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COMPETITION, POVERTY , AND THE MILLENNIUM DEVELOPMENT GOALS

COMPETITION, POVERTY , AND THE MILLENNIUM DEVELOPMENT GOALS. Eleanor Fox Professor, New York University Cape Town May 2006 REVISED DRAFT May 25, 2006. A CHALLENGE: COMPETITION AND MILLENNIUM DEVELOPMENT GOALS.

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COMPETITION, POVERTY , AND THE MILLENNIUM DEVELOPMENT GOALS

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  1. COMPETITION, POVERTY,AND THE MILLENNIUM DEVELOPMENT GOALS Eleanor Fox Professor, New York University Cape Town May 2006 REVISED DRAFT May 25, 2006

  2. A CHALLENGE: COMPETITION AND MILLENNIUM DEVELOPMENT GOALS • Policymakers are working to achieve the MDGs, which would halve, by 2015, the portion of people living in extreme poverty • Systemic poverty affects half of humankind and may be seen as the most pressing problem of economic welfare today • Needs: access to water, electricity, medicines, education, opportunity • Fighters of poverty need a set of tools to try to achieve the MDGs • Should competition policy and law be among them?

  3. Addressing the challenge • These remarks explore • 1) whether competition policy and law can significantly contribute to advancing the MDGs • It acknowledges that policymakers do not count competition as a major tool • and are sometimes suspicious that it harms the poor • 2) for developing countries that have or may have competition law • Is there a formulation that best addresses their needs? • My argument: • Competition policy (the market) is vital to helping the poor • Competition law may serve the poor in many ways and surely should not aggravate poverty or development • Nations must decide for themselves what is good for them; their informed participation in the debate on world norms is vital • A question for brainstorming: If we put poverty and development at the center of concern, what is best competition policy/law? • What rules, principles and measures best serve efficient economic development?

  4. Background tasks • First, it must and can be established that markets help • and that market tools are vital, • along with the obvious and accepted tools of critical investments in infrastructure, education, health care, and building sound institutions • The literature: de Soto, Wolf, Jenny, Evenett, Kovacic • Second, competition policy must be distinguished from competition law • There is work to be done within each

  5. Distinguishing policy from law:What MARKETS can do • Competition policy • This is market policy – letting markets work, free of government and private restraints • Competition policy and government restraints • Government restraints tend to preserve hierarchy, privilege, and cronyism, and push up price • In many developing countries, the state continues to rule the market and often to reinforce the huge disparities in wealth and to repress economic opportunity and mobility • Competition policy includes advocacy against government restraints see Kovacic, Khemani

  6. What MARKETS can do, cont’d • Liberalization by the developing nation • Can remove dense licensing restrictions and other unnecessary restraints on entry and expansion • Liberalization by developed nations • Can remove trade restraints + subsidies that harm development • Border restraints–dumping, subsidies • Textiles, cotton, other agriculture, see Bhagwati, Wolf • See World Bank: Making Trade Work for the Poor • Both keep the poorest • from entering the marketplace on their merits and from supporting themselves and their families • Both are hard to achieve • The 1st because political incumbents may like it as it is • The 2nd (WTO) because everything is a bargain; you pay for what you get

  7. What can competition LAW do? • Competition law helps by: 1 Banning agreements and mergers that raise prices, including prices of necessities - medicines, housing • Banning abusive conduct that blocks freedom to compete on merits • Laws may include proscriptions against protectionist and market-blocking state measures • The law provides a bully pulpit for advocacy Many clear violations – cartels, boycotts - are targeted at poor nations; see Evenett/Jenny

  8. These are important benefits; will they persuade MDG proponents? • Why might MDG proponents be skeptical about competition policy and law? • 1 The perception that liberalization (freeing the market) helps the well positioned and the rich at the expense of the weak, and that modern competition law is the handmaiden of liberalization • See WTO statements of developing countries • 2 Competition (law) is not on the radar screen; other tasks and tools are seen as so much more urgent – education, food and water, medical care, job training, all for people who cannot pay; infrastructure, building institutions and rule of law

  9. To The Skeptics: Is it a hitch if-- • 1 Market theory assumes existing distribution of wealth • Only those who can pay the cost of what they get can participate in the purchasing side of the market • The poorest cannot pay • 2 Market theory focuses on the size of the pie • Everyone is better off if the size of the pie increases • Thus, if the winners win more than the losers lose, “everyone is better off” • And it is often believed that those who are advantaged by globalization win more than the less advantaged lose, or at least that the rich win more than the poor win (but there are exceptions) see Stiglitz, Sen, Pogge, Rodrik • The poor are not all in developing countries, but they are heavily concentrated there

  10. There is no hitch • While market theory assumes existing distribution of wealth, • the poor still buy some basic necessities; rampant restraints in government procurement impair government purchases on behalf of poor; and many benefit who are less well off but not in poverty. i.e., allocative efficiency goals do help everyone • Economics need not focus only on allocative efficiency • Can treat efficient development, can examine most efficient ways to address poverty • Developing nations can participate in agenda setting and, nationally, can adopt only what they choose – making sure there is no hitch

  11. The Challenge:Competition POLICY • AGENDA SETTING: Prioritize removal of government restraints that most hurt the poor; that block them from doing efficiently what they can do best • Agricultural subsidies • Anti-dumping duties • Selective preferences • See Wolf: the “Hypocrisy of the rich,” in Why Globalization Works • Burdensome licensing restrictions, de Soto

  12. The Challenge: Competition LAW • The Question: In view of characteristics of developing and poorer nations, what are the best antitrust rules, principles, programs? • Recurring characteristics: higher border barriers, harder entry, less flexible capital markets, more asymmetrical information, large informal sectors, corruption, SOEs, persistence of monopolies, impermiability of monopoly power, obstructed distribution channels, privileged procurement, MNE access to politicians, suppression of the press (and thus of competition advocacy), curable diseases decimating populations, systemic poverty

  13. Competition Law – an exercise • It is not clear that developed countries can or should answer this question; but they can help • Developed countries’ norms are usually the starting point; this has benefits; existing work as building block – e.g. US DOJ and FTC and World Bank handbooks • To begin: What formulations are most friendly to poverty alleviation and efficient development - • Consider rules and principles governing specific conduct • Consider related principles that might constrain governance abuses • Abuse of dominance as a sample starting point • This is where antitrust has its largest swings, and rules sometimes preferred by developing countries – e.g. as in the UNCTAD model code – may differ from rules sometimes preferred by developed countries

  14. Competition Law – example 1 • Exclusionary practices by dominant firms • Several standards and principles have been proposed and implemented, see 73 Antitrust LJ; compare German law • One principle: No conduct should be condemned unless it shrinks the size of the pie or at least the size of consumer surplus • Many developing countries/newer jurisdictions • have rules against unjustified tying and other uses of leverage – see annotations in UNCTAD model code • Are such rules more or less friendly to development? • What costs of error in condemning efficient conduct?

  15. Competition Law- example 2 • Predatory pricing • Predatory pricing that is allocatively inefficient is likely to be more common in nations with persistent monopoly, high barriers, weak capital markets • Is a rule of law more aggressive than Brooke Group (strong leaning towards non-intervention) more friendly to development? • Or is Brooke Group the better test because low-price competition is so vital and more nuanced rules are so difficult to apply?

  16. Competition Law – example 3 • Access to vital medicines • South Africa is suffering an AIDS crisis • Anti-retroviral drugs significantly extend life, improve health • It was alleged that patent holders sell ARVs at a monopoly price, costing each user more than $10,000 per year • Do nations want a rule controlling excess prices or ordering compulsory licensing in exceptional cases? • There are costs of such a rule, including less investment in new generations of drugs

  17. Competition Law - general • The process of developing rules and principles that fit the context • Importance of developing countries’ voices in deciding what is good for them • This does not mean rules will be different; most will not. Developing countries may decide that developed norms are best; or that anchoring into developed norms where they exist is more efficient for them than tailored rules; or they may regard certain tailored rules as well supported (see annotations to UNCTAD Model Code) • Many initiatives of developed countries are clearly helpful; e.g., US FTC fight against pharmaceutical firms’ misuse of government process to maintain monopolies • They may influence the development of universal norms • Priorities – enforcing where it helps most

  18. Inducing MDG proponents to value competition and competition law • Gains to the poor from efficiency (esp. where efficiency and fairness coincide - cartels, boycotts) • Traditional restraints seriously harm developing countries • See Jenny, Evenett • Gains from competition (law) in general • Transparency of the system, see Kovacic • A wedge against corruption and cronyism • See Khemani and Dutz, World Bank reports • Facilitating mobility of the less advantaged • Cf. de Soto (dealing with state restraints)

  19. CONCLUSION: A HARD CHALLENGE, A GOOD FIGHT • “Selling” competition to MDG policymakers • Competition law and policy • Lower prices – prioritize restraints on necessities • Unblocked markets – prioritize those in which the less well advantaged can participate • Legitimacy and mobility • enabling freedom to compete on the merits in transparent markets, freer of cronyism, corruption, and repressive power of the state • A meaningful place at the table in formulating universal norms

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