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15/5/2015

CompetingoverCompetitionPolicybyJosephE.StiglitzProjectSyndicate

INNOVATION&TECHNOLOGY
JOSEPHE.STIGLITZ
JosephE.Stiglitz,aNobellaureateineconomicsandUniversityProfessorat
ColumbiaUniversity,wasChairmanofPresidentBillClintonsCouncilofEconomic
AdvisersandservedasSeniorVicePresidentandChiefEconomistoftheWorld
Bank.Hismostrecentbook,coauthoredwithBruceGreenwald,is Creatinga
LearningSociety:ANewApproachtoGrowth,Development,andSocialProgress.

AUG3,2001

CompetingoverCompetition
Policy
Finally,Europeistakingcompetitionseriously,asthedecisiontoblockthemergerof
GeneralElectricandHoneywelldemonstrates.Competitionisthebasisofadynamic
marketeconomy.Yet,asAdamSmithrecognized,firmsinevitablyseektorestrictit:
moreprofitscanbemadebycreatingamonopolyratherthanthroughbetterproducts.
TheMicrosoftcaseinAmericabroughthomeboththevarietyofabusivepracticesand
thechillingeffectanticompetitivebehaviorcanhaveoninnovation.Sogovernment
mustsettherulesofthegametomaintainafairplayingfield,andvibrant
competition.Europescommitmenttocompetitioncomesnonetoosoon.Afteranew
eraofvigorousantitrustenforcementundertheClintonAdministration,theBush
Administrationseemstobebackingofffromthatline.Atthesametime,conservative
membersoftheUSfederalcourts,manyappointedduringtheReaganera,are
increasinglyrestrictingthegovernmentspowertooverseeandcurtailpredatory
businesspractices.TheClintoneraantitrustteamexposedandsuccessfully
prosecutedsomemajorpricefixingconspiraciesthatreachedacrossinternational
bordersandcostglobalconsumersbillionsofdollars.Theyattacked,forexample,
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15/5/2015

CompetingoverCompetitionPolicybyJosephE.StiglitzProjectSyndicate

predatorypricingbyairlines,inwhichestablishedairlinesdroveoutlowcostcarriers
notonlybycuttingfares,butbyaddingsubstantialcapacityatgreatlosses;butonce
thelowcostcarriersweredrivenout,thebigairlinesraisedpricesandcutbackon
serviceonceagain.TherecentspatbetweentheUnitedStatesandEuropeconcerning
theHoneywellandGEmergerbringshomeseveralpoints.Mostimportantly,itshows
thevirtuesofstrongcompetitionincompetitionpolicy.ForEuropescompetition
authoritiespickeduptheballthattheBushadministrationhadfumbledbadly.
AmericasSecretaryoftheTreasury,perhapsthesenioreconomicofficialinthe
worldslargesteconomy,isoftenseenasthesemiofficialspokespersonforglobal
capitalism.InhisoldcapacityasbossofAlcoa,TreasurySecretaryPaulONeilldid
whatanygoodcaptainofindustrywoulddowhenfacedwithfallingprices:heturned
togovernmentforahiddenbailoutintheformofaglobalaluminumcartel.Todayhis
governmentpublicrelationspeople,indeed,toutthatcartelasoneofhisgreat
successes.WhatisgoodforAlcoa,however,isnotnecessarilygoodforAmericaorthe
world.Higheraluminumpriceswerepassedoninthepriceofeverycokeandbeercan
andeverynewairplane.Sowhatmakesforgoodprofitscreatingglobalmonopolies
doesnotmakeforgoodpublicpolicy.NowtheBushAdministrationisseekingto
createasimilarcartelinsteel.WhileSecretaryONeillmaypreachthattheproblemsof
theworldarisenotfromtoomuchbutfromtoolittleofamarketeconomy,tryingto
createanewglobalcartelinsteelonlymakessenseforbigsteelbusinesses.Itwillearn
himkudosfromthosequarters,buthardlyearnshimcredentialsforspeakingabout
whattrulymakesamarketeconomywork.Itcertainlydoesnotgivenhimtherightto
saythattheEuropeanUnionsrecentdecisionblockingthemergerofHoneywelland
GeneralElectricwasoffthewall.ThesuggestionthattheEUsdecisionsomehow
intrudedonAmericansovereigntywasanotherdemonstrationoftheextenttowhich
corporateinterestshavegrabbedtheeconomicagenda.Everygovernmenthasthe
rightindeed,theobligationtoensurethatthereiscompetitionwithintheirborders.
TheEuropeanUnionwassimplydoingwhatitshoulddo,followingwellestablished
procedures.Thefactthatitdidnotletcorporateinfluencesdominateitsdecisionis
testimonytotheleadershipandintegrityofMarioMontiandRomanoProdiandthe
integrityandcommitmenttocompetitioninEurope.AcenturyagoAmericacreatedits
competitionlawsbecauseoftheconcernthatmonopolyinterestswouldseekto
dominatemarketsbycapturinggovernment.Thereadyprofitsfrommonopolycan
buyinfluenceinhighplaces,ifnotthroughbribes,thenthroughbigcampaign
contributions.Thisiswhythoseinjuredbymonopolyweregiven,underAmericas
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CompetingoverCompetitionPolicybyJosephE.StiglitzProjectSyndicate

earlyantitrustlaws,therighttosue,receivingtrebledamagesifvictorious.Itwasan
earlypieceoflegislationdirectlyempoweringpeople,andreflectedahealthy,and
deserved,skepticismabouttheabilityofgovernmenttoaddresstheseconcerns.
Today,withglobalization,wehaveanothercheck:independentcompetition
authoritiescheckeachother.Oneofthemostimportantrolesforgovernmentis
creatingtherulesofthegame,whichenableamarketeconomytowork.Amongthe
mostimportantrulesofthegamearethoseaboutcompetition.Nowadays,what
typicallytriestopassasafreemarketeconomyisacorporatisteconomyinwhich
governmentusesitspowerstoadvancetheinterestsofbusiness,oftenattheexpense
ofconsumers.Manydevelopingandtransitioneconomies,indeed,weretold:openup
youreconomytointernationaltradeandthatwillsufficetoensurecompetition.That
advicewasmisguided.Tradeliberalizationwithmonopolyimportersonlyservedto
transfersomegovernmentrevenuesintothepocketsofthemonopolists.InRussia,
SecretaryONeillsinternationalaluminumcartelresultedinabloodbathasrival
groupsfoughtoverwhogotthemonopolyprofits,andoutofthatturmoilasingle
monopolistemerged.Monopolyinterestshaveboughtandcorruptedgovernments
throughouttheworld.Strongcompetitionpolicyisnotjustaluxurytobeenjoyedby
richcountries,butarealnecessityforthosestrivingtocreatedemocraticmarket
economies.
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19952015ProjectSyndicate

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