Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Wednesday, August 18, 2010

David Lewis on Global Competition: Law, Markets, and Globalization

Posted by David Lewis

David Gerber’s recently published ‘Global Competition’ is a must-read.  ‘Magisterial’ is the adjective that comes most readily to mind – in geographic scale, in conceptual scope and in sheer ambition.  I have found Part II – ‘Domestic Experience and Global Competition Law’ – the most riveting and, I shouldn’t deny, the most politically gratifying.  Not least because of the attention that it gives to, without every underestimating the difficulties confronted by, the non-US and non-EU competition regimes.  Indeed he concludes this section of the book with the following statement:

These ‘other’ countries hold the key to the future development of competition law, and in order for a global competition law strategy to be effective, it will have to serve their ends as they understand them.  If it does not, they will either not accept it or, if induced to accept it, they are not likely to give it support . In which case competition law would remain a ‘fantasy’ in  much of the world as it so often has been in the past.

And then he adds:

The goal of generating a [global competition] regime in which there is a degree of uniformity, coordination and predictability may well depend on using these differences [between national competition regimes] as a starting point rather than ignoring them or marginalising them.

This is music to the ears of any competition activist who is neither from the US or the EU.  It speaks to a world in which recognition of what John Fingleton often refers to as ‘informed divergence’ becomes the potential glue that will hold together vast brick and mortar multilateral agencies  as well as constructive global networks like the ICN, which Fingleton chairs.

I don’t want to attempt a review of this great contribution to antitrust scholarship.  I do though want to riff off some of the welter of ideas that fill the volume and use them as an opportunity to say something about South Africa, the national regime that I know best, and that may have some resonance in other countries.

At the risk of gross caricature David Gerber draws a distinction between, on the one hand, those regimes in which competition is a fundamental social value, and those in which it is embedded to a lesser extent.  This pretty much distinguishes between the US, on the one hand, and the rest of the world, on the other.  The ‘rest of the world’ is located along a vast spectrum.  This  may range from those in which competition law and the markets which it seeks to defend are deeply embedded, to those for whom the passing of a competition law is little more than a requirement in a trade agreement or a condition for receiving a much needed loan. 

Germany, appears, in Gerber’s estimation, to be the other regime in which competition and markets attain the status of fundamental social values.  But this is interesting.  Not least, because although German competition law has a longer lineage than the period after the Second World War, it was undoubtedly imposed upon the defeated country by the victorious Americans.   And yet its foundation, the basis for its stature, diverges in the most fundamental way from that of the United States.  Whereas in the latter it is rooted in populism and in a deep regard for individual liberty and enterprise, in Germany it represented the core of the grand compromise between capitalism and society.   While this may come as no surprise to scholars of European economic  history, I was immensely struck by Gerber’s characterisation of German competition law as

‘ integral part of Ludwig Erhard’s highly successful social market economy concept [in which] the market was part of society and should serve social needs, but society was also responsible for supporting competition.’    

I repeat that this may reveal little more than my own ignorance, but, while I have always thought of the German social market as one in which the market – in particular the labour market – was moulded and massaged to meet social needs, I had never considered the other part of the bargain: society’s obligation to support, through the application of competition law, the market.  This strikes me as an even more enduring foundation for competition law than that underpinning US antitrust.

What of South Africa?    Our current competition regime is little more than a decade old.  It is based on a strong statute, on reasonably well-resourced and highly independent institutions.  It has engaged robustly in both its merger review and law enforcement activities.  Indeed over this short period, and particularly in the period of the last three or so years when anti-cartel enforcement  has moved to the top of its agenda, South Africa has developed what current competition speak would characterise as an  unusually strong ‘competition culture’, we have become a society in which competition enforcement has taken on the flavour of a social movement.

On the face of it, a cursory examination of the political environment would not have predicted this outcome.   The, African National Congress, the party that took power after the demise of apartheid and that has retained it ever since, came into government, avowedly left of centre, in an alliance with the Communist Party and the powerful trade union movement.  Its policy documents stressed, and have continued, to emphasise, the leading role of the state in generating growth and overcoming poverty.  None of this augurs well for robust antitrust and yet, even in its long years in exile, the founding principles of the ANC articulated its antipathy for the ‘monopolies’ and a commitment to robust antitrust.  It appears to have delivered on this promise.

The basis for the ANC’s support for strong antitrust resided in an antipathy towards powerful concentrations of economic power, an antipathy powerfully rooted in the fact that these centres of economic power were not only all white owned and managed but through apartheid economic policies – particularly its unique system of labour repression – were seen to be direct beneficiaries of that noxious social order.

This antipathy may have gone in several directions.  I have little doubt that had our democracy been born in the years of decolonisation following the 2nd World War it would, in the prevailing mode of the development economics of the time, have taken the form of widespread nationalisation and comprehensive state control of the economy.  But in the liberal era of economics that followed the collapse of the Berlin Wall this was not an option.  And so the alternative was strong antitrust.  The irony is obvious – an ideological standpoint that may, in different circumstances, have sought to replace the market with the state, saw the introduction, in the form of antitrust, of a robust defence of the market as the chosen instrument to discipline the powerful concentrations of private power that had been the product of apartheid.

This may have given rise to a particularly populist and punitive form of antitrust.  But several factors countered the possibility of this outcome.  The negotiated consensus that ended apartheid, one in which all major pieces of economic and social legislation were formally negotiated through institutions in which business’ enjoyed a formal status, a parliamentary democracy in which major social interests, including business, were given voice, and a constitutional order which extended powerful protections not only to individuals but also juristic persons – notably business entities – ensured a more orthodox form of antitrust.  Not, I should add, an orthodoxy of the then prevailing American variety, but rather one somewhat more German in its character as evidenced by the inclusion of social, non-competition interests in the application of antitrust.   The orthodox nature of antitrust was consolidated by the strong association between the fledgling South African competition  authorities and their counterparts in institutions like the ICN and the OECD.  And so the outcome was robust antitrust, but antitrust that, though with a strong South African flavour and content, was firmly located in the broad and sometimes divergent global mainstream that characterised the practice of competition law in the last decades of the 20th century and the first decade of the present millenium.

And so we have developed, with the strong support of the public and endorsement of the government, a strong culture of competition law enforcement, but I would hesitate to claim that competition has been enshrined as a fundamental social value.  The weakness of competition is manifest in government policies and practices that demonstrate what, at best , is a tenuous regard for competition policy.  And so the prevailing centrality of an interventionist industrial policy, the lack of concern for publicly erected entry barriers, a still powerful community of strong state owned enterprises overseen by weak and captured  regulators, all speak to an environment that has simultaneously managed to practice robust competition law in combination with a weak competition policy.

These are bound to come into conflict with each other.  Not only are antitrust decisions undermined by inadvertently contradictory government policies, but as politically well connected business people leverage their political connections to enter the mainstream of big business, so too will the competition law project itself be called into question.  After all, given the historical basis of robust competition law in South Africa, why have strong antitrust when the friends of the political elite have gained entry to the corporate kingdom?

I hasten to add that while this gloomy prognosis remains a distinct possibility, it is not yet a reality.  And nor need it become so.  However, if the beachhead established by strong antitrust enforcement is to elevate competition into a fundamental social value, then the competition authorities are going to have to give considerably more attention to the public restraints and the public policies that, sometimes purposefully, mostly inadvertently, threaten the place of competition in the dominant set of society’s social values.

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