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How can product market regulation boost productivity growth?
The OECD growth study has provided evidence that competition-enhancing policies can foster the growth of productivity and employment. While some reforms of competition-related policies have been implemented in recent years; legal restrictions continue to impair competition in many product markets. Moreover; unduly restrictive regulations are particularly widespread in the services sector. This is manifest in comparatively weak productivity growth in this sector over the past decade; while manufacturing performed well by international comparison. In-depth analysis suggests that comprehensive reforms of the domestically oriented industries and of public procurement policies could substantially boost consumer welfare.
Last year’s reform of competition law took important steps towards aligning the Austrian framework with the mainstream. In particular; the reduction of the social partners’ direct influence and the creation of an independent competition authority were commendable; albeit overdue. Yet the institutional set-up now in place and procedures for enforcement are overly complex. These shortcomings should be remedied.– Most importantly; the currently inadequate capacity of the competition authority should be considerably increased. A leniency programme should be introduced and the introduction of criminal sanctions for hard-core cartels considered.
Weak performance is widespread in the services sector; owing in large part to regulations that thwart competition.
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Productivity in retail distribution in general is lower than in many comparable countries. This reflects the fact that regulations of large stores and opening hours are stricter than elsewhere. For example; up to now average shop opening hours were the shortest in the European Union. Besides limiting consumer choice; these regulations prevent taking advantage of economies of scale. The federal government has widened the legal scope for extended shop opening hours. The Länder should make full use of this option; and broader liberalisation of the retail sector should be considered.
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Trades and professions are subject to a complex set of regulations; comprising both statutory provisions and significant elements of self-regulation. There is evidence that this contributes to higher prices and the observed low firm turnover rates might also be related to restrictive regulations. There is considerable scope for discontinuing some existing provisions or reforming them so as to minimize their distorting effects on competition. For example; for those activities where certification is warranted in order to safeguard certain levels of quality; it should pertain to employees rather than owners. In professional services; recommended fee schedules; issued by the relevant associations; effectively prevent price competition and should be prohibited.
Regulations of professions: restrictiveness indices for OECD countries (1)
1. Country order ranked by restrictiveness of legal services regulation.
Source: Nguyen-Hong (2000).
While Austria has been early to liberalize electricity demand; it is imperative that the structure of the industry becomes more competitive. At present; production and distribution remain characterized by extensive vertical integration and government ownership. The latter follows directly from legal regulations of ownership and restrictions of voting rights. The government is actively encouraging further consolidation; while the competition authorities did not publicly advocate competitive solutions in the recent prominent merger case. Further domestic consolidation is considered necessary by the authorities for safeguarding the international competitiveness of Austrian producers after the imminent opening of the European electricity market. This is a misguided aim if it leads to higher prices for consumers; and it would impair the competitiveness of Austrian producers in other industries. Moreover; the consolidation might permanently prevent Austrian consumers from gaining the benefits of the larger European market.
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The complete version of the OECD Economic Survey for Austria is available from :
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SourceOECD for subscribing institutions and many libraries;
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Government officials with OLISnet accounts;
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