Competition Act not right tool for solving economic exclusion
• Low level of black business ownership is due to systemic factors that need different approach
In his state of the nation address, President Jacob Zuma announced that the Department of Economic Development would introduce legislation to amend the Competition Act to “address the need to have a more inclusive economy and to deconcentrate the high levels of ownership and control we see in many sectors”.
He said: “In this way, we seek to open up the economy to new players, give black South Africans opportunities in the economy and indeed help to make the economy more dynamic, competitive and inclusive. This is our vision of radical economic transformation.”
So what needs to change in the act? It was enacted in 1998, expressly recognising the “excessive concentrations of ownership and control within the national economy” and the need for the economy to be “open to greater ownership by a greater number of South Africans” and to “provide all South Africans equal opportunity to participate fairly in the national economy”.
Its merger control provisions have been used by the competition authorities in pursuit of this vision to ensure the black economic empowerment (BEE) status of transacting firms is not degraded through transactions (and have been subject to criticism for hamstringing BEE investors’ attempts to realise value as a result).
The public interest provisions have been used to insist on expanded support for black and small, medium and micro-sized enterprises (SMMEs) to merging parties and, in the case of the Massmart-Walmart deal, to create a R240m supplier development fund.
The cartel-busting work of the commission continues to ensure that, for example, basic food products are priced and supplied without the distortions of collusion.
The commission assists smaller market players by holding dominant firms that abuse their dominance to account. Abuse occurs when firms maintain or increase their share of the market solely through their scale and market power and not because they offer a superior product or service.
But size alone, without abuse, is not bad for competition. In fact, scale is often a key determinant of growth since it brings down costs and supports investment. It is also critical for export growth.
Breaking up large firms for its own sake is no guarantee that new firms will enter those markets. (Indeed, when the US antitrust regulator smashed its large telephone network operators into smaller firms, prices did not improve, and infrastructure and service deteriorated. The market has since reconsolidated.)
The actions before the Competition Tribunal then support follow-on damages cases in court, such as those brought by Nationwide Airlines and Comair against South African Airways last year as well as the construction cartel cases that are pending that aim to recover taxpayers’ money overspent in admitted bid-rigging.
Now, it seems, the competition authorities will be asked to intervene in market structures, taking care of high levels of concentration and creating opportunities for black South African business ownership and economic activity.
The economy that emerged after apartheid had extraordinary levels of concentration and dominance by conglomerates that straddled industries and sectors. It also was regulated by marketing and pricing boards that set pricing for several sectors.
The goal of competition policy in the past two decades has been to foster competition to replace the complacency of comfortable incumbents.
And it is linked to industrial and trade policy aimed at creating black industrialists, township entrepreneurs, procurement opportunities for blackowned and SMME businesses, and BEE through share empowerment schemes.
But can competition law be used to facilitate entry by new players? Should it? Are the competition authorities at risk of being used outside of their area of expertise and mandate because they are successful at what they do?
Of course, if there are arti- ficial barriers to entry or market distortions due to collusion or abuse of dominance that prevent new entrants’ success, the authorities will act.
But is it appropriate to use the competition authorities to create the conditions for a future market structure, when their nonmerger work is the correction of backward-looking market failures? Do we not keep assuming competition law can replace industrial policy?
Should competition regulation be stretched to include market making?
Can the slow pace of regulators’ work ever keep up with the dynamic and fluid responsiveness demanded to shape most markets?
The reasons the dismal levels of black ownership of successful businesses persist include far more than a competition regulator can be expected to take care of.
Institutional racism that cuts off employment and business opportunities, functional innumeracy and illiteracy in our school leavers, financial exclusion from tertiary education, a lack of access to capital and credit, a failure to create financial products for otherwise unbanked entrepreneurs, the burden of red tape and cronyism that excludes nonmembers of connected elites from opportunities are all significant barriers to black economic success. And none of them can be fixed by the competition authorities.
These are some of the necessary threshold conditions for market entry. Only once they are tackled by the government can the competition regulator ensure an equal playing field to realise the Competition Act’s promise of “an efficient, competitive economic environment, balancing the interests of workers, owners and consumers and focused on development, [to] benefit all South Africans”.
THE COMMISSION ASSISTS SMALLER PLAYERS BY HOLDING DOMINANT FIRMS THAT ABUSE THEIR DOMINANCE ACCOUNTABLE
Le Roux is a member of the Johannesburg and New York Bars and teaches competition law at UCT