Competition and globalization

    Domestic markets are becoming more and more exposed to foreign competition.

This increased globalisation of national economies is having several different

effects. First, it means that high concentration and rationalisation at a domestic

level need not necessarily be a cause of concern. A more open market is by definition a more competitive market. Openness may encourage concentration of production in the domestic market but it simultaneously prevents concentration

translating into market power. Second, national industries are becoming more

sensitive of the need for a ‘level playing field’. If country A has strict competition

rules and country B has lax rules, this could mean that B’s producers are able to

set up arrangements to reserve B’s markets for themselves, while enjoying free

access to A’s market. This will not seem fair to A’s producers. For this reason pressure is growing for similar competition rules to be introduced in countries participating in world trade. Third, as the global reach of firms in many industries

extends, the danger of abuse of monopoly power by giant multinationals

becomes more potent. Mega-mergers between companies in different parts of the

world create corporations of global dimensions. Even without an actual production

presence in countries, firms can form strategic alliances that enable them to

penetrate foreign markets with international partners. This is particularly true of

the information technology, entertainment, air transport and pharmaceutical

industries, but high levels of global concentration are also found in less glamorous

products such as tea and bananas. In these circumstances, coordinated

action by competition authorities on an international scale is necessary if the

enhanced opportunities which free trade provides are not to be undermined. The

formulation of global competition laws is high on the agenda for many countries,

including those of the EU.

Privatisation

     Privatisation has become an integral part of most countries’ pro-competition programme and is a familiar feature of new-consensus economic policy. It is defined as the transfer of state-owned assets to private control. This can be achieved through direct sale of the assets to the private sector. Another possibility is to transfer the administration of these assets to the private sector but for the state to retain ownership. This section focuses on privatisation in the former sense. The move to privatisation began in the UK and New Zealand in the 1980s; it spread to continental Europe in the 1990s and is now taking a front seat in developing and transition economies. The US was a significant absentee from this trend, largely because it had so few nationalised industries to privatise. European government receipts from privatisation amounted to $675 billion between 1990 and 2002 Cumulative privatisation revenues had exceeded $1000 billion by 2000. However, following the stock market crash there has been a marked slowdown in the rate of privatisation worldwide.There is something paradoxical about privatisation of state-owned companies in Western countries. After all, these companies were originally set up to resolve an economic problem, not to cause one! Many were established in response to situations of private monopolies or of ‘excessive’ competition among private firms.Nationalisation was designed to encourage exploitation of scale economies and to ensure that monopoly profits, to the extent that they existed, would accrue to the state, which would distribute them in a socially optimal way. In retrospect these expected advantages failed to materialise. Too often nationalised firms abused their monopoly power. They gave bad service at high prices. They suffered extensive X-inefficiencies. Although they tended to ‘featherbed’ their employees, they were prone to surprisingly bad industrial relations. They also suffered from political interference, mixed managerial signals and sometimes outright corruption.