Barking up the wrong tree

Arather odd case came before the Competition Tribunal last week, in which one medical scheme essentially accused another of undercutting it on price. One might think that this is precisely what competition is all about. Those who can provide the best service to customers, at the cheapest rates, should be the ones who gain market share and prosper at the expense of their competitors, who should, in turn, be forced to raise their game if they want to remain competitive. That dynamic should drive efficiencies and innovation across the whole market.

The more that happens, across a variety of markets, the better it will be for the productivity and growth potential of the economy as a whole. That’s really why we have competition regulation at all, even though SA’s competition watchdogs are also tasked with keeping an eye on public interest concerns such as employment and empowerment.

Of course, the case in which Discovery Health Medical Scheme asked the Competition Commission to dismiss a complaint by Afrocentric Health is a little more complicated than that.

Discovery is by far SA’s largest medical scheme administrator, with 54% of the market and 3-million clients. It administers 15 medical schemes, the largest of which is Discovery Health itself, which is an open scheme; the others are specific to one or other employer.

Afrocentric, which controls rival Medscheme, has accused Discovery of undercutting it, alleging that because Discovery uses its clout to force the lowest rates from hospitals and other healthcare providers, those providers then have to hike their prices to other medical schemes.

Allegations of this sort have already been extensively canvassed in the market inquiry into the country’s healthcare sector, which the commission launched some years ago. Discovery has made its case in some detail at that inquiry, which has yet to conclude its deliberations.

That is one reason why the tribunal might not be the place for this, along with various other legal arguments that Discovery has put in challenging Afrocentric to show why the tribunal should hear the case at all. The tribunal will now decide whether to do so or not.

But the case tends to reflect some of the rather strange uses to which SA’s competition regulation is being put these days.

It received particular attention in President Jacob Zuma’s state of the nation address earlier in February, with the president enlisting competition regulation in his battle for “radical socioeconomic transformation”.

For Zuma, this is about making sure that black people, especially his cadre of “black industrialists”, get to own, control and manage more of SA’s economy.

As he sees it, combating collusion and cartels and tackling the high level of concentration in the economy is one way to achieve this.

Many economic commentators have called for SA’s economy to be opened up to smaller, more entrepreneurial players in order to boost job creation and growth. But while the competition authorities are doing much to tackle cartels and collusion where these exist, it is not entirely clear how they could “deconcentrate” sectors of the economy in which there is no wrongdoing.

It is also not clear that using the instruments of competition regulation to try to transfer ownership into the hands of capital-poor firms that might have to charge more, not less , for goods and services would benefit SA’s consumers or make its economy more efficient or job-creating.

There is much that can and should be done in the competition space. But policy makers should take care how they use that space.

COMPETITION WATCHDOGS ARE ALSO TASKED WITH PUBLIC INTEREST CONCERNS