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Regulatory Reform, Demonopolisation, and Privatisation: How to Ensure Consistency with Competition Policy

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The speech reproduced below was delivered by the OECD Deputy Secretary General Joanna R. Shelton on 14 June 1999 at the pre-UNCTAD X Seminar on the Role of Competition Policy for Development in Globalising World Markets in Geneva, Switzerland. The main message of the speech is that the most important thing a country can do to assure the pro-competitive potential of its economy and its regulatory regime is to have a sound competition law, enforced by a strong competition authority. There is considerable economic evidence that international cartels operate in ways that are particularly harmful to developing countries. Moreover, an anticompetitive merger among multinational enterprises can be particularly harmful to those countries that are least able to pay. Without a competition law, a country has no chance of preventing such harm. The speech notes that many countries have adopted competition laws, and even more have engaged in regulatory reform, demonopolisation, and privatisation. These three interrelated and sometimes overlapping policies can be enormously beneficial in creating competitive markets; indeed, they are sometimes all seen as applications of competition policy. Each of these policies can be ineffective or even harmful, however, if it is not in fact implemented in accordance with sound competition policy principles. For example, regulatory reform may remove government inefficiency but leave firms with the incentive and the ability to abuse a dominant position or form a cartel. Similarly, eliminating a government monopoly may be very slow to bring about any benefits if the firm is free to act in anticompetitive ways to prevent entry. An unwise privatisation may simply replace government monopoly with private monopoly, and even a privatisation that divides a firm may produce no benefits if the former components of the firm are left to cartelise and recreate the monopoly. Although focusing on competition policy’s contribution to the efficiency and equity of an economy, the speech also notes the potential macroeconomic benefits. The OECD regulatory reform program has produced interesting and important indications that regulatory reform, backed by a strong competition law and policy, can improve economies’ capacity to adjust to internal and external shocks. That is an increasingly important consideration in a world characterised by highly mobile capital flows. In addition, well-conceived privatisation programs can get assets into the hands of more people with the incentive and ability to grow companies through innovation and efficiency, meaning that far more of a country’s citizens have a better chance to contribute to, and benefit from, the resulting economic growth. Addressing the human element in competition policy, the speech emphasises that the adoption of competition law and policy does not mean leaving all members of society to rise or fall based only on their ability to compete. Indeed, OECD countries are learning how they can use market forces and targeted policies to improve their ability to provide a “safety net” for the poor and disadvantaged.

Page Count: 17
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Document Type: Review Article

Publication date: 1999-09-01

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