Innovative regulation: Keeping the speed bumps just right
By Atty. Amabelle C. Asuncion
February 5, 2020

 

There was a time when the roads of northern Fairview were conducive to “The Fast and The Furious” type of car racing. Displaying their newfound ability to drive, teenagers would proudly drive their flashy cars late evenings to race a few meters to be declared king of the road. Soon enough, this activity was brought to the attention of the authorities.  The prohibition against road car racing was enforced, speed limits were imposed, stoplights were installed, and policemen were deployed in the area. The car-racers were directed to take their skills to the proper race tracks.

It was also around this time when residential developments were under way north of Metro Manila. To attract buyers, developers offered gated properties that provided security, privacy and safety. Part of the safety features were speed bumps around the subdivision to prevent vehicular speeding that could endanger residents.  Funnily though, this meant halting almost every two meters for a speed bump high enough to damage your car’s under chassis. As homeowners started to use the village streets, the speed bumps were lowered and lessened, but still enough to prevent speeding and to ensure safety of residents.

These happened in the early 1990s but they actually depict what continues to be the dilemma in competition policy and regulation:  Under-regulation versus over-regulation.

In the first case, there was traffic regulation that generally prohibited road car-racing but it was not sufficient to deter drivers from doing so.  For sure, talent and skills like car-racing should be encouraged. However, there is a need to regulate where car-racing could be done in order to keep the roads safe for other people.  In this instance, further regulation and enforcement was required.

In the second case, while the high and numerous speed bumps ensured safety, these also had unintended and unnecessary outcomes like damaging vehicles or causing undue delay in navigating subdivision roads. Although the streets must certainly be kept safe, the question is whether the speed bumps have to be so high and numerous to achieve this objective.

At the recently concluded 2020 Manila Forum on Competition in Developing Countries, one of the underlying themes was precisely this—how do you keep the speed bumps just right?

Competition policy is a form of regulation which practically mandates firms to really and “fairly” compete with each other.  From a firm’s perspective, this could be difficult and ruinous compared to a market that accommodates a monopoly and allows the firm to recoup its investments more quickly and earn maximum profits.  It could also be seen as preventing growth and innovation because becoming a market leader tends to be eyed with suspicion of potential misuse of market power.  Thus, competition seems to be either a threat to a firm’s existence or a warning against being too successful.  Either way, it is a speed bump to an otherwise strongly motivated firm driving toward its desired destination.

Similarly, sector regulation is another speed bump that is probably just a meter apart from the speed bump of competition. Its development in the Philippine context, however, is viewed a little more positively in that sector regulation is by definition supposed to help the sector even as it regulates it.  Thus, the policy objectives of sector regulation tend to focus on enforcing qualifications, standards, safety measures and the like. Still, sometimes this speed bump can be too high that the firm might just end up backing off rather than trying to get over it and destroying the car.  (In an ideal setup, competition policy should be able to give the firm a push to get it to slide over the unjustly high speed bump of regulation.)

These speed bumps with different heights sitting closely to each other could be so daunting as to discourage and drive away business.  This, ironically, is the last thing that competition and regulation would like to happen. The challenge, therefore, is how to create business-friendly policy spaces.

As brought out in the forum, the common and surprisingly simple answer is cooperation and collaboration among regulators and business. Quite right.

Before this can be done, however, there must be mutual respect for each other’s objectives. There must be an appreciation of each other’s goals, an acceptance that such goals are legitimate, and an acknowledgment that each party has to achieve its objectives.  This means that business must understand what the regulators are trying to do, why they are doing it, and that they have to do what it takes to accomplish their policy objectives.  In the same way, regulators must accept that business is there for profit and that it has to protect this proprietary objective. Between regulators, they must understand each other’s policy objectives and acknowledge that these are of equal importance.  Having this common understanding and acceptance is crucial in bringing all parties to a state of openness and readiness for cooperation and collaboration.

Next, regulation must keep up with the times. A frequent criticism is that regulation always lags behind business and technological developments.  Yet, it is also not realistic to demand that regulators be able to predict such developments before they occur lest this results in over-regulation. What, therefore, does keeping up with the times mean? It is for regulation to be innovative.  It is futile to insist on a traditional framework if it no longer addresses present-day concerns.  This means genuine mutual efforts by regulators and business to bridge the information asymmetry.  Only in being well-informed can regulators respond appropriately.

Finally, regulation must be suitable to the governed sector and consciously infused with overarching principles and policies aimed at serving the public good.  This is where competition policy becomes relevant.  Regulation must be innovative and inclusive.  While it protects sectoral interests, it should keep the playing field open for anyone who wants to come in, and level it for them to have a fair chance to succeed. Sometimes, this means rechecking the height and width of the regulatory speed bump, recounting if there are too many, and recalibrating if any is misplaced, as often as necessary.

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Before her appointment to the Philippine Competition Commission (PCC), Commissioner Asuncion was engaged in corporate and commercial practice and served as chief legal counsel of a top company and a corporate partner of a law firm. She was also previously involved in legislative, law and policy reform, advocacy, and adjudication work. Commissioner Asuncion has a Master of Laws degree (with distinction) in International Legal Studies from Georgetown University Law Center in Washington, D.C. and is admitted to the New York bar.

 

(Originally published on Business Mirror’s Competition Matters column on February 5, 2020 here.)