Competition

Staying the course: Preserving competition in a time of crisis

 

Opening remarks by Angel Gurría, OECD Secretary-General, at the Global Forum on Competition (Watch the video of the press conference)


Paris, 19 February 2009


Good morning Ambassadors, ladies and gentlemen,


Welcome to the OECD and to the 8th meeting of the Global Forum on Competition. I am delighted to see so many delegates from such a large number of countries, including those in the process of acceding to the OECD, and countries in the Enhanced Engagement initiative. We have 75 countries represented, as well as representatives from international and regional organisations, the business community, consumer organisations and development banks. In total, there are more than 325 officials participating in today’s discussions.


I am especially pleased that Mr Dominique Strauss-Kahn, Managing Director of the International Monetary Fund, is with us today. The OECD, the IMF, the World Bank and other organisations are working closely on a number of policy challenges, in order to make a greater collective impact. In particular, we are working to help countries weather the current economic turbulence. Firstly, to overcome the current global financial and economic crisis and, secondly, to get back on the path to sustainable growth as quickly as possible.


Just two weeks ago, we held a joint seminar to move forward on these issues, and not surprisingly, the effects of the crisis on competition emerged as a key concern. So, it is especially fitting that they join us today to discuss how competition can improve economic performance. Let me also welcome Mr Frédéric Jenny, Chairman of the OECD’s Competition Committee.


This year’s Forum highlights the importance of the market economy and the role of competition authorities in guaranteeing it. The current crisis has given rise to widespread scepticism about the functioning of markets. This is why today’s discussion is so relevant, since it is precisely during these turbulent times that competition can steady economic nerves.


The market is not a jungle; it has rules. But under pressure, some of these rules have failed dramatically. New rules are needed. Rules that provide the right basis to foster economic activity and help prevent similar crises in the future.


Right now, the OECD is working with leaders in many of your countries and with other international organisations to review the existing instruments which govern social and economic policy. We are looking at how we can make them more coherent, more compatible and more supportive of each other. We are also identifying the gaps, and where implementation and monitoring needs to be strengthened. As one of the cornerstones of our economies, the principles of sound competition must be enshrined through this initiative, which is being referred as the “global standard”.


Furthermore, at the end of last year, we released our Strategic Response to the Financial and Economic Crisis. In it, we outline our efforts to help governments address the crisis and seize the opportunity to build a stronger, cleaner and fairer world economy.


The OECD’s Strategic Response focuses on two key areas. The first one involves finance , competition and governance – in other words, the framework in which markets function. The second addresses the challenge of restoring sustainable long-term growth. We are also developing new analysis and guidance to governments for the design of effective exit strategies, to ensure that today’s policies to manage the crisis will not be the source of tomorrow’s problems. But also to enable governments reverse their interventions in the private sector when conditions allow, and achieve a better balance between markets and the state.


Competition law and policy has an important role to play in both instances. It should  continue to ensure a level playing field that is underpinned by clear rules and strong enforcement by competition authorities.


Over the last two days, the OECD Competition Committee has been discussing competition law and policy issues in relation to the financial crisis, and Chairman Jenny will report to you later in more detail. What has emerged from the discussions is that governments are taking short-term actions to deal with the crisis – actions which will have long-term repercussions on markets. These actions include: taking financial stakes in banks or the full nationalisation of banks; encouraging mergers with the effect of creating “mega-banks”; and providing or considering state support to non-financial firms such as airlines or car manufacturers. Consideration is also being given to light-touch enforcement of competition rules in order to clear otherwise questionable mergers and alliances.


We all know that political concerns sometimes influence solutions to economic crises. The unfortunate reality is that emergency measures in a crisis may sometimes stray from the principles of sound competition. It is crucial that any restriction of competition during this critical period be carefully thought out, temporary and monitored. Robust competition policy is essential if we are to prevent long-run harm when economic conditions stabilise. As we exit the crisis, we must ensure that competition law and policy apply to, and are respected in, all sectors of our economies, including the financial sector.


Government interventions may be necessary and justified. But the policy instruments used should be neutral and applied across-the-board. Good competition policy is flexible enough to accommodate other policy objectives. Countries may adopt industrial policies to correct market failures, foster economic development or incorporate wider strategic considerations. Where these efforts are consistent with enhancing long-term consumer welfare and efficiency, they can sit comfortably with competition policy.


But there are instances when emergency measures may favour individual companies and national champions. In these cases, care should be taken to emphasise the temporary nature of the support for financial and industrial firms. Any support should be accompanied by rationalisation, where possible, to ensure that measures are consistent with long-term goals and that they are not sowing the seeds for structural problems.   


We must never lose sight of the underlying principles of sound competition. The case for national champions is weak – the protection of incumbents and ailing firms is likely to dampen growth in both developing and developed countries. It also risks escalating global protectionist measures and beggar-thy-neighbour responses. We must avoid interventionist industrial policies that favour incumbents, that seek to pick winners, or to reward losers. When unavoidable, we must make sure that any such measures are transparent and temporary. This is the challenge currently facing those governments adopting emergency measures to deal with the impact of the crisis on the real economy. I am sure that today’s discussion will reinforce the importance of properly defined industrial and competition policies.


Let us be clear, the crisis is not an excuse to delay structural reforms. On the contrary, it is by addressing our structural challenges that we will get out of the crisis. As the world strives to regain economic momentum, this is the moment to look at eliminating anti-competitive measures that reduce productivity.

Many OECD studies show how weak competition hurts economic performance. Undue restrictions, both institutional and regulatory, insulate key sectors from the benefits of competition.


Our work on the informal economy shows that when regulation is too heavy, it can significantly increase the cost of both joining and operating in the formal economy. If informal firms compete in the formal economy because they evade the law, the viability of more productive formal firms will be put at risk. When we consider that the informal economy can account for 50 per cent of GDP or more in developing countries, the negative impact on productivity is significant. It is essential that developing countries, in particular, tackle these obstacles to productivity and growth. Structural reforms that free up the ability of the informal sector to enter and compete in the formal economy will propel economies forward faster.


And competition authorities, whether new or more established, must advocate a clear role for competition policy in ensuring that markets work as effectively as possible. Voicing your views may be particularly difficult in times of economic crisis, where emergency decisions are often taken without hearing what competition authorities have to say. So it is all the more important that competition authorities maintain confidence in their enforcement tools and continue to advocate for a market economy.


The OECD provides a unique forum in this regard, facilitating dialogue not only among competition authorities in different countries, but – importantly – helping you to influence governments.


The OECD’s policy advice and best practice for implementing and improving competition policy provide a steadfast reference for all countries. We have the tools, in the form of best practices, policy advice and our Competition Assessment Toolkit, to help national competition authorities identify likely problems arising from crisis and pre-crisis measures, and prevent further market distortions. And we can propose pro-competitive solutions to such problems for all countries.


The topics you will be discussing at this year’s Global Forum are not only important in themselves, they also highlight the significance of competition and the role of competition authorities at this critical time.

In the current context, your work and discussions over the course of the next two days take on even greater importance. I hope you return home inspired and invigorated from your exchanges, with a heightened resolve to tackle the problems and work towards pro competitive solutions, secure in the knowledge that the OECD, the IMF and the World Bank can assist you.


Thank you.

 

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