South Asia Watch on Trade, Economics & Environment (SAWTEE)

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Competition and economic growth
Published: The Kathmandu Post, 27 March 200
By: Prashamsa Gadtaula

Globalisation is one of the most ‘happening’ talks of the town for the last two decades. In recent years, increasing degree of openness in trade and finance and free flow of information have perpetuated globalisation in the world economy to such an extent that almost nothing is beyond its outreach.

It, therefore, needs a radical transformation in domestic policies and rules to adjust with such a process. The key to success with such an adjustment is – efficiency and equity, which are key inputs to economic development. But will they be ensured without increasing competitiveness - the competitiveness that countries are required to demonstrate not only at the national or regional levels but also at the international level? It, therefore, follows that if proper competition policies and rules are not devised and effective mechanisms for checks and balances are not laid down, increasing competitiveness will always remain a distant dream.

In the globalisation era, the obvious impact of openness in the world economy is that it gives rise to increasing trade in global markets, thereby necessitating countries to be competitive. In such a scenario, an unsullied competition policy becomes a boon to efficient functioning of markets thereby leading to economic development as well.

Competition policy, which includes competition law, can be broadly addressed as governmental measures that promote competition and efficient allocation of resources. In general, competition policy can be regarded as the genus, of which competition law is specie. It is encouraging to note that the Nepalese government is doing its best to formulate a competition law in Nepal. In this regard, it is all the more important for the Nepali government to also ensure economic development through competition.

Some of the major concerns of developing economies are whether or not competition policy promotes economic development. A study has shown that trade and competition policies are often substitutes. The results of the study reveal that international trade and competition policy measures complement each other in promoting trade, market access, global economic efficiency and consumer welfare. Also, promotion of liberal trade policy supports the objectives of competition policy and vice versa.

Competition has been perceived by different think-tanks differently. The definition of Prof J M Clarke has clearly integrated the concepts of economic progress through competition. As mentioned earlier, economic progress combines both efficiency and equity - the two major inputs of economic development. Efficiency relates to technical and allocative efficiencies, which are generally economic in nature such as profit maximisation, optimal use of resources, cost minimisation etc. On the other hand, equity is a multi-dimensional social objective, which can be linked with competition in the market for the interest and benefit of consumers. Efficiency and equity coupled with competition shoot up economic progress socially as well as in economic terms. Put simply 'Efficiency and equity are the inputs to economic development and competition is a process.' This is because:

First, competition results in goods and services being provided to the consumers at a lower price, which results in more consumption and production subsequently.

Second, a properly implemented competition policy promotes efficiency and productivity. Firms facing immense competition are continuously pressed to become more efficient and productive internally. This way competition compels firms to reduce waste, improve technical efficiency of production, disposition of outdated production techniques and invest in new technologies.

Third, competition encourages improvement and innovation. Those who do not innovate and improve are left behind in the race for ‘development’.

Fourth, competition forces reformation in sectors, which have lost competitiveness. Restructuring in appropriate time leads the flow of resources from unproductive to productive and competitive sectors. Hence, competition directs resources to its most efficient use and leads to closure of inefficient firms and freeing up resources for more productive uses.

In the backdrop of all the above-mentioned gains from a properly functioning competition policy and law, let’s hope that the Nepalese government will not ignore these aspects while introducing competition policy and devising competition law. In the changing context of economic paradigms, particularly after the country has become a member of the World Trade Organisation (WTO), signed the South Asian Free Trade Agreement (SAFTA), and also acceded to Bangladesh, India, Myanmar, Sri Lanka and Thailand Economic Cooperation (BIMSTEC), this is even more demanding.

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