The Magic Power of Competition

Opening Remarks by Angel Gurría, OECD Secretary-General at the Global Forum on Competition

Paris, 21 February 2008

Good morning Ladies and Gentlemen,

It is a great pleasure to welcome you to the 7th meeting of the Global Forum on Competition. I am delighted to see so many delegates from such a large number of countries: more than 90 delegations representing 80 economies, including 52 non-members. In addition, there are officials from international and regional organisations, the business community, consumer organisations and development banks. In total, more than 350 officials are with us today; a record number for this Forum.

I am also delighted that Ms. Meglena Kuneva, EU Commissioner for Consumer Protection, will be joining the Forum tomorrow, following the presence of Neelie Kroess, yesterday in the 100th Session of the Competition Committee. Let me also welcome Mr. Frédéric Jenny, Chairman of the Competition Committee and Mr. Michael Jenkin, Chairman of the Committee on Consumer Policy. 

The magic of competition

This forum is particularly important for the work of OECD. Competition is an essential ingredient to improve the economic performance of our countries. It stimulates efficiency and higher productivity. It strengthens incentives for innovation and makes our companies more solid, more creative and fit for globalisation. Governments should aim to guarantee an environment of intense and fair contest among its economic actors. This will help countries to compete in the global markets and attract investments that will increase employment.

Many OECD studies link increased competition to better economic performance.  We found that reforms promoting competitive pressures in Australia, for example, triggered an economic recovery in the early 1990s. This turned out to be the longest economic expansion since the 1960s. Finland achieved one of the lowest inflation rates of the euro area in 2006 thanks to increased competition in key sectors like telecommunications. Airline deregulation in the US, twenty years ago, resulted in a 10 to 18% reduction on fares, with estimated savings for travellers in the range of 5 to 10 billion dollars a year. We have many examples, and useful experiences.

Our economic studies also illustrate the ways in which weak competition hurts economic performance in a wide range of countries. France, for example, has fostered competitive synergies in manufacturing sectors, but still faces important challenges in retail, banking and business services. This can become a comparative disadvantage. In Italy, the factor productivity growth has stagnated since the start of this decade due to the prevalence of competition restraining policies.

Mexico, my own country, recently, decided to launch its own pro-competitive program to help improve Mexico’s economic performance. With the support of the OECD, Mexico is developing reform proposals through the Federal Competition Commission, to review laws and regulations to identify and remove unnecessary constraints on competition.

Stronger competition induces firms to set prices closer to marginal costs and thereby allocate inputs more efficiently; it can also reduce information asymmetries and make corporate performance more comparable; it forces less efficient firms to improve their performance or risk being left out of the market. Besides, sectors where firms compete fairly and intensely are the ideal breeding ground to achieve the key to economic progress:  innovation.

Not so long ago, I had dinner with Bill Lewis, who created and ran the McKinsey Global Institute until his retirement. Under his leadership, McKinsey studied 13 economies in depth over a period of 12 years to study the role of productivity and to find out why some were much more productive than others. His conclusion?  In his words: “Increasing productivity is by far the most important ingredient in economic development. It solves almost all other economic problems. From the vast amount of economic experience in countries all over the world for the past 50 years, we have learned without doubt that the most important condition necessary for rapid productivity growth is fair and intense competition in all the sectors of an economy.”

I could not agree more. It also is consistent with the philosophy underpinning our Competition Assessment Toolkit, which you can find on the tables outside this room. The toolkit is now printed in 11 languages; so I am confident you will find one to work with.

There are many other OECD “products” on competition. We have gathered all of our competition material in one CD-ROM to make it accessible for you.  Like the Toolkit, the CDs are on the table. I encourage you to take some copies home.

This material is full of interesting experiences, policy advice and best practices that can help you in designing and implementing your own pro-competition programs.

Let me now say a few words on the special topic for this forum: the interface between competition and consumer policies. You will be dedicating several sessions to this topic, in cooperation with the Committee on Consumer Policy. 

The Key Role of Consumers

Improving the interaction between competition and consumer policies is an important goal. Consumers –who are also voters– will not support the vigorous pro-competitive reforms that are needed unless they see the benefits clearly. 

Consumers are crucial in the process of economic reform. They are the potential counterweight to the vested interests which oppose pro-competitive reform. Persuading consumers of the benefits of competitive markets and helping them make their voice heard is fundamental to the reform process. 

For example, taxi drivers can go on strike and block traffic when pro-competitive reforms are proposed.  But how do we hear the voices of those who stand in the rain because taxies are too few?  Government restrictions on the number of taxies ─created under the pressure of the taxi lobby─ are a small example, but there are many more in our economies. In each case, the consumers who would benefit from reform far outnumber those suppliers who might be affected. We must associate with this majority.

If we can come up with methods to bring the full weight of the consumer interest into the political economy equation, we will have done a great service to our governments and our economies. When searching for ways and means to strengthen the competition policies of our countries let’s not forget a simple idea: consumers can be our best allies!

Public policies towards consumers can generate competitive pressures in markets by changing the way they behave towards providers of goods and services. For example, making it easier for consumers to switch bank accounts puts pressure on banks to behave more competitively because it’s now easier for them to lose their customers. Sound consumer-oriented policies can actually make markets more contested and therefore more competitive.

Let me conclude by touching on one last important point: the globalization of the OECD’s competition experience.

OECD’s Competition Know-How Goes Global

Just like in every one of our main mandates, the OECD’ work on competition is expanding its global outreach. The fact that this Forum benefits from the participation of the largest number of countries ever is not a coincidence. OECD’s knowledge and policy experience in improving competition policy is there to shared with all of you, but we also need you input to improve our work and to increase our global relevance and impact on this subject.

As you know, the OECD is going through an important reform process to adapt to the new global economic realities. In response to the recent transformations of the world economy, our Organization is becoming more open, more inclusive and more relevant.

In June 2007, after a long period of preparation, the OECD initiated a two-tier process of enlargement and enhanced engagement with 10 new countries. These economies account for nearly half the world’s population, 15% of global exports and a combined GDP of 5.8 trillion dollars. We have already started accession talks with Chile, Estonia, Israel, the Russian Federation and Slovenia. In parallel, we are strengthening our co-operation with Brazil, China, India, Indonesia and South Africa, with a view to possible membership.

At the same time, the OECD’s relations with nearly 100 non-member countries are broadening and deepening. The increasingly active participation of developing countries in the work of our Committees and Working Groups has become a two-way avenue of communication and learning.

The OECD is gradually turning into a genuine “hub” of dialogue on global issues. In fact, during the past G8 Summit of Heiligendamm, the OECD was asked to act as a “platform” for the dialogue between G8 countries and the major emerging economies.

Our experience in improving the competition policies of our member and non-member countries can be useful for all market oriented economies. We remain committed to relating with many non-OECD economies, particularly through our Global Forums, of which this is a leading example. But also through our regional centres for competition in countries like Korea and Hungary, which serve many economies in those regions; and through our Latin American Competition Forum, held each year in cooperation with the Inter-American Development Bank.

Ladies and Gentlemen,

Guaranteeing fair and intense competition has become a major global challenge. We each have a little piece of the solution; let’s put the pieces together for the benefit of the world economy. This OECD Forum is a unique opportunity to do so.
Thank you very much.