Boosting the Crisis Economy Competition as an Ally

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Rainer Lindberg, Jun 13, 2009

There is well-established empirical evidence that competition spurring efficiency promotes productivity within firms and between firms. Competition at least in normal times seems to be an important factor to generate productivity, innovation, and growth. As Aghion-Griffith concluded, the view that competition and entry should promote efficiency and prosperity has now become a “common wisdom” worldwide. Currently, economies are in a recession. The situation has initiated discussion whether competition policy and its effective enforcement is at risk. Among other demands, the recession has intensified requests from certain industries in financial distress that competition policy and competition rules be loosened. Requests for subsidies are often part of industries proposals as well. Politicians, in turn, face a lot of pressure to choose the subsidy route or other options to “loosen” competition enforcement. As a response, the competition authorities in many countries have declared that they will continue business as usual. Despite that, arguments remain that a loosening of the rules has already happened. This can be seen, for instance, in state aid enforcement and merger policy, where, during crisis enforcement, non-competition factors are claimed to be more important. Moreover, the dangers of protectionism have increased. At the top of the iceberg, the financial sector is a separate chapter itself. All signs indicate that financial sector will face more regulation. Basically, the financial regulators have no options in this respect. How this new regulation will reconcile with competition policy remains to be seen. As these themes already indicate, it is extremely relevant to discuss the competition policy’s long-term future. But, it seems that those who favor competition during the crisis, like competition authorities, are easily drifting to a defensive role in the discussion. That is strange for a number of reasons, and this article argues that competition especially should be seen as an ally for the current macroeconomic stimulus tools.