Pass the competition law now!

September 2, 2014 at 09:55

“Our Constitution mandates government to ensure that the market is fair for all—no monopolies, no cartels that kill competition,” declared President Aquino in his first State of the Nation Address (Sona) on July 26, 2010. “We need an Antitrust Law that will give life to these principles, and give small- and medium-scale enterprises (SMEs) the chance to participate in the growth of our economy.” Thus did the President articulate the government’s policy on competition. In his fifth Sona last July 28, he reiterated: “We are forging a system of fairness… where true competition leads to opportunity and widespread progress.”

Days later, Sen. Bam Aquino, chair of the Senate committee on trade, commerce and entrepreneurship, delivered his sponsorship speech for the Fair Competition Act of 2014 (Senate Bill No. 2282). Together with the concerted development of SMEs, I have long considered this bill to be critical to achieving long-needed inclusive economic growth and development in our country. It aims, among other things, to promote and enhance economic efficiency and competition and ensure that industrial concentration would not limit economic power to a few. The law, Senator Aquino asserts, will safeguard the welfare of large and small businesses, and protect honest, hardworking entrepreneurs against abuse of dominant position and other unfair practices by certain market players. It will promote a culture of healthy competition that inspires ingenuity, creativity and innovation in addressing consumers’ needs.

Will the 16th Congress finally pass this landmark law? The measure has been pending since the 1990s, when among the first moves of the Ramos administration was to diffuse monopolies and cartels in certain key economic sectors. Telecommunications and domestic aviation were the first objects of this crusade, and the positive results have since become quite evident to every Filipino. Telecoms soon became the most vibrant and rapidly growing industry in the economy, consistently posting double-digit growth for many years. Meanwhile, widened choices in domestic airline services brought costs down to levels that most Filipinos could now afford, with one airline’s tagline rightfully claiming: “Now everyone can fly.”

What’s wrong with the absence or lack of competition? Without adequate competition or market contestability (that is, the credible threat of possible entry by potential competitors), the producer or supplier can exploit undue market power. He can (and will) limit quantities supplied and set prices higher than would otherwise prevail under a competitive market, allowing him to enjoy excessive profits at the consumers’ expense. All this reduces overall welfare for all.

Not all monopolies are inherently bad, however. In exceptional cases, we could all be better off having a monopoly, particularly when economies of scale make it cheaper to have one provider for the good or service. This is the case with the local distribution of electric power or water, for example, where it would not make sense for a city or town to have more than one firm provide such services. One cannot have two or three sets of power distribution lines or water pipelines traversing a municipality; it would not only be more costly for all, it would also be rather messy. That is why these cases are called natural monopolies. In these instances, we need government regulatory bodies like the Energy Regulatory Commission and the Metropolitan Waterworks and Sewerage System to ensure that Meralco, Manila Water and Maynilad do not take undue advantage of their monopoly position at the public’s expense.

Nor is bigness or dominance inherently objectionable. Competition law does not seek to prevent or punish dominance; it is not illegal for a company to be in a dominant position. But dominant companies have a special responsibility not to allow their conduct to unduly damage or impair free and fair competition in the market. What the law seeks to prevent are (1) abuse of dominant position by a company with significant market power, that is, using its dominant position to exclude or harm competitors and compromise competition, (2) anticompetitive agreements among firms that prevent, distort or restrict competition, and (3) anticompetitive mergers that lead to considerable reduction in competition.

The New York Times recently ran an article on how infrastructure inadequacies in the Philippines erode the nation’s growth prospects. Among these is information and communication technology, wherein it was recently widely reported that the Philippines has both the slowest and costliest Internet in the region. Not a few see a link between this and the fact that the telecoms industry, coming from the vibrant competition that marked the 1990s, has reconsolidated back to a situation where competition is again widely seen to be lacking.

It must therefore be government policy to ensure adequate competition in the productive sectors of the economy. Many other countries, our most dynamic South East Asian neighbors included, already have strong legal frameworks that counter monopoly and unfair trade practices. Having a competition law is in fact among the agreed measures in pursuit of the Asean Economic Community, and I see it as an embarrassment that we are the only country among the original five Asean members that has yet to enact one. Is it any wonder that our rapid economic growth has yet to be felt by the wider mass of the population, and that we also have the most lopsided wealth and income distribution in our part of the world?