Constitutionalizing competition
by Arsenio M. Balisacan, PhD
May 15, 2018

 

The proposal of the Consultative Committee’s (Con-Com) subpanel on economic reforms to create a federal competition body brings to the fore a long-standing debate about the role of competition regimes.

Basic economic theory suggests that competition is crucial to the proper functioning of markets. Insufficient competition allows some market participants to dominate and, in turn, enable them to set prices independently and inhibit efficient resource allocation. This fundamental principle has gained wide acceptance that many national economies have established competition regimes to go after abusive monopolies and cartels.

Despite this economic rationale, the question persists: what should be the ultimate objective of competition regimes? One view holds that their main aim is to promote the welfare of different groups in the economy. This view limits the function of competition agencies to preventing unreasonable restraints of trade, thereby achieving efficiency in resource allocation. For consumers, the goal is to receive better goods and services at the lowest cost.

Another view, however, suggests that competition agencies do not have an exclusively economic rationale. While agreeing on the economic objective of competition law, scholars of this second view also try to establish a link between competition and democracy. According to this theory, concentrated economic power can lead to centralized political power. By dispersing it, economic power becomes shared by many rather than a select few who could exert undue influence over political decision-making. Put simply, the dispersal of economic power translates to the diffusion of political power.

This is not a novel view. The American Revolution was said to be as much about escaping from monarchy and dispersing political power as it was about avoiding monopoly and diffusing economic power. The rise of the Nazis in Germany had been attributed to the role played by business cartels. After the Second World War, the Germans were compelled to adopt an effective antitrust regime.

In his introduction to what came to be known as the Sherman Antitrust Act, Senator John Sherman argued before the US Congress: “If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessities of life. If we would not submit to an emperor, we should not submit to an autocrat of trade, with power to prevent competition and to fix the price of any commodity.”

Competition law and policy favors a plurality of economic actors and interests. This bias is consistent with the Philippine Constitution’s social justice provision, mandating the State to reduce economic inequality and diffuse wealth for the common good. The overconcentration of wealth is a huge concern that the framers deemed State intervention necessary to temper economic inequality.

This preference for economic pluralism is mirrored in the constitutional doctrine of ensuring a diversity of political interests, as expressed in the separation of powers, term limits, and ban on political dynasties.

The need to level the economic and political playing fields may well explain the Con-Com’s move to include self-executing provisions against political dynasties in the new Charter and create a stronger competition authority with federal powers. The twin objectives are crucial in a federal setup. As our past experience painfully demonstrates, the oligopolistic structure of the economy is paralleled by the political dominance of the few.

While the Constitution already prohibits political dynasties, the constitutional prohibition remains ineffective without an enabling law. Similarly, while it bans unfair competition, the Charter did not create a central authority to oversee the implementation of competition law and policy.

Before the passage of the Philippine Competition Act (PCA) in 2015, competition laws were largely fragmented and uncoordinated, despite an economy dominated by businesses with substantial market power. Studies found that regulatory conflicts often arose because several agencies with competition mandates enact conflicting policies. The danger of regulatory capture was more likely, as regulators beholden to the incumbent firms issue protectionist regulations. There was also a lack of expertise in the appreciation and implementation of competition principles, resulting in failure to enforce competition laws.

The enactment of the PCA was meant to bring order to the chaos. Among its salient provisions is the creation of the Philippine Competition Commission (PCC), a quasi-judicial body with original and primary jurisdiction over all competition-related issues. The law eliminated the prevailing sector-specific approach to competition, which was insufficient and ineffective. Congress meant the PCC to be independent, guaranteeing its members a fixed term and security of tenure. This independence clothes the Commission with authority to challenge both private and public acts that harm competition.

We therefore welcome the proposal of the Con-Com subpanel to elevate the PCC to a federal constitutional body. If it is to be effective in leveling the economic playing field, PCC has to be insulated from political pressure, owing accountability only to the Constitution and the public.

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Dr. Arsenio M. Balisacan is the chairman of the Philippine Competition Commission and professor of economics (on secondment) at the University of the Philippines in 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 May 15, 2018 here.)