Joint World Bank/OECD event: Competition Policy in Developing Countries: Helping Markets Perform Better
Remarks by Angel Gurría,
15 April 2016
(As prepared for delivery)
Dear Joaquim, Dear Ministers, Ladies and Gentlemen:
I am delighted to co-host this event on competition as a tool for helping markets to perform better. Today, I will share with you some of the highlights from the OECD’s joint work with the World Bank to promote effective competition policies in pursuit of stronger, more inclusive, economic growth.
We share a common understanding of the importance of open and competitive product markets for efficiency, innovation and inclusive growth. Unfortunately, we also know that a pro‑competition reform agenda is not without its challenges! The prospect of stronger competition inevitably stirs opposition, as open markets and new suppliers drive down rents.
To persuade constituencies of the merits of pro-competition reforms, policymakers need clear evidence on the size and nature of the expected gains, informed by the right tools and metrics. Importantly, these instruments not only support the credibility of policy recommendations ─ they are also critical for monitoring and assessing progress.
Twenty years ago, the OECD developed the Product Market Regulation Indicator, a quantitative tool that measures the incidence of regulatory barriers to competition through state control of business operations, legal and administrative barriers to start-ups, and obstacles to foreign trade and investment. The indicator has been used extensively by OECD countries to pursue a pro-competition agenda through better regulation.
Detailed information underpinning the indicator ─ that is regularly updated ─ has empowered policymakers to shine the policy spotlight on specific aspects of product market regulation that hinder competition. It has also facilitated direct comparisons of regulatory practices across OECD countries, which has catalysed substantial reductions in barriers to competition over the years.
Now, thanks to fruitful collaboration with the World Bank, we have extended the coverage of the Product Market Regulation Indicator to a large number of non-OECD countries, mostly in Latin America and the Caribbean, but also in Africa and Asia. The highlights of this work are summarised in a note prepared jointly by the OECD and World Bank, copies of which are available here today.
The results suggest that regulatory barriers to competition are, on average, higher in emerging-market economies than in more advanced economies. The differences are most pronounced in two areas: obstacles to foreign trade and investment; and barriers to the entry of new businesses in network industries (energy, transport, and communications).
Of course, these average results mask substantial differences across emerging-market economies. Many of them have implemented regulations that are as competition-friendly as one finds in advanced economies! But, for the majority, the scope for lowering barriers to entry and competition is sizeable. There are many low-hanging fruits waiting to be picked!
Provided that product market regulation reforms are supported by a vigorous anti-trust regime and enforced by a strong and independent competition agency, the potential gains from reducing barriers to entry are substantial. OECD analysis shows that a 30% reduction in regulatory barriers to competition ─ that corresponds to the average difference between advanced and emerging economies ─ could lift productivity in countries such as Brazil and Mexico by as much as 3 to 4 per cent after five years.
Before closing, I’d like to say a few words about competition and inclusiveness. We know that inequality of incomes, outcomes, wealth and opportunity adversely affects people’s well‑being and undermines their ability to fulfil their potential. Ongoing OECD-World Bank work on competition policy, shared prosperity and inclusive growth shows that addressing persistent, unwarranted and illegitimate market power ─ reducing anti‑competitive regulations, fighting illegal cartels, and preventing abusive conduct ─ is not only good for growth and innovation. It can also help reduce inequality and improve social cohesion!
In fact, this work suggests that reducing market power could disproportionately benefit low-income households and therefore narrow income inequality. This reflects two factors. First, the poorest are hit hardest by a lack of competition since overpriced goods account for a large share of their consumption. Second, excess market rents or profits represent a transfer of income towards financial asset holders, who are overwhelmingly concentrated at the top of the income distribution. This is why the release today of the OECD-World Bank joint publication, A Step Ahead ─ which examines the links between competition, shared prosperity and inclusive growth ─ is an important milestone.
Ladies and Gentlemen:
A pro-competition policy agenda can help governments achieve both higher growth and greater inclusiveness. This agenda can be supported not only through investments in powerful independent competition agencies, but also by identifying and reforming anti-competitive regulations, using both the Product Market Regulation Indicator and the OECD’s Competition Assessment Toolkit. I hope that the outcome of our productive collaboration with the World Bank will fuel the drive towards more open and competitive markets around the world.