Competition a game changer in PHL economy
by Arsenio M. Balisacan, PhD
March 18, 2018
It’s high time we address the restrictive economic policies and anticompetitive business practices that have proven too costly for the Philippines and led to the highly unequal distribution of opportunities.
Studies have shown how more competition contributes to overall productivity and growth of firms or sectors of the economy. For the ordinary Filipino, greater competition means lower prices, better quality and more choices. Competition also promotes innovation, which improves the economy’s efficiency and potential, especially with the advent of cutting-edge technologies.
In recent years, the Philippine economy has enjoyed a surge of growth and stability that has made it one of the fastest growing in the world. The country’s economic growth rate of 6.3 percent from 2010 to 2017 was the highest eight-year average expansion since the late-1970s.
Yet, the conversion of this stellar economic performance to poverty reduction has been slower and weaker than expected. Part of the blame lay in the weak state of competition in industries or sectors that matter much to the poor.
Weak competition, in turn, arose from several decades of policy distortions, prohibitive regulations and underinvestment. Policies on import substitution, quantitative restrictions and high import duties, as well as restrictions on foreign investments have inoculated domestic industries from the tides of competition and innovation from abroad.
This led to the stagnation of local industries, nurturing in their stead monopolies and oligopolies in areas as diverse as manufacturing, utilities, telecommunications and transport—all at the expense of the Filipino consumer who has had to suffer a double whammy of high prices and poor quality of goods and services.
True, there was a rare period in the 1990s when some industries were opened up to competition, notably air transport, power and telecommunications. This wave of liberalization ushered in not only a healthy dose of economic growth but also a partial suppression of market power and industry concentration, in turn, leading to affordable services and improved quality (witness here budget airfares and the wider access to telecommunications).
Today market power continues to reign over vast areas of the economy. In some sectors or industries earlier opened up to competition, market power has returned with a vengeance.
A 2017 study by the World Bank shows that poor competition hampers several industries, including telecommunications, shipping, air and water transport, water, electricity distribution, agriculture, cement, pharmaceutical drugs and downstream oil. Dismantling these remaining concentrations of market power will help spur not just aggregate growth, but also improve consumer welfare.
Small and medium enterprises have also found it difficult to thrive in an environment where a level playing field is more of the exception than the norm, thus hindering their growth, and by extension, employment opportunities.
The Philippines has failed to become a significant player in the prospering Asian region, which is worrisome, amid the push for Asean economic integration. There is a need to step up the competitive environment in the Philippines to take advantage of the tectonic economic shifts occurring across the region.
That is why the passage of the Philippine Competition Act, and with it, the creation of the Philippine Competition Commission (PCC), are steps in the right direction. To perform its mandate of promoting market competition, the PCC is tasked to prohibit anticompetitive agreements and acts. Certain large firms enjoying dominant market position are barred from abusing their position to limit competition.
The PCC is also tasked to prevent mergers and acquisitions that substantially lessen competition. Given these mandates, how can we build trust in the pursuit of a more competitive business environment?
As the PCC takes initial steps toward a more level playing field, one of the most important challenges is establishing a broad support not only among industry players and fellow regulators, but also from the public, who, ultimately, will benefit from greater competition in the country.
Far from being an additional bureaucratic layer or cost to doing business, the commission should be seen as an exponent of the welfare of both producers and ordinary Filipinos.
Rest assured, the PCC adheres to global best practices and listens to the needs and aspirations of the people. It establishes links with competition agencies abroad to gain insights from their rich experience and keep abreast of latest developments in competition law and economics. This spurred the recently organized 2018 Manila Forum on Competition in Developing Countries.
In sum, the country has waited for so long to see the establishment of a comprehensive and coherent competition law and policy. Now that we are on our third year of operation, we realize that the challenge before the Commission remains daunting.
It may take years before we could iron out long-established anticompetitive behaviors and practices in the country, and we are certainly bound to encounter much opposition along the way. In these, we can assure the public that the PCC is committed to ensuring the highest level of integrity, independence, and fairness in the performance of our duties. The competitive Filipino people deserve no less.
Dr. Arsenio M. Balisacan is the chairman of the Philippine Competition Commission and Professor of Economics (on secondment) at the University of the Philippines Diliman. Prior to his appointment to the Commission, he served as Socioeconomic Planning Secretary and, concurrently, Director-General of the National Economic and Development Authority.
(Originally published on Business Mirror’s Competition Matters column on March 18, 2018 here.)