CONVERSATIONS WITH THE FTC: Economic development needs fair competition
Today’s conversation is with John Davies, who recently gave the Fair Trading Commission’s 13th annual lecture. Davies is senior vice-president of Compass Lexecon in Paris, France.
YOUR ANNUAL LECTURE presentation, Competition Policy And Economic Development – is there a link between regulation and growth for economies such as ours? What are some of the salient points from your presentation that stakeholders should embrace?
I was mainly concerned to reassure stakeholders that in supporting the Barbados Fair Trading Commission, the Government is doing the right thing. Setting clear rules but then letting businesses compete is demonstrably the way to achieve economic growth. It is particularly important for a high middle income country to get the system right, as such countries do not have the advantages of very cheap labour, which is available in poorer countries, and they need to up their game in order to keep developing.
There is no reason why an independent country like Barbados should worry about where economic growth will come from any more than, say, a city of 200 000 people in a larger country would worry about that. Economic growth in per capita income is basically driven by productivity growth, so as long as Barbados has policies that increase productivity, it will succeed. However, competition between companies is a very important way to increase productivity growth, so the work of the Fair Trading Commission is essential.
From 2003 to 2008, you served as the United Kingdom (UK) Competition Commission’s (now the Competition & Markets Authority) director of economic analysis, then chief economist – what were some of the highlights of your tenure?
New competition legislation had just been passed (the Enterprise Act 2002), so I had the privilege of working on the very last merger review under the old Fair Trading Act and the very first under the Enterprise Act. This was a huge change, as the 2002 Act gave the Competition Commission the power independently to decide on mergers; prior to that it had merely advised the government.
It was an interesting time to be responsible for the economic analysis conducted by the commission as well, as we applied some tools of economic and statistical analysis for the first time. What I always enjoyed most in my day-to-day work was trying to find ways in which the economic theories and techniques, in which I and my team were expert, could help the commissioners. Technical specialists can contribute a lot to a public body’s work – but there needs to be a lot of listening in both directions!
Subsequent to your tenure with the UK Competition Commission, you established the Competition Commission of Mauritius. Tell us about your experience.
Like Barbados, Mauritius is a small but rather successful economy very dependent on openness to external markets and trade. There was some scepticism, especially from the business community, about whether a competition law was needed but there was a lot of interest and support as well.
I was pretty pleased with how quickly we were able to establish the commission, with good support from government and the commissioners. I am particularly proud of how the commission has established a good name for itself among competition authorities globally.
Having worked with both the UK Competition Commission and the Competition Commission of Mauritius, what were some of the differences and similarities you encountered? For example, developed country versus developing, population size, culture, and so on?
There are a great many differences and all of those differences you mentioned matter. One thing I was struck by in Mauritius was how, as a new institution, we had to build a reputation and we were not automatically trusted, as the UK Competition Commission always was. We had to make sure it was clear that we were there to promote competition, not trying to trip businesses up by applying competition law in a mechanical way. That trust depends as well on a reputation for preserving confidentiality and behaving professionally – that need constantly be at the forefront of any senior official’s mind.
Competition commissions should not be shy about speaking up to advocate for more pro-competitive laws and regulations, in addition to enforcing the law. Smaller states especially need to be able to take part in the global community: both learning from larger, more experienced agencies and also making sure their perspectives and interests are heard.
The Barbados FTC has been prominent in, for example, the International Competition Network, punching “above its weight” as indeed Mauritius does, and I hope that it will continue to do so. Participation in international events can be quite resource-intensive but it is a core part of the work, especially in a smaller jurisdiction. Regional enforcement is valuable as well; it can help smaller jurisdictions to combine their resources, especially when assessing regional mergers or cartels.
Would you say there are critical elements that are found in any well regulated territory, no matter the size/conditions?
Effective and trusted institutions of government are more important than the specific policies. It is a long, hard business building institutions up and they can collapse rather quickly. It is essential that regulatory institutions be held to account: that they visibly carry their work out independently and according to the criteria set out in the law, that they explain their decisions and that those decisions can be appealed through the courts by aggrieved parties. All of this requires independent, reasonably well-financed institutions, as well, of course, as the rule of law.
The alternative is arbitrary, capricious and politicised intervention in the economy. The disastrous effects of that are visible in, for example, Venezuela and Russia. Of course, elected politicians should influence the way that economies develop but they should do so, where possible, by setting up the rules of the game and then stepping back, rather than directly intervening.
Any final thoughts?
Just to thank the Commissioners and staff of the Commission for the opportunity to visit your beautiful country. I had a lot of fascinating discussions about competition and economics, but I also ate a lot of dhal puri roti (which I got to like in Mauritius), as well as flying fish with cou-cou. I also spent a happy day wandering along the coast and around Garrison and Bridgetown as well. I very much hope I will have the opportunity to return some day!