barriers to entry competition enterprise development public policy Vision 2030

Competition policy, the South African economy and entrepreneurship

David Goldblatt
Braiding hair on Bree Street, Johannesburg, 2002
Digital Prints on 100% cotton rag paper

Edition of 6

 In this week’s Mail and Guardian, two senior economists from the Competition Commission of South Africa (Simon Roberts and Trudi Makhaya) write about the role of competition policy in promoting an environment conducive to new entry and business growth in the economy. Below are some extracts though it would be far more enlightening to read the full article:

Vision 2030, the plan released by the National Planning Commission, presents a vision of a South Africa in which mass entrepreneurship is possible…
For the plan to succeed it implies a positive understanding of competition as the ability to enter and compete effectively, where effort and creativity is rewarded rather than an inherited incumbency…
A strong emphasis on promoting competition is important in South Africa because of the stifling nature of old networks…
Although these networks may have lost the type of access they had to the state, recent competition cases have shown that they are able to continue to control private activity. Multilayer cartels have been uncovered in concrete pipes, cement, reinforcing steel, scrap metals, flour and bread.

What is often not recognised is that for cartels to be sustained they must not just agree among themselves, but must also keep out new entrants attracted by the high profits. So, not only are consumers harmed by the ­collusive prices, but so is opportunity. Dynamism is harmed in another way as managers who guaranteed their market share through collusive arrangements enjoy the “quiet life” rather than worrying about quality and service…

The orientation to protecting their position through erecting defences to potential rivals has been characterised as “handicap competition”, seeking strategies to disadvantage and undermine other firms outside the club through devious schemes, as compared with “performance competition” where managers commit themselves to winning in the marketplace through the legitimate pursuit of productivity and efficiency…

Given our status quo, not facing up to the tension between the interests of entrants and incumbents is in effect a decision to support the existing networks, albeit with some new members likely buying into them.

The Latin American experience may be instructive where the development of competition law was hostage to the region’s economic history. As these economies were largely dependent on extractive industries and agriculture, elites were indifferent to the value of competition in the economy.It has only been through globalisation and concerns over inequality that competition law has gained traction in recent times.

We believe that in South Africa it is necessary to take a positive stand on future competition through widening participation and increased diversity as guiding principles. This is consistent with supporting entrepreneurship and creativity whereby different ideas and approaches are introduced to the marketplace and tested.”

Trudi Makhaya and Simon Roberts are economists at the Competition Commission. They write in their personal capacity

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