Many think that competition policy and law are tools for the rich and urban society. They are highly mistaken. At the macro level, the design and implementation of a competition policy will enable the enhancement of the welfare of poor consumers. At the micro level, an effective competition regime or consumer law (covering competition distortions) can prevent consumer abuses both at the industry level as well as in a village or locality, where one shopkeeper can cheat the whole community. This short paper argues that an appropriate and dynamic competition policy and law is an imperative, for all countries, at any level of development, to buttress economic development, curb corruption, reduce wastage and arbitrariness, improve competitiveness and provide succour to the poor.
What does competition mean?
Competition means rivalry in the marketplace, which is regulated by a set of policies and laws. In theory, competition policy has three goals:
- Consumer welfare
- Economic efficiency, and
- Check on concentration of economic power
All these three goals have interactive relationship and when in harmony deliver total welfare. Indeed, it is consumers that are supposedly the biggest beneficiaries from competition, mainly in terms of lower price, better quality of goods and services, more choice etc. often resulting from innovation and easy availability.
On the other hand, it is consumers, who are the main losers due to anti-competitive activities in a market. The poor consumers are the worse off, because of their incapacity to deal with such problems. Therefore the need for governments to design and implement a competition policy with the understanding that consumers need the invisible hands of the state to protect and promote their interests.
How do governments maintain competition policy?
Governments maintain competition through either a stated comprehensive competition policy or by incorporating competition principles in other policies.
Competition policy is defined as “those Government measures that directly affect the behaviour of enterprises and the structure of industry”. This has two elements:
- a set of policies that enhances competition in local and national markets: a liberal trade policy, relaxed foreign investment and ownership requirements, deregulation and privatisation etc.
- legislation i.e. competition law designed to prevent anti-competitive business practices and unnecessary government intervention. It provides teeth and legal backing to the competition policy.
As can be inferred from above, competition policy has an interface with many other government policies. However, for a competition policy to be pro-poor, it should contain certain specific elements. These elements may either be
built into the competition policy itself, particularly when it has an overarching role over other policies, or these could be found in other policies. In sum, what is required is a coordinated approach while implementing several policies affecting the poor including competition policy. For e.g. accommodating policies pertaining to small-scale industries, which allow certain concessions to maintain their competitiveness over others.
The example of regulatory policies
Independent regulatory policies in the utility sector is a good example of a competition policy measure meant to protect the interest of the poor consumers. It does several things for the benefit of the poor, some of them are described below:
- Mandates universal service obligation on the utility so that even at a loss, it will have to supply its services to the poor and in far flung areas at the lowest cost;
- Alternatively provides budgetary support for subsiding the supply to the poor;
- Oversees the consistent supply of the service at benchmarked quality and quantity;
- Provides a window for public participation in policy formulation and tariff setting;
- Reduces corruption and arbitrariness in the system;
- Makes available an easy redressal mechanism for the poor to resolve their grievances; and
Increases the overall efficiency, thus furthering welfare gains.
This is not to say that the above mentioned factors did not apply/exist under the para-statal system, but experience has shown that the poor were often at a disadvantage in spite of them. Indeed in the short run i.e. after deregulation the pricing of the utility service maybe higher, and thus causing discomfort to the poor. In the long run, experience shows, where deregulation has been done some time ago, the poor have actually benefited due to the factors mentioned above. The issue can be debatable, as conditions may vary from situation to situation.
The benefits to the poor from privatisation and liberalisation in general and competition in particular, depends on efficient functioning of the trickle down effect/mechanism. The trickling down, however, is more a natural process and depends upon how quickly various pieces of the jigsaw puzzle fall in place. The main problem is whether the processes could sustain the phase of ‘transition’. In other words, the long-term benefits due to a competition culture should be weighed against the short-term losses and difficulties to certain sections of the society, mainly poor.
Interventions through procurement policies
In many countries governments provide price and procurement support to farmers to protect them from market vagaries, knowing well that it may not be the cheapest or of optimum quality. For instance, government buys food grains from small and marginal farmers at a price, which at times is more than even the import price. A pro-poor competition policy will accommodate such policy measures.
Similarly, competition policy may provide for exceptions and exemptions, where it may provide protection to certain products or certain sectors (e.g. small-scale industries or the public sector) from competition.
Benefits of a competition law and cooperation
Another area where competition policy, to be precise competition law, could be beneficial to the poor is by mitigating the adverse effect of strong intellectual property rights regime. Two sectors viz. pharmaceuticals and agriculture are very important in this regard. Coordination between patent office and competition authority is necessary to yield such benefits. By using the compulsory licensing provision, an exploitative situation in life saving drugs can be curbed.
Similarly, in the agriculture sector, government interventions by the judicious use of competition law, including cooperation with competition law authorities in other countries, can help in checking exploitation by large agri-businesses who control most of the patents in the area of either seeds or biotechnological products. Importantly, a major spinoff of such a coordinated action can culminate into pro-poor technology development and innovation.
The effectiveness of competition policy qua poor significantly depends upon the actual reach of competition law vis-à-vis retail level competition abuses. Generally consumers at the grassroots are handicapped to bring forward complaints before a competition authority, as the same may not be easily accessible.
In India, our experience shows that a progressive piece of legislation: the Consumer Protection Act, 1986 can provide the necessary wherewithal. The Act has a three-tier consumer court set up. All the 450+ districts in India have either one (or more) consumer court. Each state has a state commission at the state capital with the apex National Commission at New Delhi.
Furthermore, the procedure is simple, no fees or even a lawyer is required to appear. This set up has proved to be very useful for the poor consumers in checking consumer abuses including abuse of dominance by goods and service providers at the retail level.
Few examples of checking such abuses:
- Two photo studios in a small village in north India were penalised and stopped from exploiting poor and illiterate consumers by cartelising and abusing their dominant position.
- A state bus transport company in south India was stopped from charging a higher fare than the government approved tariff rates on a particular route.
- In another instance a state electricity supplier was penalised for damages caused to electrical equipment due to voltage fluctuation i.e. poor supply.
- In a class action against a big bank, it was ordered that it cannot discriminate between rich and poor consumers in providing service during a strike and that it has to maintain a skeleton service atleast.
Role of consumer advocacy
The examples shown above have actually resulted from a sustained advocacy campaign by consumer organisations by:
- getting the consumer law enacted in 1986, and strengthening it from time to time;
- using the consumer law for individual complaints as well as public interest litigation;
- testing and informing the people about the quality of various goods;
- educating consumers and consumer activists in a sustained manner; and
- creating, training and networking with small consumer groups at the grassroot level.
To help poor consumers either directly or through policy interventions it is absolutely necessary to create and sustain a civil society, which will be well resourced and empowered to advocate consumer interest and competition culture, and spread the same through research, training, lobbying, information dissemination and networking. The consumer movement in India provides a good example of this.
This Viewpoint Paper is researched and written by Mr. Pradeep S. Mehta and Mr. Ujjwal Kumar of and for the CUTS Centre for International Trade, Economics & Environment.