Friday, 4 October 2013
Say NO to Corporate Kings
The role of every Government is to do what is best for its people. “What is best” is often debated, lacks clarity and changes over time. Besides, it differs from one person, or group of persons, to another.
Luckily, there is no ambiguity in economics. “What is best for the consumer” is more choices, lower prices and better quality. Clear, concise and quantifiable.
Yet, why is it so difficult for many Governments to deliver what is best for the consumer? Why can’t Governments deliver something as simple as what is best for the people in terms of goods and services?
Malaysia: Competition Commission Act 2010
Gazetted on 10 June 2010, the role of the Commission created by this Act is to advocate for competition and to penalize anti-competitive behavior.
While the Commission has the power to impose penalties for the infringement of the provisions of the law, it does not have the power to prosecute or to block or reverse any transaction. Persecution is only with the written consent of the Public Prosecutor.
There are also four criteria that allow parties to be exempted from the Act. They include identifiable social benefits or where the detrimental effect is matched by the benefits. This is worrisome, especially when the decision to exempt is outside the purview of any oversight.
In September 2013, we saw the first substantial action of this Commission. It ruled that the merger of Malaysia Airlines and AirAsia in 2011 was in breach of the competition laws and fined both parties RM10 million each.
A tour of other jurisdictions
Competition law has been in existence since the Roman Republic around 50 BC. Today, the two most widely quoted laws are the United States Antitrust laws and the European Union Competition Law.
Basically, these laws have the following characteristics: Prohibit the restriction of free trade and competition, ban abusive behavior by firms dominating a market or engaging in anti-competitive practices. The laws also supervise mergers and acquisitions that threaten the competitive process.
While protecting the interest of the consumer is the underlying principle, its other objective is often also ensuring that entrepreneurs have an opportunity to compete in the market economy.
Senator John Sherman provided the moral justification in 1890, “If we will not endure a king as a political power, we should not endure a king over the production, transportation, and sale of any of the necessaries of life.”
As for economic justification, the entire theory of economics is based on competition leading to efficiency and better resource allocation.
Ever since the break-up of the Standard Oil Company in 1911, the US has enforced rigorously against anti-competitive practices, from cartels and collusion to mergers, price discrimination, exclusive dealings, predator pricing and intellectual property.
Enforcement is effective in the US for the following reasons. The Federal Trade Commission, the US Department of Justice, state governments and private parties who are sufficiently affected may all bring actions in the courts to enforce the antitrust laws. Large companies must also notify the Federal Trade Commission and the Department of Justice’s Antitrust Division prior to attempting any merger exercise.
Private parties, who can prove that they are injured by the actions of firms that act in anti-competitive behavior, can sue to recover three times their actual losses.
The commitment to enforce is based on a fundamental belief that competition is good, where the Supreme Court believes the Act is to protect free enterprise, and the ultimate goal is to protect consumers.
Back to home
Cars in Malaysia are among the most expensive in the world, with exorbitant profits accrued to a few car importers who are given exclusive permits.
What economic benefits do they provide to consumers?
As very few of the locally manufactured cars are exported, it is clear this subsidy does not create globally competitive companies.
Another example is the domestic steel sector, which is globally uncompetitive and inflates the domestic costs of construction. Or the exclusive permits to import basic necessities like rice, sugar and beef. Many public sector procurements are also non-competitive and non-transparent.
Nothing is more real than personal experiences, where anti-competitive behaviors come in different forms. Let me share a few.
In 1995 when PhileoAllied Bank introduced online banking and stockbroking, the Kuala Lumpur Stock Exchange tried to stop this innovation by going to the courts. The reason was to protect their market share and commission rates.
And after the successful launch of OneAccount in 1996, the first current account that pays fixed deposit interest rates, Bank Negara stopped the launch of the OneCorporate account that would have given companies the same benefit. A few large banks protested.
In the name of consolidation of the banking sector, an innovative, technologically superior and profitable bank was forced to be sold in 2001.
More recently, on 20 August 2013, The Edge Communication received approval for its application of a publishing permit to publish a general daily newspaper, FZ.
On 28 August 2013, we received another letter from the Ministry that said “Penangguhan Permit Penerbitan”. The approval we received just a week earlier was now “deferred”. No reason and no indication for how long was given.
What happened during the one week, between 20 August and 28 August 2013? Three guys, each involved in separate media companies, met together and with others.
By 23 August 2013, I was already informed of the contents of the Home Ministry letter of 28 August 2013. The CEO of The Edge Media Group was told by one of the three guys.
The Government, which regulates the private sector, has now become “regulated” by such powerful private sector elites.
More important is the question WHY. Is it good for the consumer and the public?
Looking back at history, I entered into a partnership with the Berjaya group to combine The Edge and TheSun in 2002. TheSun was turned around and Berjaya wanted to part ways in 2008.
In recent times, I have been approached if I would consider buying TheSun again.
I was also asked if I would consider partnering The Malay Mail and Malaysian Reserve.
FZ getting a license to publish a general daily newspaper would obviously be a threat to other publications. It will also remove a “rent-seeking” opportunity to some others who might profit from selling their licenses.
What is best for the consumer
We know what is best for consumers, even if there are some debates on long-term versus short-term goals, on employment and on supporting local industries and building a critical mass to achieve economies of scale.
We can incorporate these objectives into measurable trade-offs to arrive at clear, concise and quantifiable outcomes.
Implementing the following measures will strengthen consumer protection:
(A) Empower and enrich the Competition Commission with knowledge, expertise and enforcement capabilities. Ensure there are sufficient checks and balances to remove internal abuses and corruption.
(B) Mandate the courts to protect consumers. The doctrine is that competition is the ultimate safeguard against corruption, abuses, profiteering and inefficiencies.
(C) Where there are social issues, trade secrets or where it can be argued that certain forms of collusion may indeed have more positive than detrimental effects, let the courts decide in public. The people will be the final arbitrator.
(D) Finally, amend the Competition Act and allow injured parties to sue through the courts for losses suffered from anti-competitive behaviors. Such actions can be taken independently of the Commission or the Public Prosecutor.
What stand in the way of what is best for consumers? Powerful, extractive elites!
Are we willing to continue enduring “Corporate Kings”?