competition policy economic policy inequality public policy

Competition policy and poverty reduction

Long version of my article published in today’s Business Day

At this year’s OECD Global Forum on Competition held in Paris recently, the main topic of discussion was the relationship between competition policy and poverty reduction. This proved to be a timely discussion, with submissions from over 20 countries and various regional organisations, including South Africa. In its recent report on South Africa’s economy, the OECD also highlighted lack of competition in product markets as a serious impediment to our country’s economic growth prospects.
Discussions of the relationship between competition law and other government policies are viewed with scepticism by those who seek to confine competition law to its most narrow interpretation. Yet, as the South African submission noted, competition policy emerges out of a particular context.
To borrow a phrase from modern political economy, the development and implementation of competition policy can be viewed as an exercise in ‘embedded autonomy’. This describes a relationship between state institutions and society whereby the state is embedded adequately in society so as to be responsive to society’s needs, but also autonomous from narrow private interests. 
This formulation can be applied to the experience of competition authorities, as they seek to contribute to the resolution of society’s most pressing challenges, such as poverty, whilst taking care not to be overladen with policy goals beyond what is achievable in the realm of competition policy. Embedded autonomy also implies that competition authorities construct their enforcement and advocacy agenda in alignment with society’s priorities; doing so in a transparent, rigorous and impartial manner.
Poverty in South Africa continues to be marked by race, gender and geography; with black, female-headed and rural households experiencing the highest rates of poverty and economic vulnerability. The labour market is also not integrating young people effectively, thus increasing rates of youth unemployment. To develop the capabilities required to transcend poverty, access to opportunity is key.
Sustainable poverty reduction depends on generating wage-earning opportunities in the economy. Competition policy, to the extent that it challenges economic exclusion, lack of innovation and lack of rivalry can play an important role in placing the economy on a higher growth and development trajectory.
Lack of competition in product markets for essential goods and services is arguably more harmful for poorer households than for higher income households. Poor households spend a higher proportion of expenditure on essential goods and services.
The stated purpose of the South African competition law encompasses orthodox concerns related to efficiency, prices and choice. The statute also articulates the purpose of the Competition Act as promoting competition in order to realise goals related to employment creation and retention, equitable participation in the economy by small and medium-sized enterprises, a broader and more racially diverse spread of ownership and international competitiveness. 
These elements of the legislation ultimately relate to the government’s economic, development and social policies. Specific provisions dealing with the assessment of mergers and exemptions include public interest considerations related to socio-economic development and international competitiveness.
The Competition Commission’s enforcement and advocacy activities are guided by a Prioritisation Framework, which represents the organisation’s over-arching strategy. This Framework, adopted in 2008, and soon to be updated, directs the Commission to intervene in sectors of the economy that have a significant impact on low income consumers and that determine the enabling environment for business and economic development. The framework is located within the context of the policy focus on labour-absorbing growth to address the high unemployment and poverty levels in South Africa.
Current priority sectors for enforcement and advocacy are namely; food and agro-processing; infrastructure and construction; intermediate industrial products and energy; construction services; and banking.
Proactive measures taken by the Commission in priority sectors include reviewing available information and evidence on potential anti-competitive conduct and screening various markets for signs of potential anti-competitive outcomes. This has assisted the Commission in initiating and in some instances concluding investigations in key consumer and input markets such as poultry, bread, wheat and milling, animal feed, steel, polymers, fertiliser, cement, concrete pipes and bricks. It also resulted in an increase in the number of abuse of dominance investigations.

By focusing its energies on identified priority sectors selected on the basis of criteria that include impact on poor households (and industrial development with implications for employment), the Commission has been able to optimise on its resources whilst also contributing towards poverty reduction.

However, the transition from a highly concentrated economy to a more competitive one creates winners and losers. Entry by new domestic players or multinationals disrupts supply chains and displaces old modes of production. These dynamics may benefit the poor as consumers, through lower prices, but there are instances where, at least in the short term, intensified competition seems to displace the poor.
The competition authorities have dealt with these concerns through conditions limiting employment losses and other remedies, such as the establishment of supplier development mechanisms.
The extent to which the South African competition authorities can interpret their mandate and legislation in favour of poverty reduction remains a matter of contestation. What is clear is that effectiveness of competition policy as an instrument for inclusive, employment-generating growth depends on effective policies in areas such as access to finance, training, research and development to eliminate other constraints to employment creation.

Trudi Makhaya is the Divisional Manager for Advocacy and Stakeholder Relations at the Competition Commission.

Leave a Reply

Your email address will not be published. Required fields are marked *