The history of competition law dates back over a century, but the past few decades have been marked as the era of growth and widespread adoption of competition regulations. By 1990, only 16 developing countries had adopted competition laws. However, with the rise in global trade and recognition of the importance of competition and curbing anti-competitive practices, this number exceeded 60 by the early 2000s and now surpasses 125 countries.

Enacting competition laws is a critical step toward transitioning domestic markets to competitive economies and market-driven systems. However, experience shows that merely enacting these laws has not significantly improved competition in many countries. Anti-monopoly laws are necessary but not sufficient conditions for achieving a competitive market environment.

Many developing countries adopting these laws suffer from severe economic and political challenges. In many cases, governments hold a substantial share of the economy and aim to preserve their position in domestic markets. Additionally, the lack of judicial independence makes the effective enforcement of many laws, including competition laws, nearly impossible.

This article aims to examine some prerequisites and obstacles to achieving a competitive market and provide a brief overview of the conditions required for an effective legal framework in regulating competition.

Obstacles to Enforcing Competition Laws

1. Limited Resources

The primary examples of resource constraints in developing countries occur at two levels:

Firstly, Financial resources of competition authorities: Regulatory agencies often lack sufficient funding to operate effectively.

Secondly, Shortage of specialized personnel: There is a dearth of experts in competition law and economics within regulatory and judicial bodies. Companies engaging in anti-competitive practices often possess significant economic power and can employ highly skilled professionals to justify their actions. In contrast, underfunded competition authorities struggle to counter these strategies or attract competent personnel, thereby losing the capacity to combat anti-competitive practices.

2. Incompatible Political and Legal Environment

A major obstacle to effective competition laws in developing countries is the lack of proper political and legal infrastructure. In many such nations, the rule of law is inadequately enforced.

Political and economic conditions often favor influential groups with deep economic interests, who resist the actions of competition regulators. This discourages market participants and erodes trust in the regulatory framework.

Although legislators worldwide have sought to grant regulatory authorities independence to protect them from undue influence, these agencies often lack the political support necessary to enforce decisions effectively. Thus, independence in name alone, without substantial political backing, is insufficient.

3. Lack of a Competitive Culture in the Economy

Belief in the positive effects of competition is a foundational prerequisite for the success of competition laws. In many countries, especially those with non-market economies, competition is not regarded as essential to consumer welfare.

For instance, Iran’s economic framework includes institutions like the Organization for Pricing and Anti-Profiteering, rooted in socialist principles. Such institutions can influence judicial perspectives, leading to rulings that inadvertently promote anti-competitive behavior.

Without a supportive institutional and cultural foundation, the likelihood of establishing a successful competitive regime diminishes. On the other hand, if citizens perceive competition as beneficial, they can effectively support competition authorities and increase the cost of resisting their decisions.

4. Underdeveloped Markets

In many parts of the world, a significant obstacle to free-market growth is the underdeveloped institutional and economic structures:

·        Weak legal systems for property rights protection: A robust legal framework that safeguards property rights against government and private infringement is vital for a functioning market.

·        Extensive government involvement: The greater the government’s share in the economy, the less likely a genuinely free market can thrive. Governments often pursue non-economic objectives, conflicting with market efficiency.

5. Exceptions to Competition Laws

In some jurisdictions, such as Colombia and Venezuela, specific economic sectors are exempt from competition regulations due to their strategic importance. These exceptions often involve significant portions of the economy, effectively neutralizing the impact of competition laws.

Solutions

Given the range of economic, legal, and political obstacles, addressing these issues requires tailored solutions. However, some general strategies include:

1. Fostering Political Consensus

Political consensus can significantly bolster competition regimes. For example, aligning with pro-democracy movements and increasing democratic participation enhances public support for competition laws. Consumer advocacy groups and labor unions can also serve as effective allies for competition regulators.

2. Promoting International Cooperation

Effective competition regimes can attract foreign investment, making international and regional cooperation crucial. Organizations such as the United Nations Conference on Trade and Development (UNCTAD), the Organization for Economic Co-operation and Development (OECD), and the International Competition Network (ICN) provide resources and expertise to assist weaker competition regimes.

For instance:

UNCTAD and OECD establish working groups focusing on various aspects of competition law and its implementation.

The ICN, established in 2001, serves as a virtual network to enhance convergence between national competition laws and enforcement practices.

The European Union (EU) represents a prominent example of international cooperation in competition policy, offering significant support not only to its member states but also to other jurisdictions globally.

3. Ensuring Genuine Independence

As noted, granting independence to competition authorities is essential. However, this must extend beyond legal provisions to include real commitment by governments and market players to protect competition. Independence is most effective when combined with the rule of law. Institutions should possess what Evans refers to as “institutional autonomy,” characterized by practical freedom from external influence.

Conclusion

Undoubtedly, enacting competition laws is a vital tool for achieving efficient and equitable economic systems. However, mere adoption of such laws is insufficient for fostering competition, especially in developing countries. Overcoming economic, legal, and political barriers -such as limited resources, lack of a competitive culture, and government dominance in the economy- is essential.

To establish an effective competitive system, countries must focus on granting genuine independence to regulatory bodies, promoting a culture of competition, and leveraging international cooperation. Only then can nations hope to achieve a sustainable and competitive market environment.