is designed to take appropriate account of their level of development and the long term objective of sustained economic growth. This is in part due to the potential effects of the international merger movement and also because of privatization, deregulation and liberalization which have occurred in the domestic economies of most developing countries. 2)A distinction is made in this analysis, between, on the one hand, countries at low levels of development and with meagre institutional capacity and, on the other, semi-industrial countries with greater institutional capabilities. The paper concludes that the types of competition policies adopted by the US and the UK are not appropriate for either group of developing countries. 3)If the concerns of developing countries with respect to competition policy are to be addressed seriously, this paper suggests that the concepts used in the current WTO/OECD/UNCTAD discourse on the subject need to be replaced with new concepts. Specifically, in considering competition policy from a developmental perspective, the paper reaches the following analytical conclusions: • emphasis should be placed on dynamic rather than static efficiency as the main objective of competition policy for developing countries; • there should be a concept of ‘optimal degree of competition’ (rather than of maximum competition) to promote long term growth of productivity; • there should be a related concept of ‘optimal combination of competition and co-operation’ between firms so that developing countries can achieve fast long term economic growth; • the critical need to maintain the private sector’s propensity to invest at high levels requires a steady growth of profits; for this to occur there is need for government co-ordination of investment decisions which in turn requires close co-operation between government and business; • there should be recognition of the concept of ‘simulated competition’, which involves contests among those seeking state support and which can be as powerful as real market competition; • there should be recognition of the importance for developing countries of industrial policy and hence the need for coherence between industrial and competition policies. However, the paper suggests that the concepts or principles outlined above appear ‘new’ only in relation to the current discussions on competition policy and economic development in the international agencies mentioned earlier. These concepts are fully grounded in modern economic analysis and a number of them are in fact implicit in WTO Agreements themselves but in which they have in fact been used to the advantage of developed countries. It is argued here that these same principles are also crucial for competition policy in developing countries in order to promote their economic development. For developing countries, the paper recommends they should institute domestic competition policies suited to their stage of development. The paper also recommends the establishment of an international competition authority, to prevent restrictive business practices and competition-reducing actions of large multinationals which are acquiring even greater market power as a consequence of the current huge wave of mergers and takeovers, both national and international.