The unbearable lightness of the competition law

was my Trade Tripper column in the 17-18 July 2015 weekend issue of BusinessWorld:

The passage of a competition law by Congress seemed to have set a celebratory mood in some people. After years of suffering insecurity that other countries have a competition law and we don’t, these people can now say we have one. The fact that the law’s assumption is that more competition can be forged only through greater regulation is an irony lost on many.

The thing is, friends of mine with more sense in their heads than others do appreciate having a competition law, but mainly for this reason: The need to break up monopolies. Or to be more specific, the monopolies of our local oligarchy. Which is all well and good if not for one thing: the present competition law passed by Congress practically ignores existing monopolies.

The new law simply does not directly address the monopolies of the ruling elite. It does seek to regulate possible new monopolies (hence, the power of the conceived Philippine Competition Commission or PCC to regulate and approve planned mergers and acquisitions). But existing monopolies are left alone. The most that can be held against them are possible penalties for “abuse of dominant position.” And even that has a lot of loopholes.

That is, aside from a faulty assumption: Predatory pricing works if the “predator” is willing (and able) to suffer deep financial losses and if the market itself is inundated with regulations that protect current players. Predatory pricing actually benefits consumers (which is the whole rationale, presumably, of the competition law).

Furthermore, considering the internationalized economy, in that businesses need to be efficient and strong not only against domestic but also foreign competition (i.e., companies that operate outside local shores), the competition law’s working paradigm is strangely confined to local market conditions.

So, effectively, the old monopolies are left to go on with their old smug ways while new, bigger, and potentially efficient competitors have to contend with satisfying the PCC. And this is where another problem lies.

I invite everyone to peruse BizNewsAsia’s Dec. 1, 2014 issue. There it reiterates a fact that every economist and policy maker knows: the Philippines has “24 million families and 100 million people.” And yet, political and economic power has been held only by a select few. With that, “since 1962, the country has deteriorated, from Asia’s richest to being the region’s economic laggard.”

I mention that because, indeed, another area we need to look at is the connection that competition policy has with corruption, and thus, relatedly, the need to constrain the ill effects of having both political and economic power held by a select number of families in the country, which is something that even this competition law seems to ignore.

Because, what is the point of having trade commissions, legal procedures, and set penalties if in the end the judged and the judge are from the same side of the fence? Competition laws work in the United States and Europe as the people who lead in business would not be the same people who comprise government, thus serving as a check upon each other. While undoubtedly relationships exist between the two groups in any country, that is a far cry from having the same families actually in control of both business and government.

In other words, what’s the use of appointing (for example) a competition law chairman or commissioner who most likely will belong to the same upper economic and social class of people -- from the same “elite” local schools, his (or his wife’s) social network, family, friends, neighborhood, and future political appointers or business clients -- that he will be regulating?

A recent Financial Times research publication, in fact, gives the following insights about the new competition law: “In light of these close ties between the country’s political and business elites, it is reasonable to question how effective the new antitrust legislation will be.” Thus, in the FT’s view, “there could be increased business risk arising from the creation of an entirely new layer of government regulation that may be susceptible to political influence” and that “there is also wide scope for subjective, rather than objective, implementation.”

Indeed. Note that the PCC’s powers do not extend to retroactive business deals. But the PCC does have the power to “forbear from applying the provisions” of the law (i.e., be relaxed or stricter, or just exempt anyone) according practically to its discretion. And if that were not enough, the measures of the PCC, being attached to the Office of the President, logically would go through the President first (even before any appeal can be made to the Court of Appeals), and remember that it is the President who appoints the PCC members.

So if people are asking if it’s possible that the new competition law is perhaps only capable of protecting the established local and foreign political and economic elite, while at the same time keeping upstart competitive local businesses out, well... yes.