Creating a fairer society for Filipinos
By Arsenio M. Balisacan, PhD
May 22, 2019

 

The “Asian Century.” That’s how experts and pundits dub this period of history due to the dynamism of the region’s economies. The rise of Asia is expected to bring millions of people out of poverty and into the economic mainstream as per-capita incomes rise across the region.

From 2010 to 2018, the annual growth of the Philippines’s gross domestic product averaged 6.3 percent. This nine-year performance has catapulted the country to the enviable list of fastest-growing economies around the world. However, unlike the experience of developing Asia (most significantly, China and Vietnam), our high GDP growth has not yet translated into as much poverty reduction as we hoped. This may be traced to our country’s troubles with persistently high levels of inequality in the distribution of incomes or, in general, opportunities.

Within the Asian region, the initial levels of economic inequality during the early stages of economic transformation varied greatly across countries. In countries with initially low inequality prior to rapid growth (e.g., China, Vietnam, Indonesia), poverty has responded strongly to growth. The opposite is true in countries with high inequality at the start of the growth process (e.g., Philippines, Pakistan, India): poverty has been persistent and has responded weakly to growth.

Rapidly rising inequality poses a serious threat to poverty reduction. For one, it may lead to political polarization and unrest, dampening investor confidence and job growth. A skewed income distribution can also prevent the poor from accessing opportunities to invest in human capital, such as health and education. Further, economic inequality aggravates and entrenches political inequality, providing the environment for political and economic elites to shape institutions and laws that favor their interests.

Competition policy, as envisioned and enabled by the Philippine Competition Act (PCA), the country’s comprehensive competition law, is a key tool for addressing economic inequality.

While competition enforcement and analysis has generally put forward the objective of improving economic efficiency, competition policy is historically connected to the decoupling of market power and political clout. This is especially true in the case of the United States when it passed the Sherman Act of 1890 at a time when industrial elites controlled vast areas of commercial activities.

In the case of the Philippines, the PCA was conceived as a key economic reform to promote economic development and a fairer distribution of opportunities, income and wealth. Indeed, the PCA cites one of the constitutional goals: the attainment of “a more equitable distribution of opportunities, income  and wealth.”

With consumer welfare at the heart of the country’s competition policy, it can be argued that prohibition of cartels and abuses of dominance, merger control, and advocacy for competitive markets—the core activities of the Philippine Competition Commission (PCC)—promote fairer social outcomes while improving economic efficiency.

In the Philippines, as elsewhere, where economic and political elites often intersect, rent-seeking or rent-preserving activities by dominant incumbents can result in policies or regulations that protect their interests by restricting entry of competitors into the marketplace and dampening competitive pressure. As a consequence, the market becomes inefficient, which hurts consumers, most especially the poor, who then have to deal with higher prices, fewer choices, or lower quality of goods and services.

On the demand side, the PCC serves as a trustee for public interest, implementing effective competition policy on behalf of consumers. The Commission employs filters to prioritize its actions, focusing on sectors with potentially large impact on consumer welfare and those having serious competition challenges that act as roots of market inefficiencies.

By prohibiting anticompetitive agreements, such as price-fixing, and abuses of dominance and by preventing the consummation of anticompetitive mergers and acquisitions, the PCC provides counterweights to the economic power of dominant players in the market, disproportionately benefiting the poor. Thus, pursuing a consumer welfare standard can be both efficient and equitable.

On the supply side, improving the competition landscape across industries can help spur productivity and lead to the efficient shift of the country’s labor force from low-productivity to high-productivity jobs that offer higher wages. We can reasonably expect this dynamic and transformative process within and across industries to bring the economy closer to its full potential—allowing it to reach the frontier, so to speak. Such a transformation has been critical to the development success stories of our Asian neighbors.

We have been experiencing rapid economic growth for nearly a decade now. We still have some 20 years to go before we measure our performance against the standards set forth in Ambisyon Natin 2040, the country’s long-term vision for development.

But this we know: Sustaining this growth and reaching an even higher trajectory—in the order of 7 percent to 8 percent—in the next two decades require that we prohibit anticompetitive business practices, and dismantle structures and policies that cause an uneven playing field and hinder the flourishing of economic opportunities.

The PCC is committed to doing these—not only because it is mandated to promote consumer welfare, but for the loftier aspirations of reducing economic inequality and creating a fairer society for all Filipinos.

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Dr. Arsenio M. Balisacan is the chairman of the Philippine Competition Commission and a professor of economics (on secondment) at the University of the Philippines (UP). Prior to his appointment to the Commission, he served as socioeconomic planning secretary and concurrent director general of the National Economic and Development Authority. He also served as dean of the School of Economics in UP Diliman.

(Originally published on Business Mirror’s Competition Matters column on May 22, 2019 here.)