Over the past few months, calls have made for the Competition Commission to investigate government’s financial policies towards state-owned entities (SAA and the African Exploration Mining and Finance Corporation). In a piece published today in Business Report, I distinguish between what the competition authorities can achieve in their prosecution role (investigate and prosecute anti-competitive behaviour) versus issues that go beyond that into the realm of competition policy as practised by government in general. A longer version of the article follows below:
South Africa’s gradual shedding of the legacy of a highly concentrated, racially exclusive and calcified apartheid economy is aided by the enforcement powers of the competition authorities. The cases that the Competition Commission has brought before the Competition Tribunal have not only exposed and penalised prohibited anti-competitive behaviour by firms, they have also introduced an awareness of the role of competition as the driving force of a market economy.
Over the past decade or so, the competition authorities have scored well publicised triumphs such as the prosecution of the cartels in the bread value chain. The authorities have also taken on anti-competitive behaviour by state-owned enterprises such as SAA and Telkom. As a consequence of this enforcement record, the dominant discourse that has developed around the work of the competition authorities revolves around ‘crime and punishment’.
This discourse limits the role of competition policy to that of enforcement. Yet the scope of enforcement is bounded by two important factors. One relates to the nature of South African competition law, which reflects the context in which it was crafted. The second relates to the broad range of factors that may create impediments to competition, some of which have little do with firm behaviour and more to do with the construction of markets.
Recall that our law is the outcome of negotiations between labour, government and business at NEDLAC. What emerged is a statute that is very specific as to what constitutes anti-competitive conduct as it pertains to collusion, restrictive practises and abuse of dominance; and how such conduct is to be investigated and proved.
Competition law is agnostic as to size, market share or ownership. Being big, dominant or state-owned (and financed) matters not; what matters is how a firm actually behaves in markets capable of competition and in regulated markets where the commission has concurrent jurisdiction.
But it’s not a simple matter of the law being very prescriptive on the authorities’ mandate. There are circumstances in which competitive markets do not function optimally due to deficiencies such as natural monopoly, externalities or information asymmetries. And government actions can sometimes contradict competition goals. These are not matters that can be cured by traditional competition law enforcement tools.
In the case of natural monopoly, where it is not economically feasible for there to be more than one supplier of a good or service, regulation is required to ensure that a firm that enjoys such an advantage does not exploit its power at the expense of consumers. Where regulation is weak or incomplete, it is natural to turn to the competition authorities to restore competition. This is not the best solution because it may be the case that the monopoly in question has not contravened the law.
Even in cases where a regulated firm has contravened the law, prevention is usually better than cure. It is less damaging to the economy to regulate markets proactively to prevent competitive harm, rather than tolerating a regulatory climate that allows regulated firms to undermine competition.
Economic policy in South Africa recognises the important role that competitive forces play in keeping prices down and encouraging innovation. Nonetheless, government actions may also introduce distortions that skew the competitive landscape by creating barriers to entry in a market or bestowing advantages on a state-owned enterprise that are not enjoyed by its commercial rivals. These competition distorting actions often reflect policy decisions that are taken in pursuit of other socially desirable outcomes, such as maintaining safety standards or pursuing a universal access model that requires soft financing.
Such policy actions by the state do not fall foul of any particular provision of the competition law though they may create rules of the game that are unfair. The competition authorities do not have the mandate to prosecute these rules of the game. What they do have is insight into market dynamics and expertise that could be tapped by other government institutions to enable the pursuit of social aims in pro-competitive ways.
In this regard, the Competition Commission may not have the power to challenge a decision legally, but it has the opportunity to play the equally compelling role of advocating for competition as an important economic and social value.
Competition authorities around the world are tasked with this advocacy role as they can usually execute it in an independent manner. Success varies, depending on circumstances and resources. To cite an ambitious example, in the wake of the Eurozone crisis, the Italian competition authority reviewed major government policies and legislation, with the aim of strengthening competition. It advanced 50 recommendations for reforms covering major economic sectors, some of which were enacted into law.
By the nature of the work that they do, competition authorities catch sight of broad competition challenges that affect entire value chains and that call for remedial policy or regulation. The unintended consequences of government policy on competition also come to light. Through advocacy, competition authorities seek to advance the cause of competitive markets using non-adversarial methods. In doing so, they cannot victimise entities that have not contravened the law but happen to be beneficiaries of government policy or malfunctioning markets.
South Africa needs robust competition policy implementation, which includes pro-competitive regulation and pro-competitive state action in the economy, where appropriate. It is encouraging that the commission is increasingly being consulted by government institutions as they contemplate policies and actions that have implications for competition. In the face of systemic market imperfections, these processes of policy dialogue and reform hold the key to developing and entrenching a culture of competition.