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Tuesday, July 22, 2008

Anti-trust law is anti-competition

There are a number of legislations in some countries that introduce "anti-trust" regulations. A law has been passed in China and it will be implemented next month. An anti-trust legislation is also being worked in HK, in the Philippines, elsewhere.

The trouble with anti-trust laws and regulations is that they empower the anti-trust bureaucrats with the power to investigate any big firm. Small and medium-sized firms that are very efficient and innovative will ultimately become big. Sometimes even medium-sized firms can be investigated if the owners/managers of such firms are non-friendly to the administration in power.

When a firm lowers its prices relative to its competitors, the anti-trust agency can investigate on grounds of "predatory pricing.
When a firm increases its prices relative to its competitors, it can be investigated and charged with "price gouging".
When all the big firms have the same price, they can be investigated on charges of "price collusion".

Whichever you go, there will always be a ground for investigation -- and harassment and possibly extortion -- by the anti-trust regulators and bureaucrats. And this partly explains why many politicians, even some activist groups and academics, would want to become bureaucrats themselves and become anti-trust regulators.

If people want real competition and protection from monopolistic/oligopolistic system, government regulations like putting up anti-trust bodies are not the answer. Better to drastically cut multiple and bureaucratic business permit procedures, taxes and fees, to only 1 or 2, abolish the rest. Approximate a "contestable market" situation where firm entry and exit (opening up or closing a business) is almost zero, except on sectors and industries with huge "sunk costs".

A friend asked, as corporations grow larger and larger, "who will make them accountable?"

Mega-corporations emerge out of previously small corporations, the same way that some mega-corporations of yesteryears may not even be in the top 500 corporations in the world today. Here in the Philippines, today's mega-corporations SM and Robinsons/JG Summit were non-existent when Henry Sy and John Gokongwei were still teenagers about 6 or 7 decades ago. The same way that big corporations like Pantranco in luzon and Netran (bus companies) in Negros are now dead.

As corporations grow larger and larger, who will make them accountable? Us consumers. If Henry Sy screws up, we can stop going to any SM malls and go instead to Robinsons or Ayala malls or waltermart, wherever. If we think they all suck, we can stop going to any mall and we'll stay alive and kicking, we keep our money, no one will steal it from us.

When corporations become bigger and bigger, fine. They create more jobs, they create more shops, they build more buildings and malls, and they create more jobs in the construction industry. We pay not a single peso for their building or mall madness.

Compare that when government becomes bigger and bigger -- say 15 new departments to be created (dept of fishery, dept of ITC, dept of shipping, dept of climate change, dept. of Asean matters, etc.). And 50 new congressional districts to be created, 50 new partylist groups to be added, 20 new provinces to be created, etc. We'll be dead sure that instead of aspiring for a 10 percent flat income tax, the current 32 percent will be hiked to possibly 42 percent, or 52 percent?

Another way of looking at this would be, is the world better off if Microsoft, Warren Buffet's Berkshire, Intel, Toyota, GM, Shell, Chevron, and other mega-corporations don't exist? My vote is no.

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