Thursday, September 6, 2012
Posted by D. Daniel Sokol
Angel Lopez Hoher (Mexican Federal Competition Commission) explores Competition Advocacy in Mexico: Lessons From the Past Decade.
ABSTRACT: Competition advocacy is sometimes treated like enforcement's poor cousin; academic debate, practitioners' attention, and agency priorities tend to be geared towards enforcement across the world. And rightly so, to some degree: advocacy is much more variable in its methods and ethereal in its outcomes. Even worse, it sometimes borders suspiciously on mushy public relations, instead of the solid analytical terrain of enforcement.
But nonetheless, advocacy is an essential part of a competition agency's toolkit, especially in jurisdictions where markets still have shallow roots and competition is a newfangled concept struggling to hold its own against state intervention and rent seeking. The Mexican case is a good example, for several reasons: First, in spite of the past two decades' far-reaching economic liberalization, the Mexican economy still suffers under the legacy of the state-led, corporatist economic policy that held sway for at least sixty years before that, and which lingers in vast pockets of anticompetitive regulation and all too frequent distrust of market mechanisms in Government, Congress, the Judiciary, and the general public. Second, these conditions tend to be concentrated in services that have a horizontal impact on the rest of the economy, such as telecommunications, transport, energy, and financial services. Trade liberalization in the 80s and 90s brought market discipline to those sectors of the Mexican economy where competition from abroad was a factor; but in non-tradable sectors-for example the services mentioned above-this impulse to modernize regulation and adapt to market conditions was absent, thus yielding a dual economy that holds back competitiveness and harms consumers in downstream markets (i.e., most of the economy).
Third, advocacy, when it is successful (for example through the removal of artificial barriers to entry or market distortions), allows structural changes to competitive dynamics, shifting incentives permanently and across the board, instead of relying on the case-by case threat of competition enforcement. For an agency that is one of the smallest in the world relative to the size of the economy it regulates, this makes it especially attractive to devote some of its scarce resources to advocacy efforts.