Economic Survey - Netherlands 2004: Product market competition and economic performance

 

How could competition policy make a greater contribution to increasing productivity growth?

Activation and employment creating measures need to be complemented by measures to increase productivity. Enhancing competition in product markets is probably the most important means of improving relatively poor productivity growth, especially in non-traded services. The Netherlands has a history of widespread anti-competitive practices but the authorities have been vigorously combating these in recent years. Competition law was strengthened and brought into conformity with EU norms in 1998 and a new competition authority, the NMa, was created. Initially, the NMa focused on a mountain of applications for exemptions from the new Competition Act, reflecting the importance of corporatist arrangements in the Netherlands, but it has since been able to turn to driving out anti-competitive practices. It has been particularly active in the construction sector, where a parliamentary inquiry found that there was widespread bid rigging. Following an evaluation of the Competition Act and experience in implementing it, the government rightly plans to give the NMa greater investigative and sanctioning powers, including higher fines for non co-operation. The authorities should also give the NMa power to impose structural remedies in appropriate cases, a power that the European Commission will have as from May 2004. The NMa’s credibility will be further strengthened when plans to make it formally independent are realised.

Labour productivity growth in manufacturing and services
Per cent, 1990-2000

1. The services sector covers ISIC classes 50-99.
Source: OECD STAN database.

As in many other countries, competition in professional services has long been weak owing to self-regulation by professional bodies and entry barriers that appear to be high. While the authorities increased competition in these sectors over 1994-2002 through the Competition, Deregulation and Legislative Quality project (MDW), they remain in transition. Restrictions on price competition, advertising and permitted business structures are still widespread. The government should eliminate unwarranted anti-competitive practices in the light of the re-examination of regulations and laws governing the liberal professions scheduled for this year, as planned. In retail distribution, planning restrictions in the Netherlands have inhibited the entry and expansion of large-format operators, which has impeded productivity growth in the sector. While Dutch planning and zoning restrictions have been successful in protecting small and specialist retailers located in town centres, they also may distort competition and offer considerable incumbency advantages to established retailers, thus creating and maintaining rents. The government is decentralising decision-making power concerning the location of large retail outlets to lower levels of government so that spatial policies can be better customised to local and regional needs and to facilitate dynamism in the retail sector at the local and regional levels. However, the government should keep monitoring this process to ensure that local governments are not unduly responsive to incumbent interests.

Market power by incumbent firms remains a problem in network industries. This is why economic oversight of network industries for the foreseeable future cannot just rely on the application of competition law but requires stronger regulatory oversight promoting competition. Formal independence of the sectoral regulators within the NMa, which will occur when it gains independence, should increase their credibility. In the electricity sector, the major barrier to competition is the absence of ownership unbundling of supply and distribution activities. The government recently decided to unbundle ownership of supply and distribution activities. Local governments should privatise their retail activities after the electricity and gas distribution networks have been split off. In this transitory period the ownership of the networks will be in public hands, and privatisation of the networks can be considered after network quality has been safeguarded through adequate regulatory measures. The authorities should also increase interconnection capacity subject to satisfactory co-ordination with networks in neighbouring countries, as planned, as the lack of such capacity constrains competition. In the roll-out of broadband internet infrastructure, the government should decline requests from the incumbent telecoms operator (KPN) for financial assistance to take “fibre optics to the home” so as not to turn the market effectively into a monopoly.

The Netherlands is only one of three EU countries without public enforcement of consumer protection rights and protection against unfair commercial practices. Sectoral Disputes Committees provide an easily accessible dispute resolution mechanism, but should be improved as they do not exist in all sectors and are sometimes slow to settle disputes. The authorities should consider creating small claims tribunals, which would provide consumers with an inexpensive route to settle grievances with suppliers. Before summer, the government aims to set up a consumer protection enforcement agency for collective consumer interests. Also a one-stop-shop will be introduced for individual consumer complaints.

Reducing the administrative burden on firms would also help to strengthen competition by facilitating business start-ups and the growth of small businesses, as the burden falls most heavily on them; it would also increase productivity directly by lowering business costs. The government has committed itself to reducing the current administrative burden by one quarter by the end of 2007. As almost half of the administrative burden is caused by European legislation, the Dutch government will be seeking a reduction of this part. The government has already launched many initiatives in this area and should push strongly to reach its objective.

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The full edition of the OECD Economic Survey for the Netherlands is available from:

Return to the OECD Economic Survey - Netherlands 2004  homepage

A printer-friendly Policy Brief (pdf format) may also be downloaded.  The Policy Brief contains the OECD assessment and recommendations, but does not include all of the charts available from the above pages

 

 

 

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