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Thursday, 25th April 2024 |
| New competition reforms are crucial for Ireland |
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| Peter Sutherland made the keynote address at the recently held seminar in Dublin entitled ‘The Future of Competition Policy in Ireland.’ He described the need for regulated competition to encourage Ireland’s economic growth and commended the latest reforms. The following is extracted from his speech. |
A strong, independent competition authority is one of the three critical components of a successful economic model, together with an independent central bank and a strong, independent financial regulator.
The new competition reforms are particularly crucial and timely for Ireland. In the current economic climate, and at the birth of the euro, we are reminded that monetary policy levers are limited, but micro economic pressure points can usefully be employed toward achieving some of the same ends.
Competition policy
To fully understand the benefits of competition policy, it is useful to look beyond Ireland’s borders and see its evolution and operation in the European and global contexts. Looking at the European context, the Treaty of Rome recognises as a central and crucial objective of the European Union the stimulation and maintenance of conditions of undistorted competition, a system one might describe as economic democracy.
Competition policy is a fundamental part of the EU’s economic constitution. In tandem with deregulation, it contributes vitally to the Commission’s internal market strategy, by ensuring that barriers are not erected in new forms, that markets remain open and free, that producers and consumers can trade at the most advantageous cost and that firms can adapt to changing economic or technological trends.
Competition policy has a number of economic benefits.
• It is good for business. Companies don’t like competition in their own market, but always want to see it in markets they are selling into. Efficient capital markets are the key to this issue. The market is the best discipline on companies, it will penalise them for anti-competitive behaviour.
• It is good for competitiveness by keeping prices down.
• It drives productivity growth, resulting in lower inflation for any given growth rate.
• It is good for employment, it expands output, and uses more labour.
Competition in consumer goods, variety and quality of services is key to Ireland’s attractiveness for living and working. Many successful Irish ?migr?s won’t live in Ireland because of the low quality of services and limited variety of goods.
Benefits competition policy has brought to Ireland
Irish competition policy has come a long way since my days as Attorney General, but it has taken a long time for policymakers to get serious about its application here. The delay, compounded by the agency’s initial lack of enforcement powers, has meant some unfortunate missed opportunities for Ireland. Furthermore, the issue of sanctions has not been fully tackled.
However, we are not alone. It is fair to say that within the European context, there are many countries that could make stronger use of competition policy to improve competitiveness and productivity. I commend the Irish government for recognising the potential for a strong, independent competition authority to play a crucial role in furthering Ireland’s competitiveness and productivity.
Ireland has already benefited enormously from the effects of active competition policy. However, it has to be said that many of the most dramatic effects have come about as a result of EU-led initiatives that have not always been welcomed here in Ireland.
In the first instance, membership of the EC opened many sectors to trade and foreign competition. The goods sector has long been open to competition. Over time, Community initiatives led to the deregulation of many monopoly industries usually in the teeth of opposition, often inspired by an unhealthy connection between the state sector and the semi-state sector.
Perhaps one of the most remarkable sectors is airlines. Ten years ago, who would have thought that Ireland could be home to Europe’s second largest airline? Ryanair is one of the few airlines tipped to emerge stronger from the inevitable consolidation that will soon come to the European airline sector. This is great news for Ryanair, but it is also good news for Ireland.
The sharp fall in cost of air travel to and from Ireland has had a dramatic impact on the tourist industry here. Business and leisure travel is much less expensive and Ireland feels much less cut off from the rest of the world a factor that has helped make Dublin a more attractive place to live in, or return to.
What remains to be done?
In other sectors the story is more mixed. Too much of Ireland’s economy remains sheltered from the bracing wind of competition. Ireland has sometimes painted its ability to withstand Brussels’ pressure to liberalise its public utilities as a triumph, but holding out against deregulation and competition can keep costs high in sectors that impact all areas of production and consumption.
It is not just in the internationally traded parts of the economy that competition can bring benefits and inject new life. A strong argument can be made for taking on some of the last vestiges of restrictive practices which continue to exist in Ireland most of which, it has to be said, are policy-driven, or rather special interest driven.
The remaining trouble area where the Competition Authority can have the greatest impact is on the consumables sector. You don’t have to look very far to realise that when it comes to the non-traded part of the economy, there are still many areas that have yet to feel these beneficial effects. Certain products and services remain unjustifiably expensive in this country. I honestly believe that this is because of a lack of genuine competition in those areas. But a lack of competition doesn’t just mean higher prices, it very often means less choice for consumers.
As people travel more and more often to the continent, and to Britain, this becomes more obvious to them particularly the lack of choice. I firmly believe that after the introduction of the euro, the price differentials will become even more apparent, and people will rightly begin to ask why they are getting a raw deal in certain areas.
The heavy hand of regulation works against the progressive dynamism that has fuelled Ireland’s economic renaissance in recent years. It disadvantages consumers, stifles innovation and causes economic stagnation. It also discourages inward investment and sends a signal that the government is not serious about creating a positive business climate.
Proposals for reform of Irish rules
I strongly endorse the Irish competition reform initiative. In addition to the obvious benefits of strengthening anti-cartel powers, I see two absolutely beneficial developments.
First, taking politics out of decisions is a long overdue move in the right direction. As was also the case in the UK, at present, the minister has discretion in clearing, prohibiting or imposing conditions on mergers in Ireland. The minister also has powers to refer mergers to the Competition Authority for review, and to request that the Competition Authority undertake a review into any alleged abuse of dominance that has come to the minister’s attention.
An independent Competition Authority will permit decisions to be made not on ever shifting grounds of ‘public interest’ as defined by political expediency, but rather on the appropriate economic facts and objective, competitive criteria. This will increase legal certainty, and thereby raise shareholder value for firms trading in Ireland. In the UK, we have seen a similar situation with the replacement of the public interest test and the independence of the Office of Fair Trading. This parallels and was in part inspired by Gordon Brown’s reform of the Bank of England.
You will recall that I mentioned independent central banking, competition and financial regulators as absolutely crucial to the economy’s health. This change is a positive affirmation that competition policy must be left unfettered to operate properly and achieve its policy goals.
Second, mandating the authority to advise the government on the implications of primary and secondary legislative proposals on goods and services markets, and to identify and comment on regulatory constraints to the operation of competition in the economy will be greatly beneficial to counteract the short termist and special interest influences that can undermine competitiveness.
At home, the Competition Authority should strive to maintain and develop itself under the principles of best practice that any competition authority ought to follow:
• It should be adequately and appropriately resourced, with enough properly qualified staff to enable efficient, timely decisions;
• It should provide fair, transparent procedures and policy decisions;
• It should have sufficient procedural safeguards to ensure the arguments of the parties and those of interested third parties are fairly and equally heard;
• It should employ clear and predictable criteria for evaluation;
• Situations should be evaluated on competition criteria alone, and not by trade or political considerations;
• It should work in conjunction with other national authorities, with a clear demarcation of responsibilities. |
Peter Sutherland is chairman of Goldman Sachs International and former Attorney General of Ireland 1981-1984.
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| Article appeared in the January 2002 issue.
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