Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Antitrust and political imbecility

with 3 comments

(The post below will perhaps be a bit more controversial than the stuff we usually publish here. I nonetheless bet that its title will draw some additional readers to it: insults -particular when linked to politics- are always good marketing tools!  Please note that these are simply some Sunday afternoon ruminations that aren’t that well though through; they are rather “thoughts in progress”. Would be happy to further distill/refine them through public discussion, so feedback will be appreciated).

In The Revolt of the Masses,  Ortega y Gasset wrote a phrase that I often quote:

Aligning oneself with the left, as with the right, is only one of the numberless ways open to man of being an imbecile: both are forms of moral hemiplegia.”.

This quote has in the past got me into trouble long discussions. There can certainly be some nuances to be made to it (some issues traditionally defended by the left, or by the right, -extremisms aside- are certainly worth aligning with; the quote rather refers to all accross the board uncritical alignments), but, frankly, I think Ortega had a point.

Another great writer -Orwell-  said that “to see what is in front of one’s nose needs a constant struggle”. Undertaking such exercise from a pre-defined right or left perspective makes things easier, for you know in advance about what stance to take on most issues. On the contrary, assessing all issues objectively and on their merits (to end up agreeing sometimes with the left, sometimes with the right, and often benefiting from a mixture of the two) is complex, tiring and some would say perhaps unfeasible.

Now, considering that you probably – and rightly- don’t give a damn about our views on politics, you might legitimately ask why on earth I’m telling you all this. Well, because I think that the expansion and consolidation of antitrust laws accross the world can actually contribute to mitigating political imbecility through the promotion -even if implicit- of sensible centrist attitudes (actually, I’m not sure I think it, but it’s an interesting thesis anyway). Let me try to explain what I mean, and please tell me what you think:

The widespread adoption of antitrust rules implies a recognition that (i) freedom of enterprise and free competition is positive; and (ii) for such freedom to be real market forces and excessive market power need to be effectively supervised and corrected through public intervention. This crucial paradox -to limit some sorts of freedom for the sake of freedom itself- might sound obvious to you (after all the laws themselves are “those wise restraints that make men free“), but it has not been a feature of the economic policies pursued in many places around the globe. As a matter of principle, the recognition of the need to strike a balance between the two principles outlined above through the very enactment of antitrust rules (unless purely cosmetic) around the world constitutes a giant step towards the construction of centrist economic policies.

The enactment of antitrust rules also obliges public authorities in many jurisdictions to make complex economic decisions (notably on when to intervene and when not to). To be sure, these decisions may certainly be (and often are) infused by different ideologies, and instrumentalized to pursue non-centrist political agendas. However,  as experience, precedents, inter-relations and peer pressure consolidate, it will (I hope) become increasingly harder for decision-makers to  adopt decisions on the basis of elements other than objective ecomomic and legal knowlegde. That, to me, would be sensible centrist economic policy too.

The underlying assumption that smart public intervention might not only restrict but also actually promote economic freedom could hopefully be extended to other economic domains. For instance, it would be nice if some (not only in developing countries, think of the Tea Party movement) who identify themselves as pro-individual freedom (a principle with which I agree) would realize that for freedom to be real (and not confined to a few) public intervention is required in order to provide effective and equal opportunities to actually exercise it.

I was positively surprised to see that I may not be sole one thinking this way. A recent editorial in The Economist (which I would very much suggest you read; available here) not only called for “radical centrist policies” (what the piece also referred to as “true progressivism”) to combat growing inequalities, but also attributed antitrust a primary role in the pursuance of a centrist agenda. (“The priority should be a Rooseveltian attack on monopolies and vested interests, be they state-owned enterprises in China or big banks on Wall Street. The emerging world, in particular, needs to introduce greater transparency in government contracts and effective anti-trust law“).

Btw, I have the feeling (no evidence though) that The Economist drew inspiration for some these ideas from a recent and truly great book: Why nations fail  -which I’m trying to read when work allows-. This book also contains compelling arguments about why the promotion of competition through the application of antitrust rules is one of the most effective ways to contribute to the development of any given nation.

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Written by Alfonso Lamadrid

12 November 2012 at 12:43 pm

3 Responses

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  1. In fact, what you say applies to every single domain of Law; the reason is that, as you perfectly say, this is inherent to the law itself: Under which conditions a company may terminate its employment agreements? Under which conditions may a Bank grant a consumer credit? Under which conditions may a company sell its products / services on line? Law always circumvents and limits freedom.

    Nevertheless, as you point out, the paradox with Antitrust Law is that this discipline intervenes to circumvent freedom… with the goal of promoting (almost) the same freedom it intends to control (to protect economic freedom and opportunity), while other areas of Law respond to different goals.

    In other words, in other fields of Law, each side of the scale has a different value. With Competition Law, we could raughly say that what has to be balanced with the protection of ecomomic freedom… is economic freedom itself. And this becomes quite often a delicate exercise for politicians. Maybe not in areas like abuse of dominance (which has a lot to do with general principles of law, like the abuse of law/rights and so on), but certainly in, for instance, Merger Control and State Aid (provided that State Aid is Antitrust law, which I certainly doubt).

    Miguel Troncoso Ferrer

    12 November 2012 at 7:03 pm

  2. Couldn’t agree more. Coming from a post-communist country (exYugoslavia) I can attest to the pivotal role that competition law is playing in recent years in re-educating both politicians, the newly established business community and the general public on some of the basic tenants of a market economy. People often overlook the fact that for almost 60 years “business” was done by a central planner. Even in the case of YU which was in economic terms the most progressive of the lot (existence of a a market economy to some degree, non-aligned, open trade with the West, prewar GDP at the same level or higher than some of the old EU member states, which developed its then famous concepts of “social” property, “self-governed” agreements and whatnot), antitrust rules are taken as counterintuitive by many. Government was used to aiding companies at its complete and unrestrained discretion. “Coordination and planing” i.e. hard core cartel behavior was not only not prohibited but actually regarded as the social and legal norm. Huge state-ran monopolies could make extra profits which would be then diverted by the central planner to “better usage” and so forth. Princeling families that managed huge state companies (like GENEX, INEX, etc) could and did adopt discretionary decisions which actually served more to the increase of their own affluence than anything else. As I mentioned above, one must remember that exYU was economically viewed by the East as a success story (it’s GDP was above everybody else, even Portugal and I believe close to Spain http://chnm.gmu.edu/1989/exhibits/economies-in-transition/primary-sources). Therefore, re-education is that much harder since the system still has semi-legitimacy among some social, business circles and especially the older generations. It would be but logical to assume that all of the above should apply to the rest of East Europe as well. I guess that certain parallels with some current systems also cannot go unnoticed.
    Lastly, just to give you an anecdotal example of how entrenched are these views: the market for taxi services in Belgrade was completely free since 1991, in the sense that anyone who met a number of set conditions would automatically get a licence. Since Belgrade is a 2M city, the market was flooded with different taxi companies, competition was high, the service was fantastic (from calling to picking up it took around 3min, compared to Brussels 15-25) and prices were extremely low. The cabbies complained on “unfair treatment”, that they cannot “earn a living”, the companies stroke a deal through their association on minimum price maintenance. The Competition Commission nullified the agreement and issued fines. However, they signed a new one (!). The Commission stroke down that one as well. It was election year in mid 2000s, and the cabbies turned to the incumbent mayor for help. To cut a long story short, the city council adopted a regulation (based on statutory authority) stipulating a minimum fixed price. Soon afterwards, prices rose and have been steadily since. The mayor got re-elected (whether or not this helped I leave to the pollsters) and, well, the service got worse, but is at least still not as bad as in Brussels.

    Bogdan Gecic (@BogdanGecic)

    14 November 2012 at 2:46 pm

  3. [...] some of you may remember, a few months ago I wrote a post here on “Antitrust and Political Stupidity“. Competition Policy International asked me to develop the post for a special issue of the [...]


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