Government Competition Policies Relating Liberalization

Essay from the year 2006 in the subject Business economics - Economic Policy, grade: 4,0 (gut), University of Pécs (Faculty of Business and Economics), course: Business Economics, language: English, abstract: “Almost all market competitors are firms – business organizations (social groupings) that are, for the most part, internally cooperative, not competitive. Firms are the principal suppliers and buyers of most products and services, while consumers (households) generally buy only final goods (...). Typical market transactions involve competition among firms. Many of these firms, including subtypes such as labour unions, can legally own and exchange property and differentiate and isolate their legal liability as a group from the inability of their members.” The competitive-cooperative market system is controlled by formal social regulations we call competition policy. This term refers to the body of laws of a state which govern the extent, and ability, to which bodies can economically compete. They hence to restrict practises that can pull down market competition such as monopoly or cartel. Most nations have an own legal competition framework, and there is a general agreement on what is and what is not acceptable behaviour. “In general, liberalization refers to a relaxation of previous government restrictions, usually in areas of social or economic policy. (...) Most often, the term is used to refer to economic liberalization, especially trade liberalization or capital market liberalization, policies often referred to as neoliberalism. One of the world’s most open trade ad investment regime is the one of the United States. However, a liberalized and deregulated market has to be supported by rules of the game to ensure competition. But although economic liberalization often is associated with privatization, the two can be quite separate processes. As an example, in the European Union the gas and electricity markets were liberalized a few years ago, instituting a system of competition; but some of the leading European energy companies (such as EDF or Vattenfall) remain partially or complete in public ownership. “Liberalized and privatized public services may be dominated by just a big few big companies, particularly in sectors with high capital costs, or high sunk cost, such as water, gas and electricity. In some cases they may remain legal monopolies, at least for some part of the market” (i.e. parts of postal service in Germany a few years ago).

This book explores the wave of liberalization reforms experienced by OECD network industries. Focusing on the telecommunications sector, the authors analyze the latest data available on liberalization and privatization, and following a political economics approach, they integrate standard economic analysis with the most recent studies of the political determinants of market-oriented policies. The book presents new econometric evidence on several policy issues, including institutional complementarities dynamics, the problem of policy sequencing and the role of government political ideology. The detailed and comprehensive discussion offers insights into how so many countries adopting similar reforms actually differ in their policy “bundling”, intensity and implementation of liberalization and privatization.

The Political Economy of Regulation in Turkey brings together leading international scholars and experts on Turkey and regulatory reform to provide essential information on the recent Turkish experience and its relation to competition policy. After the 1980 liberalization reform, Turkey tried to introduce competition in many industries, but network industries have remained as monopolies. At the end of the 1990s, regulatory reform was initiated and independent regulatory agencies have been established by the government. Comprehensive discussions of these network industries, in particular airlines, electricity, natural gas, telecommunications and environment regulations, are offered. The contributors inquire how economic theory and historical analyses can enlighten the character of market processes and the role for government action in these industries, and the contributions shed light on the very recent changes in the regulatory structure and important legal cases that shape the future of regulated industries. This book discusses these issues in an international perspective and relates the Turkish experience to other similar countries, such as in Eastern Europe and Central America. This book serves as a useful guide to those who want to understand major changes in Turkey and regulatory reforms in other emerging markets, making it of interest to researchers and PhD students concerned with regulatory economics, the Turkish economy, and economic policy in emerging markets.

As countries large and small, rich and poor are drawn inexorably into the global economy, protectionist policies are proving increasingly inefficient and ineffective for driving growth. The countries of Latin America, which have long pursued agendas of state ownership and heavy regulation of key industries, began to institute a series of reforms in the 1980s and 1990s, designed to promote competition and business creation. However, without the legal and institutional framework to support these policies (and thus guarantee resource-efficient behavior on the part of business owners), the record has been spotty at best. Competition Policies in Emerging Economies features in-depth analysis of two key industries—telecommunications and banking—in several Central American nations to shed light on the dynamics of the transition to deregulation and trade liberalization, and learn from the experiences of these economies. This book has a three-fold purpose: (1) to examine the competition conditions and policies of small developing countries of Central America (and hence cover an area where very little information exists); (2) develop an in-depth analysis of regulation and competition policies in two key industrial sectors with poor competition records (telecommunications and banking); (3) link the former results analysis with other international experiences, in order to derive research and policy recommendations that can be applied to other small, developing, and emerging economies. Featuring discussion of political, legal, economic, financial, cultural, and organization-level issues, the book provides unique perspectives on the forces resisting competitive practices and offers suggestions for overcoming them.

If a government is concerned about this it could require foreign banks to establish local subsidiaries that must satisfy local capital adequacy requirements. But this presupposes that there is effective regulation and an effective regulator that considers the potential effects of different forms of liberalization. Another example is when there are significant rents associated with a certain policies. Regulatory agencies may argue that it is better that these accrue to domestic agents than to foreign firms, even if the latter are more efficient providers of services. The name of the game in trade negotiations is market access: this may easily result in a transfer of rents from local firms to foreign ones if the regulatory regime is not one that ensures markets are contestable. The implication is that broader regulatory reform is in many cases needed to ensure that welfare increases after liberalization. In general, improved prudential and pro-competitive regulation will be necessary to deliver the full benefits of liberalization in sectors such as financial services; basic telecommunications and other network-based services. Thus, attention should focus on strengthening and maintaining a robust capacity to identify, understand and design the domestic regulatory reforms that are needed to enhance the efficiency of services sectors. Addressing regulatory concerns and constraints: Given the importance of regulation as a source of market segmentation, cooperation on regulatory matters is needed for trade agreements to do more than be a mechanism to lock-in applied policies and “harvest” unilateral actions by governments to open markets. One dimension of such cooperation is international assistance for national regulatory reform and strengthening implementing institutions so as to increase the prospects of achieving efficiency and equity objectives. This is a process that takes time and that will benefit substantially from information on the approaches and experiences of other countries that have (had) similar challenges. There is not necessarily any regulatory “best practice” for a sector or cluster of activities - in many cases there will be many options and countries need to figure out the approach most appropriate to their circumstances and needs. Once a reform path has been defined, implementation could be assisted by external assistance from high-income partners in North-South PTAs or development agencies as part of the multilateral “aid for trade” initiative. International dialogue and exchange of information and experiences - as is done through APEC - is another option. While APEC has often been criticized for being a “talking shop” the process has been effective in facilitating learning about country experiences and building trust among governments and regulators from participating countries. Better regulation will often be a precondition for action to open markets to greater competition, as well as for greater trade in instances where recognition of, or convergence in, regulatory norms is required to permit foreign firms to contest the domestic market. Another type of cooperation is between regulators and is explicitly focused on expanding market access opportunities: aiming to address regulatory externalities that impede greater trade in services. The types of externalities that may arise will differ depending on the service activity. More cooperation on prudential regulation may be a precondition for trade in financial services and in information-based services to occur - for example, regulators may need to converge on a set of regulatory or data protection standards and establish that such standards are enforced. Competition agencies may need to have assurances that pro-competitive regulations apply in partner markets to ensure that gains from liberalization are not appropriated by international oligopolies. Particularly important is cooperation between regulatory agencies in host and source countries to allow greater temporary cross-border movement of natural persons that provide services - the experience of a number of successful bilateral labor agreements demonstrates that this is a precondition for arrangements that expand the “circular flow” of people. Mutual recognition of licenses and certification will often be another part of the equation. Sometimes there is no good reason to hold back on liberalization even when regulatory reforms and access widening policies take time to implement. This is true for reforms that are “additive” in that the benefit from trade reform is independent of the benefit from domestic reforms and each can be undertaken separately. Thus, for example, the powerful growth of mobile telephony even in institutionally weak countries like Somalia suggests that there is no economic reason to wait to liberalize until a universal access policy is put in place say in telecommunications. In other cases reforms are “multiplicative” in that a country would benefit more from trade reform if domestic reforms were also implemented (and vice versa), but the order in which the two are implemented does not matter. Thus, regulatory improvements and competition in transport are mutually beneficial but the sequence is probably not critical. However, in a number of situations, “sequences matter” in that if a country implements trade reform before the necessary domestic reform, then the long-term payoffs will be lower than if the opposite sequence had been followed. This can be for both economic and political reasons. In these situations, if the complementary reform cannot be implemented instantaneously, then there is a case for gradual liberalization. For example, in countries like Zambia and South Africa, the failure to introduce full competition in a sector such as telecommunications made it much more difficult to implement effective regulation because of the excessive economic and political power of a monopolistic incumbent. In other sectors the problem has rather been too much competition too early leading to a form of “regulatory overshooting”. For example, allowing new entry in banking without creating a mechanism to sift the sound institutions from the dubious led to disruptions that have had a durable effect on the development of the financial sector in many countries: the once-bitten depositor is skeptical of the benefits of banking and the once-bitten central bank excessively prudent with stability the main concern. The result has been the implementation of excessively stringent regulation that has itself become an impediment to access. Fora for learning and communication: “knowledge platforms”: There are two specific dimensions to the broad challenge of national regulatory cooperation and services policy reform: (i) addressing knowledge gaps - increasing information on regulatory experiences and impacts and identifying alternative options/good practices; and (ii) identifying the impact of - and the options for dealing with - the political economy constraints that impede the implementation of welfare improving reforms. A number of analysts including Geza Feketekuty (2010), one of the “fathers” of the GATS, have suggested that efforts to improve market access opportunities need to be complemented by other approaches. Feketekuty argues for a mechanism to share experiences.

The Political Economy of Regulation in Turkey brings together leading international scholars and experts on Turkey and regulatory reform to provide essential information on the recent Turkish experience and its relation to competition policy. After the 1980 liberalization reform, Turkey tried to introduce competition in many industries, but network industries have remained as monopolies. At the end of the 1990s, regulatory reform was initiated and independent regulatory agencies have been established by the government. Comprehensive discussions of these network industries, in particular airlines, electricity, natural gas, telecommunications and environment regulations, are offered. The contributors inquire how economic theory and historical analyses can enlighten the character of market processes and the role for government action in these industries, and the contributions shed light on the very recent changes in the regulatory structure and important legal cases that shape the future of regulated industries. This book discusses these issues in an international perspective and relates the Turkish experience to other similar countries, such as in Eastern Europe and Central America. This book serves as a useful guide to those who want to understand major changes in Turkey and regulatory reforms in other emerging markets, making it of interest to researchers and PhD students concerned with regulatory economics, the Turkish economy, and economic policy in emerging markets.

When should government intervene in market activity? When is it best to let market forces simply take their natural course? How does existing empirical evidence about government performance inform those decisions? Brookings economist Clifford Winston uses these questions to frame a frank empirical assessment of government economic intervention in Government Failure vs.

Interest in U.S. trade policy has been stimulated in recent years by the massive American trade deficit, by the belief that intervention by foreign governments in international markets has given other countries a competitive edge over the United States, and by concern about the increase in protectionism among industrial countries. In turn, major analytical developments in international economics have revolutionized trade theory, broadening its scope both by introducing in a more formal manner such concepts as imperfect competition, increasing returns, product differentiation, and learning effects and by including the study of political and economic factors that shape trade policy decisions. This collection of papers—the result of a conference held by the NBER—applies these "new" trade theories to existing world cases and also presents complementary empirical studies that are grounded in more traditional trade theories. The volume is divided into four parts. The papers in part 1 consider the problem of imperfect competition, empirically assessing the economic effect of various trade policies introduced in industries in which the "new" trade theory seems to apply. Those in part 2 isolate the effects of protection from the influences of the many economic changes that accompany actual periods of protection and also examine how the effects from exogenous changes in economic conditions vary with the form of protection. Part 3 provides new empirical evidence on the effect of foreign production by a country's firms on the home country's exports. Finally, in part 4, two key bilateral issues are analyzed: recent U.S.-Japanese trade tensions and the incident involving the threat of the imposition of countervailing duties by the United States on Canadian softwood lumber.

Electricity, natural gas, telecommunications, railways, and water supply, are often vertically and horizontally integrated state monopolies. This results in weak services, especially in developing and transition economies, and for poor people. Common problems include low productivity, high costs, bad quality, insufficient revenue, and investment shortfalls. Many countries over the past two decades have restructured, privatized and regulated their infrastructure. This report identifies the challenges involved in this massive policy redirection. It also assesses the outcomes of these changes, as well as their distributional consequences for poor households and other disadvantaged groups. It recommends directions for future reforms and research to improve infrastructure performance, identifying pricing policies that strike a balance between economic efficiency and social equity, suggesting rules governing access to bottleneck infrastructure facilities, and proposing ways to increase poor people's access to these crucial services.