Competition in context: the limitations of using competition law as a vehicle for social policy in the developing world.

Author:Hazel, Diane R.
Position:I. Introduction through IV. Developing Countries' Approach to Competition Law, p. 275-312
 
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  1. Introduction II. Competition Policy in the Developing World A. Trade Liberalization B. Competition Law as a Complement to Trade Liberalization C. Contribution of Competition to Economic Growth and Development III. Examination of Competition Law Goals A. Evolution of Antitrust Law Goals in the United States B. Current Accepted Antitrust Goals in the United States IV. Developing Countries' Approach to Competition Law A. Distrust of Competition Policy and Law B. Rejection of Western Approach to Competition Law C. Emergence of Competition Laws that Respond to Specific Historical, Cultural, and Economic Conditions D. Characteristics of Developing Countries Leading to Customization of Competition Laws E. Inclusion of Public Interest Considerations in Objectives and Analysis V. Case Study of South Africa A. Apartheid in South Africa B. Political Background Leading to Adoption of South Africa's Competition Act C. Public Interest Factors in South Africa's Competition Act D. Competition Law in Other Southern African Countries VI. Discussion A. Arguments for Inclusion of Public Interest Considerations B. Arguments Against Inclusion of Public Interest Considerations C. Examination of Competition Law in Developing Countries D. Developing Countries Should Avoid Public Interest Considerations and Proceed Deliberately in Adopting Competition Laws E. Recommended Way Forward VII. Conclusion I. INTRODUCTION

    The number of countries that have adopted competition laws has grown exponentially over the past two decades. Of the over 100 nations that have adopted some form of competition law, three-quarters are in the developing world. (1)

    Various factors have contributed to the growing adoption of competition policies and laws, particularly in developing countries. In particular, globalization and its effects--such as cross-border mergers--have contributed significantly to the perceived need for competition laws. (2) Although some may believe that the effects of globalization are limited to the developed world, developing countries may be particularly susceptible to the market power of large international firms if not regulated. (3)

    Further, a number of studies have concluded that strong competition policy and robust competition at the country level foster economic growth. (4) Economic growth refers to a rise in national or per capita income that usually accompanies an increase in the production of goods and services. (5) As such, competition policy has become part of the emerging orthodoxy in economic growth policy. (6) Competition law is a subset of competition policy. Generally, competition laws seek to guard against the creation and misuse of market power and also facilitate the functioning of the markets by curing artificial obstructions that market players create. (7) In addition, enforcement of a competition law by an empowered competition authority helps in dismantling barriers to new business development and improving the availability of goods and services to poor populations. (8) So at least in theory, a well-conceived competition law--as a part of an overall competition policy--may reduce barriers that reinforce economic disadvantage.

    For these reasons, the adoption of competition laws has become one of the cornerstones of the liberalization and promarket reforms sweeping through many developing countries. In particular, the neoliberal international development policies associated with the "Washington Consensus" embraced the enactment of competition laws in developing countries as part of its overall policy agenda. (9) The Washington Consensus emerged in the 1990s and represents the set of ten policies that the U.S. government and international financial institutions believed were necessary elements of reform that all countries should adopt to increase economic growth. (10) In emphasizing the importance of macroeconomic stability and integration into the international economy, the Washington Consensus took a neoliberal view of globalization and prescribed trade liberalization, privatization, and deregulation as the key elements of its recommended development framework. (11) The International Monetary Fund ("IMF") and the World Bank (jointly "Bretton Woods institutions") implemented this framework through conditionality in developing countries; one such condition was almost always the adoption of a competition law. (12) Thus, some countries, such as Indonesia, adopted competition laws as a direct condition to receiving funds and rescue money from the IMF. (13)

    Interestingly, the push for the enactment of competition laws in developing countries by Western nations and the Bretton Woods institutions may not have resulted in what these parties originally envisioned. Instead, a variety of competition laws have emerged that differ in many respects from those of Western, industrialized nations, particularly in their stated goals and objectives. Further, many developing countries have included factors to consider in analyzing mergers and conduct related to social policy objectives. By doing so, they argue that competition laws should respond to the particular historical and contemporary circumstances facing their countries. (14) The inclusion of such public interest objectives and considerations has generated controversy and debate in the global antitrust and competition law community. (15) Some even question whether developing countries should prioritize the enactment of competition laws or whether it would be preferable for these countries to focus on more urgent reforms. (16)

    This Article first provides an overview of the Washington Consensus policies designed to facilitate competitive markets and explains how competition contributes to economic growth and development. After discussing why developing countries have enacted competition policies and laws--either by choice or as a condition to funding--the Article examines the objectives of competition laws that ultimately drive enforcement. This analysis begins by detailing the evolution of antitrust goals in the United States. The Article then discusses many developing countries' rejection of a Western approach to competition law in lieu of an approach that they believe better responds to their unique historical, cultural, and economic conditions. This alternative approach to competition law often encompasses the inclusion of industrial policy objectives and the promotion of the public interest.

    To illustrate how these public interest considerations have been incorporated and enforced in developing countries' competition laws, this Article presents a case study of South Africa. The Article then briefly describes the trend of including public interest considerations in competition statutes in other Southern African countries, which frequently look to South Africa as a model.

    After illustrating how public interest considerations may be developed and enforced, the Article highlights the arguments raised for and against the inclusion of public interest objectives and considerations in competition laws. Ultimately, this debate centers on the fundamental purpose of competition law. This Article acknowledges that there are persuasive arguments on both side of the debate but contends that the debate about the proper objectives of competition law has been too narrow. Developing countries have real development and social equity concerns that should not be ignored. But instead of using competition law as a vehicle to address these other policy concerns, this Article argues that the goals of a competition law should remain narrow and that other industrial policy objectives should be addressed first through separate legislation.

    The creation of complicated competition laws that require a skillful balancing of various public interest factors only adds to the burden of young, inexperienced competition authorities. Moreover, the inclusion of public interest objectives may even undermine the benefits that a competition law can bring to economic growth and development. This Article instead suggests that developing countries consider waiting to adopt competition laws until they have achieved a more advanced stage of development and recommends a staged approach that they might adopt to better meet their variant development and economic goals.

  2. COMPETITION POLICY IN THE DEVELOPING WORLD

    The majority of new competition laws emerging over the past few decades have been adopted by developing countries. Although there has been an active debate over what constitutes a "developing country," this Article uses the term "developing country" broadly, as defined by the IMF: "emerging market and developing economies" are the 153 nations that are not classified as advanced economies. (17)

    To fully understand the dynamics at play in the developing world, it is necessary to distinguish between competition law and competition policy. Competition policy refers generally to the range of government measures taken to influence the intensity of competition in national markets. These measures may include trade policies, measures directed to attract foreign investment, domestic business regulation, various privatization initiatives, and competition law. (18) Competition law, a subset of competition policy, establishes the rules of competitive rivalry and constrains certain strategies employed by firms that may harm competition in the markets.

    The competition policy approach advocated by many in the developed world entails enhancing competition in domestic markets by dismantling protective trade barriers and restrictive investment rules, creating an enabling domestic environment that facilitates foreign trade and investment. (19) For some time, the dominant approach in development economics advocated generating as much wealth as possible and letting it "trickle down" to those less well off. (20) Increased trade and investment was seen as a means of generating such wealth. Over the past two decades, a...

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