/ 7 October 2003

Magna Carta of the markets

At the beginning of the 1990s a dozen national competition laws existed. A decade later there were more than 90. At the World Trade Organisation talks in Cancun, key players punted the development of competition rules for world trade.

This sudden surge of interest is captured in the phrase “the triumph of the market”. As national states reduced direct involvement in domestic and international trade through privatisation, deregulation and tariff reform, they confronted the need for clear rules to govern participants in newly liberated markets.

They discovered competition law, commonly referred to in the United States, its spiritual home, as “anti-trust”.

South Africa has not clambered on the liberalisation bandwagon. The African National Congress and the government’s key economic manifestos, including the Reconstruction and Development Programme, commit to robust anti-trust enforcement. The Freedom Charter decries monopolies, anti-trust’s main targets.

Could these models of egalitarian idealism have committed the ANC and the government to what US Supreme Court Justice Thurgood Marshall described as “the Magna Carta of free enterprise … as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms”?

They could, because at the heart of anti-trust’s concerns — and what it shares with those concerned with economic justice — is the accumulation and exercise of power, specifically with anti-trust, market power. And it counterposes power with freedom, including economic freedom.

But all freedoms are bound with restraints on their execution. Big business, which loudly proclaims its support for “free enterprise”, not surprisingly has an ambivalent relationship with the “Magna Carta of free enterprise”. In the breast of every business-person lurks a would-be monopolist.

As Adam Smith put it: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”

But while collusion represents the monopolist’s best interests, it so threatens the competitive fabric of a market economy that its rise has to be checked or carefully monitored.

Try persuading an aspiring monopolist of this. Free markets, yes, but not in my backyard.

The left, too, is sceptical of anti-trust. A monopoly is well-placed to pass cost increases — including pay rises — on to defenceless consumers, hence anti-trust’s complex relationship with organised labour.

More generally, the state is a frequent source of market power, and so competition law constrains interventions by the state, the left’s favoured instrument.

But the problem with a policy instrument that is the enemy of sectional interests is the absence of a reliable support base. In the US the continued popularity of anti-trust resides in its reputation for periodically taking on society’s most powerful members.

It cut its teeth on Rockefeller’s domination of the oil industry and sharpened them on AT&T’s telephone monopoly. It reminded Bill Gates that small people have protection.

But reliance on popular support has limitations. The “little guys”, would-be entrants to the market or consumers, are many, but poorly organised, and are no match for powerful special interests.

It also raises the spectre of populism, of anti-trust authorities attacking the powerful to shore up their street credit — even where power flows from superior efficiency rather than abusive practices. Persistent action of this sort would also undermine markets.

Competition law was poorly enforced by the apartheid regime. The government was notoriously cosy with key industrial interests — most clearly in its rejection of the competition board’s call to prohibit transactions involving South African Breweries, Rembrandt and KWV. This accounts for our current beer monopoly and concentrated spirits market.

The ANC’s concern over these inherited concentrations of private economic power placed a much tougher competition law high on the post-1990 policy agenda. But introducing it proved difficult — competition law and economics are technically complex, and the social interests arraigned against it considerable.

The period 1990 to 1996 was punctuated by incendiary conflicts between ANC and government leaders and their corporate counterparts. Dramatis personae of this period include Tito Mboweni, then in the ANC’s economic policy department; the first post-apartheid trade and industry minister, Trevor Manuel; and Michael Spicer, Anglo American’s public affairs fixer.

In 1996 Minister of Trade and Industry Alec Erwin appointed a team to develop policy and draft new com-petition law. These were thoroughly debated in the National Economic, Development and Labour Council.

In the end, a sceptical business constituency could not reject this pillar of free enterprise, while labour took comfort in the fact that the law, although ideologically suspect, at least tried to limit the exercise of power by its old class enemy.

David Lewis is the chairperson of the Competition Tribunal. Next week: anti-competitive behaviour.