The poisoned chalice of competition enforcement

There is little question that vigorous free market competition is a good thing for economies. Such competition spurs on innovation, cost reductions and increases in productivity. Where competition and active rivals or at least the possibility of rivals emerging to contest market share, are absent, companies stagnate. As much is evident considering many of South Africa’s dysfunctional state-owned enterprises.

While certainly not without criticism, governments world-wide have assumed the authority to set laws to “promote competition”, which manifests in competition enforcement. These laws and policies are typically technical and convoluted, but also bolstered by an established consensus based on the supposed virtue of governmental competition promotion.

Competition policy in South Africa, however, goes further than the mere consensus of ‘competition promotion’ and the likes of ‘collusion prevention’ and aims to promote the ANC government’s public interest and redistributive goals.

The promotion of the broader policy of BEE through competition policy is noteworthy in this context. Locally competition policy, therefore, allows for economic intervention that arguably leans more extreme than in other jurisdictions. For instance, nowadays, frequent mention is made by policy makers of “ownership structures” and “participation in markets” as a focus for competition interventionism. The recent proposed amendments to the Competition Act will likely exacerbate the scope for interventionism along these lines.

Strict free market advocates, like me, would argue that sustained “participation” in markets depends on a firm’s ability to serve consumers with goods and services they value – this is also, in our estimation, what determines “dominance” or large market shares. Such ideas assume minimal government regulation and intervention as best.

In contrast however, the most zealous enforcers of competition policy do not believe in the virtuous of unhampered commerce. They rather believe that the economy is rife with “market failures” and “sub-optimal equilibria” and needs to be punitively managed by technocrats at each and every turn. Many of them also believe that the state’s project competition enforcement will outperform the welfare outcomes free markets, something we free marketeers are critical of.

It is ironic though, that many of the perhaps more moderate competition bureaucrats, who do see some value in free markets, unwittingly, in seeking to promote competition through state enforcement inadvertently expand the state’s interference in the economy through a multitude of paper cuts, which eventually undermines the beneficial workings of markets.

Admittedly, the matter of competition and monopoly becomes murky when an economy is beset with historic and recent laws, regulations and state policies that bestow regulated monopoly (e.g. Eskom), bailouts (e.g. SAA), and centralize access to resources in the state.

The progressive centralization of resources in this way enables politicians to “distribute” access to state contracts and procurement outside regular profit-and-loss market signals, which inevitably leads to rent-seeking and cronyism.

Such influences are not only harmful to consumers but also to taxpayers and are not of the market. The solution for this is not more regulation and competition interventionism, but rather to abolish the host of laws, regulations and political privileges that shape these extortive non-market outcomes in the first place.

Yet, even if one does buy into the need for protection against abusive and collusive “market power” supposedly arising without state grants of legal privilege, or of harmful private sector monopolies sustaining on free markets, it is certainly not what ANC government appear to have in mind when they speak of the “de-concentration” of the racially-skewed “structures of ownership” of the South African economy.

Like a poisoned chalice that appears good on face-value, the ANC government’s competition enforcement may sound good in its marketing of competition promotion, but will inadvertently introduce further anti-market interventionist poison into the economy.

These interventions will harm by expanding further the state’s punitive command over individual freedom of conduct in free enterprise. At the very least, such regulations will naturally increase the compliance load and regulatory hurdles businesses face and are very likely to introduce legal arbitrariness.

Locally, the much-needed major deregulation and privatization of many industries imperiled by toxic government interference and regulatory monopolistic privileges is not on the cards. Rather, the ANC government, and its competition enforcers are choosing to draft bills which will empower the state’s enforcement hammer to fall even harder and perhaps even selectively on private enterprises they don’t like. The 2018 Competition Bill, which is presently finding its way through parliament, is written on these grounds.

For example, the bill seeks to empower the Competition Commission and Tribunal to prosecute “dominant” businesses for “prohibited price discrimination”, if they “require” non-dominant suppliers to sell products at a price that “impede[s] the ability of small and medium businesses and firms controlled or owned by historically disadvantaged persons to participate effectively” (emphasis added). The bill moreover mandates the Competition Commission to consider further BEE criteria in relation to mergers.

Competition intervention, and especially the variant supported by the ANC, by its very nature, moves away from beneficial free market allocation of economic factors toward allocation by bureaucrats, commissions and tribunals.

Whether by restricting mergers, imposing BEE conditions, or by penalizing market conduct deemed normal in freer markets elsewhere, the ANC government’s competition enforcement is likely to only further hamper the beleaguered economy.

The present economy already reflects the impact of numerous harmful laws and regulations. An even more militant, arbitrary, evidently race-based and anti-market enforcement of competition policy is unlikely to improve things for the better. The focus should rather fall on all of the stifling laws and regulations that prop up failing SOEs, legally restricts market access, and decreases economic efficiency across the board with mountains of red-tape.

TG van Onselen is Senior Analyst: Sakeliga