Concurrence

Competition: The rules of the game

 

Presentation of the Competition Assessment Toolkit
Angel Gurría, OECD Secretary-General
14 June 2007, Mexico City

Legislators, ladies and gentlemen:

I welcome this opportunity to speak to you about competition:  the ultimate rule of the game in market economies, the main sustenance of business competitiveness and the key to Mexico’s progress. 

Mexico has made substantial progress in developing competition in its economy over the past 15 years.  Yet it would be difficult to say that the mission has been accomplished.  There are strategic sectors which are still insulated from a competitive environment and in which undue restrictions, both institutional and regulatory, prevail.

The benefits of competition

Greater competition can boost a country’s growth and productivity.  Conversely, restricting competition harms economic performance and delays development.

Despite a government’s resolve to reduce restrictions on competition, it is not always possible to recognise those restrictions because most of them are unintentional.  However, intentional or not, restrictions on competition can have significant impacts on economic growth. 

There is ample empirical evidence to demonstrate that removing such restrictions can bring substantial benefits.  For instance, twenty years ago the United States moved away from regulating air routes to a more pro-competition policy.  As a result of this change, air fares were 10 to 18 per cent lower, on average, than under the previous regulatory policy, while the estimated annual savings to air passengers ranged from USD 5 000 to 10 000 million.  

OECD economic analysis shows clearly that reducing regulation in product markets promotes productivity growth, investment, employment and innovation.  Sweden, for instance, owes much of its recent economic success to the regulatory reforms it introduced in the 1990s:  since 1998, having overcome a major crisis at the beginning of the 1990s, Swedish GDP growth has outpaced that of the Euro Area, as well as the Nordic average, practically every single year while its output volume per hour worked registered an average growth close on 6 per cent during the period 1999 - 2003.

Recently, the prestigious Global Competition Review ranked the European Competition Directorate, the UK Competition Commission and the US Federal Trade Commission as the world’s top competition agencies.  It is no coincidence that these countries are also the world leaders in research and development (R&D).  

Towards new pro-competition policies

There are various public policy options that can achieve a given government objective.  In deciding on the appropriate policy, it is important to assess its impact on different areas, including competition, since the latter may be affected by regulations. 

Governments can and should produce pro-competition legislation and regulations – essentially by identifying rules that restrict competition and then finding alternatives that achieve the same policy objective but without hindering competition. 

Australia’s experience is compelling.  In 1995, the Australian Government launched a broad programme of comprehensive pro-competition reforms at national and state levels.  Starting from a prudent fiscal and monetary policy base, the Government identified 1 800 laws with a potential impact on competition in various sectors which would later be reviewed and either amended or eliminated.  

In just a few years, Australia substantially improved its economic performance, becoming one of the OECD’s top-performing economies with an average growth rate of over 3 per cent since the beginning of the new millennium and the lowest unemployment rates since the 1970s.  The OECD gave its unequivocal support to Australia’s efforts to improve competition and continues to do so.

The OECD Competition Assessment Toolkit

In the OECD, at least 23 countries claim that they consider competition or market forces in their process of developing legislation.  However, most do not have a workable framework with which they can systematically gauge the impact on competition.  The OECD has produced just such a framework for evaluating the impact of laws and regulations on competition. 

This framework is provided by what we call the Competition Assessment Toolkit, an instrument which lays out general principles for promoting competition in regulated sectors.  The principles are simple and flexible enough to be incorporated into governmental activities across many different sectors and countries. 

The Toolkit provides a specific methodology for assessing competition, including regulations and laws in order to: 1) identify any law or regulation that may unduly inhibit competition; and 2) revise them so that they still achieve government objectives, but without inhibiting competition. 

Assessment is a two-step process.  Step one is to apply a simple “competition checklist” to the policies being examined.  This simple screening process can be done quite quickly.  If this first review suggests that a given policy may have the potential to restrict competition unduly, then step two -- an in-depth assessment of the impact on competition -- is implemented.  This assessment should produce suggestions for developing alternative policies, which will achieve the same government objectives without harming competition.

A growing number of countries ─ such as Australia, Canada, Hungary, Portugal, the United Kingdom, the Republic of Korea and Turkey ─ are turning to our assessment process and incorporating the step one checklist in their public policy-making process.  

The situation in Mexico

Strengthening competition is one of the major challenges for Mexico.  Despite progress on a number of fronts, such as the adoption of the Federal Law on Economic Competition (LFCE) in 1993 and the creation of the Federal Competition Commission (Comisión Federal de Competencia or CFC) -- which I congratulate on its recent successes in combating monopolies and duopolies – competition is an area that still poses major challenges.

Mexico is one OECD Member country where the level of general support for competition policy is still an open question.  Our studies show that there are areas which, in theory, are open to competition, but inadequate implementation of the law means that, in practice, there is no real competition.

Deficiencies in statutory authority and judicial review procedures constrain the CFC’s ability to address competitive conditions effectively and efficiently.  

Mexico should reduce barriers to entry and strengthen competition in crucial sectors such as electricity, oil and gas extraction, telecommunications and communications.  The lack of competition in each of these strategic sectors is an enormous “drag” on the economic and social development of Mexico.

Strengthening competition is crucial to increase the productivity, innovation and competitiveness of the Mexican economy.  It bears remembering that Mexico is one of the three countries with the lowest level of productivity in the OECD, while its spending on research and development as a percentage of GDP is 0.43 per cent, compared with an OECD average of 2.26%.  

Applying the OECD Competition Assessment Toolkit could not only make evident the harmful implications of the lack of competition in the major strategic sectors, it should also help to identify a series of core issues for and unnecessary restrictions on competition throughout the full body of existing Mexican economic policies and regulations.  

This methodology can be extremely useful in improving public policy-making in both the executive and the legislative branches.  We applaud the determination of President Calderón’s government to confront this challenge by subscribing to and implementing this valuable instrument for the first time.

Ladies and gentlemen,

Governments around the world are turning to competition to improve their economic performance.  In terms of productivity and competitiveness, countries that have followed this route with the most conviction and commitment are outperforming those that still cling to old ways of doing business, especially countries where privilege reigns and national champions are protected.    

The Competition Assessment Toolkit can be an enormously useful tool in building a more productive, more competitive and more prosperous Mexico.  The OECD is ready to work with Mexico on optimising the implementation of this instrument.  I feel sure that our joint efforts to strengthen Mexico’s economic competition will soon bring bigger and better investment and jobs, the crucial ingredients for fair progress in this wonderful country. 

Thank you.

 

 

 

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