Transcript Figure 2 Per Capita GDP (constant 2000 USD in thousands) and

Linkages Between Competition
Policy, Competitiveness &
Economic Development
By
R. S. (Shyam) Khemani
Principal, MiCRA, Washington DC, and
Consultant-Advisor, Competition Policy,
Foreign Investment Advisory Services (FIAS)
The World Bank Group, Washington DC
Email contact: [email protected],
[email protected]
Presentation at CUTS & INCSOC Seminar on
“Enhancing Development Through a Competitive Culture”
August 14, 2008
New Delhi
Some Commonly Observed Industrial
Characteristics of Developing
Economies
•High levels of ownership
concentration
•‘Missing middle’ sized firms
•Conglomeration
•Lack of ‘Market for Corporate Control’
•Under-developed equity-debt markets
•Close government-business
relations/connections
•High levels of product (&financial)
market concentration
These factors tend to self re-enforce
each other.
COMPETITION CAN BE THWARTED
“The corrupt version of capitalism—when
powerful corporations deliberately try to
eliminate healthy competition to preserve
their privileged position—generates
economic inefficiencies and social injustice,
thereby undermining political support for
the free-market based system….”
(R. Rajan & L.Zingales, “The Road to Prosperity: Saving
Capitalism from Capitalists, Transition Newsletter, 2003)
Domestic Competition & International
Competitiveness
Michael Porter in The Competitive Advantage
of Nations (1990) has observed that :
“Few roles of government are more important
to the upgrading of an economy than
ensuring vigorous domestic rivalry.
Rivalry at home is not only uniquely
important to fostering innovation but
benefits national industry…..In fact,
creating a dominant domestic competitor
rarely results in international competitive
advantage. Firms that do not have to
compete at home rarely succeed abroad.
Economies of scale are best gained
through selling globally, not through
dominating the home market” (page
662).
COMPETITION NEEDS TO BE
Safeguarded and Sustained
• The ‘Competitive Process’ is not automatic.
• Competition can be distorted by public
policies and restrictive business practices.
• Public policy often manipulated by various
interest groups including private sector firms
• Entrenches anticompetitive business
practices and policies
•Discourages both domestic and foreign
investment
What Constitutes Effective
Competition Policy ?
Policies that foster inter-firm rivalry and
entry by
• “Preventing Anticompetitive
Practices.” and … “Promoting
Competition”
Calls for enactment of Competition
(Antitrust) Law to address both Private
Sector Restrictive Business Practices
& Public Policies that unnecessarily
impede competition substantially,
Requires Specialized Agencies,
Effective Policy Design and
Implementation.
Table 1
Number of Countries with Competition Laws (CL) by Regions
Africa
No of countries:
47 + 3 regional
integrations
East Asia
and
Pacific
No of
countries:
32
No of countries
with a
Competition
Law: 17
(including
regional
integrations)
CL: 13
No. of IDA
countries:
11/39
Latin
America
and
Caribbean
+North
America
No of
countries: 35
+ 2 regional
integrations
Europe
and
Central
Asia
No of
countries:
57 + 1
regional
integration
Middle
East, North
Africa
No of
countries: 21
South Asia
No of
countries: 8
CL: 19
(including
regional
No. of IDA integrations)
countries:
4/13
No. of IDA
Countries:
2/9
CL: 47
(including
regional
integration
s)
CL:7
CL: 3
No. of IDA
Countries:
0/2
No. of IDA
Countries:
3/8
No. of IDA
Countries:
8/10
Competition (Antitrust ) Law & Policy
• Distinction between Systemic vs.
Industry/Case Specific Impact.
• Removing Public Policy Restraints:
Tariffs & Non-Tariff Barriers to Trade,
Restrictions on Ownership-Investment,
and Other Such Policies  Systemic
Impact.
• Competition (Antitrust) Law--Case by
Case Application  Firm/Industry Impact.
• Complementary  Buttress Each Other.
Figure 1
Competition, Entry and Economic Growth
15
GDP growth rate
GDP per capita (USD)
40000
20000
10
5
0
-5
4
5
competition
6
7
3
4
5
competition
6
7
15
40000
GDP growth rate
GDP per capita (USD)
3
30000
10
20000
10000
5
0
0
-5
4
4.5
5
entry
5.5
6
4
4.5
5
entry
5.5
6
Source: World Economic Forum and World Bank SIMA Indicators. “Competition” is the average
response in each country to the question “In most industries, competition in the local market is (1=limited
and price-cutting is rare, 7=intense and market leadership changes over time).” “Entry” is the average
response to the question “Entry of new competitors (1=almost never occurs in the local market, 7=is
common in the local market).”
Figure 2
Per Capita GDP (constant 2000 USD in thousands) and Intensity of Competition in Local Markets
High
40
IDA Countries
Non-IDA countries
35
30
GDP Per Capita
25
20
15
10
5
Low
0
Low Intensity
Intensity of Local Markets Competition
High Intensity
Source: Global Competitiveness Report 2006-2007 and World Bank DDP, 2005
Figure 3
Effectiveness of Competition (Antitrust) Law- Policy and the Extent of Market Dominance
High
Dominance
Non-IDA countries
Extent of Market Dominance
IDA
Low
Dominance
Low
Effectiveness
Effectiveness of Competition (Antitrust) Law-Policy
High
Effectiveness
Source: Global Competitiveness Report 2006-2007
Figure 4
Business Competitiveness Index and Effectiveness of Competition (Antitrust) Law-Policy
Business Competitiveness Index
High
Low
IDA
Effectiveness of Competition (Antitrust) Law-Policy
Low
Effectiveness
Non-IDA countries
High
Effectiveness
Source: Global Competitiveness Report 2006-2007
Figure 5
Intensity of Local Markets Competition and Effectiveness of Competition (Antitrust) Law- Policy
IDA
Non-IDA countries
Intensity of Local Markets Competition
High
Low
Low
Effectiveness
Effectiveness of Competition (Antitrust) Law-Policy
High
Effectiveness
Source: Global Competitiveness Report 2006-2007
Competition, Cooperation, and
Competitiveness
•Exemptions-Exceptions Granted
Under Competition law-Policy
•R&D Cooperatives
•Standardization
•Specialization & Rationalization
Agreements
•Information & Statistical Exchanges
•JVs Strategic Alliances, M&A …
•Export ‘Cartels’
Constraints to Promoting Competition
• Lack of Political Will/Competition Culture.
• High Industry/Market and Ownership
Concentration in Product & Financial Markets.
• Entrenched Firms & Other StakeholderInterest Groups  Lobbying, Rent-Seeking
Behavior, Corruption & Bribery……
• Underdeveloped Capital & Financial
Markets, Insufficient Information…….
• Weak Legal Framework, Contract
Enforcement, Property Rights………
• Institutional Capacity, Resource, Skills,
Knowledge Constraints, Staff Turnover…….
Thank You