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Competition, politics, and double standards

Contemporary competition law is built on two pillars: faith in the liberal market economy and faith in economic analysis. But in many countries in the West, including Poland, this faith is clearly dying. How will competition law look in the third decade of the 21st century, and will the current situation inevitably lead to changes in the principles governing enforcement of competition law?

Competition law in the next decade

There are many indications that competition law will be aimed at protection of the weakest players, regardless of whether such protection is justified by an economic analysis. Economic considerations will increasingly give way to social and political considerations.

On the other hand, we may anticipate that global rivalry will force competition law to be applied under two different standards. The privileged standard will be reserved for national champions—firms capable of global rivalry, favoured by individual states.

Whither the liberal economy?

Contemporary Polish antitrust law arose in the 1990s. The dominant economic narrative at that time, which still undergirds our antitrust law, was based on assumptions that are now being challenged.

For example, it was claimed then that state debt should be as low as possible, and interest rates should be high enough to hold inflation in check. In turn, printing empty money was regarded as suicidal for the economy. Deregulation was regarded as essential, and privatisation as a priority. Long-term investments in the equity markets were regarded as the best security for the money of future retirees. Finally, somewhat later, Poland’s rapid accession to the eurozone, ideally before 2015, came to be regarded as crucial.

The events of recent decades have painfully tested these declarations. Some experts, looking at them from today’s perspective, claim that they were all erroneous. For over five years, stimulation of a large segment of Western economies has been conducted with the help of debt drastically exceeding any levels deemed acceptable 20 years ago. It is the same with printing of fiat currency, with quantities in circulation beating all records. We live in a world of negative interest rates, which combined with empty money massively pumped into Western economies (contrary to earlier canons of economics) is not causing an increase in inflation. After the 2008 financial crisis, sparked among other reasons by the extremely deregulated American banking sector, it turned out that central regulation is nonetheless required. Companies controlled by the Polish government are holding their own against Western competitors. The Warsaw Stock Exchange is today about 10% below its peak from 12 years ago. And hardly anyone mentions the need to adopt the euro as soon as possible.

The situation across the Atlantic didn’t look any better. Suffice it to say that no American economist predicted the scale of the 2008 crisis, and hardly any predicted the crisis itself. In turn, since at least 2013 a number of outstanding economists have been prophesying the imminent breakdown of the global economy, which so far has not occurred. It’s hardly surprising that it is has become a popular saying to claim that an economist is an expert who can persuasively and logically explain why his predictions have not come true.

What does this mean for the development of competition law? A lot, as current experiences dampen any optimism placed in the economic sciences as a tool for solving legal, business and social problems—and antitrust problems are of this nature. As economic gauges fail, the temptation arises to replace them with social and political indicators.

The eight richest versus the rest of the world

The economic fathers of today’s competition law agreed that competition would lead to the “fairest division of goods within society.” But is that the distribution of resources that really functions in today’s world? According to the latest reports, the eight richest people in the world hold as much wealth as half of humanity.

In building the foundations of contemporary competition law, proponents of the liberal economy knew that thanks to the free market and competition, the strongest would prevail, and they promoted this situation. But undoubtedly none of them could have predicted that the global village of 2020 would be occupied by just eight men who have carved out a bigger slice of the cake than the slice that must feed nearly four billion people.

The economic analysis and liberal approach to the economy out of which contemporary competition law grew did not take into account the social aspects of competition.

Rapidly growing social inequalities are the first of these. Nor is it irrelevant that competition forces a ceaseless battle, improvement, constant clearing of hurdles. The question arises how much pressure of this sort the psyche of the average person can bear. It is telling that in Japan, one of the world’s most competitive economies, there are over 30,000 suicides a year.

Ultimately, a certain paradox is a socially significant aspect of competition. The economic picture assumes that competition is a perfect mechanism because it provides consumers with the broadest possible choice of goods and services at the lowest price. But the economic analysis doesn’t reflect that the great majority of consumers are workers employed by businesses. And it is these consumer employees who will have to shoulder the burden of the increase in efficiency thanks to which they can be offered the lowest price for the broadest selection. Oversimplified, it may be said that thanks to competition the consumer receives greater selection and lower prices on the store shelves, but in exchange must work more—for example working in supermarkets on Sundays. The societal mood in many countries shows that groups dissatisfied with these solutions are growing.

Whom to protect? The most efficient or the weakest?

Contemporary competition law is focused on a purely economic perception of reality. Sensitivity to social issues has been rejected from it almost by definition, as an economic analysis suggests that the most efficient undertakings should be preferred, not their weaker rivals (e.g. small agricultural producers). But preferences of voters in many countries are forcing a change in this direction. It may be said that history has come full circle, as historically competition law was a tool helping combat inequalities—weakening the strong to strengthen the weak. After all, protection of small and medium-sized enterprises is one of the oldest aims of antitrust law.

It may thus be expected that changes occurring in many Western countries, manifest for example in the need for greater social sensitivity, will make protection of smaller and weaker economic entities against stronger rivals one of the main aims of competition law. The economic indicators commonly promoted until recently to justify antitrust interventions will probably decline in favour of social and political indicators.

Legislative changes are already underway

Faith in the liberal vision of the world and the liberal economy is weakening, and in some countries it has already practically collapsed. Poland is no exception in this regard. We see that in the field of the Polish law of competition and consumer protection, a social perspective is gradually replacing an economic perspective. For example, the Contractual Advantage Act was adopted with the particular aim of protecting small agricultural producers against retail chains, even though from an economic point of view such retailers do not have market power. In turn, the amended Act on Delays in Commercial Transactions gives the president of the Office of Competition and Consumer Protection (UOKiK) administrative means to prosecute late payment of trade debts—a field having nothing to do with competition, but socially needed.

Another important change is the amendment to the Civil Code entering into force in June 2020, which extends to sole traders protection previously reserved for consumers. Other changes beyond the purview of UOKiK but impacting the competitive position of undertakings include the Sunday Trade Ban Act and plans to restore the tax on retail chains. These are solutions supporting small shops at the expense of large competitors.

Global policy forces double standards

But what do these trends have to do with global rivalries, particularly between firms from the US and the EU?

It is doubtful that the United States would agree to weakening of the biggest American companies in order to create more space for smaller American undertakings (although there are strong voices for this view also in America). This is because such a weakening could strengthen firms from the EU, for example, rather than “small” American firms. In the area of global rivalry, the US doesn’t seem inclined to make any concessions, and strives to support its own firms at the cost of their foreign competitors. For example, once upon a time the US legally allowed a situation where American firms could enter into price-fixing arrangements as long as they concerned territories of other countries. The federal government protected the internal US market against cartels, but at the same time condoned or outright encouraged infringements of this type in other countries (if they could benefit the American economy). It may be expected that if the US decides against weakening its largest firms to protect their smaller competitors, the EU will respond in kind.

One approach for resolving this dilemma (already implemented in many countries) is to refresh the conception launched in the West, particularly in the 1960s and 1970s, of national champions—companies favoured by individual governments either so they can compete more effectively with global rivals, or for other social or political reasons. But this requires competition law to be applied under a double standard.

The first (baseline) standard assumes that antitrust authorities can protect weaker firms at the cost of stronger ones by not only following an economic analysis, but also being guided by social and political considerations.

The second standard would limit how the first standard is applied to national champions. For example, a merger of two state-owned giants would be accepted even if it could injure weaker national competitors and consumers, as long as the merger furthered the national champion’s chances in global rivalry.

It is hard to resist the impression that the next decade, no doubt revolutionary for humanity in fields like artificial intelligence, biotechnology and the internet of things, will in the regulatory and legal area offer a combination of ideals and concepts brought forward from many decades in the past.

Dr Antoni Bolecki, attorney-at-law, Competition practice, Wardyński & Partners