Competition Law and the European Constitution

This is part of an exchange I had with Christopher Townley, a fine competition lawyer, who recently defended his Ph.D thesis titled "A.81: Putting Policy in Its Place", at the European University Institute, Florence.

The argument that you [Lorenzo] are running is quite complex. I discuss it to a certain extent in my thesis, Chapter One. In essence, in the EU we have decided to adopt a market economy over a planned one. The reason for this is that it allows more choice for consumers (it encourages producers to make better quality products at cheaper prices), it reduces waste (in the sense that goods are directed to those that most need them - in other words are prepared most for them) and it is far simpler for government to organise in a fair way for its citizens (think of the queus in Russia and Gorbachov crying when he sees a US supermarket). That said, such a system does have problems (for example, it is not necessarily help the needy that pay more for a product but the rich, which seems unfair).

Given that we have opted for a market economy we need to regulate it in a way that the benefits outlined above are achieved. We need to encourage firms to be efficient and to pass on their savings to consumers (there are other kinds of efficiency that I discuss in my thesis but this is probably the easiest one for you to argue). You are right that, in theory, it is better to have an efficient market mechanism and then redistribute afterwards if we think there are unfair outcomes. We do this with unemployment benefit, the NHS, free bus fairs for the elderly, etc. The problem is that the system is not static and so as soon as you start redistributing then you undermine the efficiency of the system. I note in my thesis that this means that economists often end up arguing that we should not redistribute later, or they try to restrict then.

Having said that (1) I am not clear in my mind why they think that the Draft Constitution changes anything about this mode of market economy (the implication being that it is ok at the moment, but the draft constitution will make it worse, unless i miss their point). We talked about this and the main section of the Treaty remains unchanged. In any event there are already 7 policy linking clauses in the Treaty (articles 6, 127(2), 151(4), 152(1), 153(2), 159 and 178 of the Treaty. Similar points are raised by rules, such as Declaration 29 to the Amsterdam Treaty on sport, which may try to achieve a similar end) which, in my view, demand that other policies are taken into account in competition law, and thus is it really right to say that the Treaty is just pure unadulterated capitalism? I also think that the hierarchy of the Treaty moves in this end too, see my thesis Chapter Two, section 2.

(2) There may be an argument even that the Draft Constitution undermines the economy even more than today in fact. That is because of article III-1, "The Union shall ensure consistency between the different policies and activities referred to in this Part, taking all of the Union's objectives into account…" This may mean that one needs to distort competition even more away from efficiency goals towards all other EU objectives. Having said that in my thesis I argue that we are already at this position, but the argument is certainly easier with this clause. Although articles III-4 and III-5 preserve specific policy-linking clauses too.

(3) if they argue that the current system is also bad, then i suggest that they are just reading the treaty wrongly. It may be that the practice of applying the treaty is not great at the moment, but we have all the tools for blending competition policy and other policies, see above.

(4) The main problem with their argument though, attacking it on its face, is that if we are to distort competition using industrial policy then we (my which i mean government, the competition authority or agencies like that) must be able to predict which industrial policies will be successful, otherwise we waste taxpayers' money on this. I talk about how bad this was for Korea in my artickle in World Competition (Vol 7 [2004] issue 1) which you can get on the internet. Why not allow companies to take these risks and risk their (as opposed to taxpayers' money) if they get it wrong. Also note that they are probably better at predicting the successful strategies than governments that are far removed from all the relevant markets. They will probably cite airbus to you as an excellent case of industrial policy. In fact that has so far worked out well, but it has cost also. We will see how it fairs when it no longer gets eu subsidies.