Competition policy and democracy

Competition policy cannot be easily separated form other objectives, such as better and fairer labour markets, environmental plans or other social and political issues. Today, a strong competition policy is also an important pre-requisite for a well-functioning democracy, because it prevents strong concentrations of private power that can undermine free societies.

Acemoglu explains in his Nobel prize lecture that “by the end of the 19th century, US industry had reached a very high level of concentration, with a few firms, such as Standard Oil, J.P. Morgan, and Carnegie Steel, dominating their sectors, and also gaining greater political power. It was not out of the question that this would lead to the consolidation of political power in the hands of these companies and a closing of the economy to new firms and ideas, for example, as Venice experienced in the 13th and 14th centuries. In that instance, increasing concentration of economic power in the hands of a few patrician families enabled them to further monopolize politics, and this undermined the institutional foundations that had previously underpinned remarkable innovativeness and prosperity in Venice. In the end, this did not happen in early 20th-century United States, in part because political power shifted away from these large corporations and their owners during the Progressive Era. New politics led to institutional reforms, enacting antitrust laws against monopolies and cartels, introducing new tools for regulation and redistribution such as the Federal Reserve and the federal income tax, and allowing greater room for collective bargaining for workers.”

Simon Kuper in a recent article in the Financial Times (which could also be interpreted as a qualification to the Draghi Report) argues that “the EU has to weaponise its greatest strength: the single market and its regulators. The European Commission is the institution on earth best placed to take on US tech. It now also has an economic “anti-coercion instrument”, known in Brussels as “the bazooka”, to fight trade wars. The EU wishes it had a serious tech industry and trillion-dollar companies, but there are upsides to not having them. As economist Joseph Stiglitz argues, trillion-dollar companies tend to be the consequences of monopoly. Without tech oligarchs of its own, the EU can confront the industry. That’s a big bargaining chip, as Trump’s chief constituency now appears to be Silicon Valley, not his voters who rendered themselves irrelevant when they elected him one final time.”

The current calls for administrative simplification and competitiveness in Europe should not be confused with deregulation. In the difficult times that now Europe and the world are living, it is imperative to strengthen the rule of law institutions which separate us from autocracies, and one of these regulatory institutions is competition policy.