Dennis Davis. Picture: PUXLEY MAKGATHO

Dennis Davis. Picture: PUXLEY MAKGATHO

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Competition Act corners collusion

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Menzi Simelane, SA’s first-ever competition commissioner, got to the nub of the issue. As a consumer, he said, he looks for evidence of the effectiveness of the competition authorities in the prices he pays.

“Why is it still so expensive to fly SA Airways [SAA] or British Airways from Johannesburg to Cape Town?” asked the former commissioner, who helped oversee the prosecution of several cases involving SAA.

Certainly, a formidable and very well-remunerated industry has grown up around competition legislation, which was first implemented in 1999. But, as former competition tribunal chairman David Lewis ventured: “Is it all worth the candle?”

The 10th Annual Competition Law, Economics & Policy Conference, held in Cape Town last week, left existential matters to the final session of the three-day programme.

The session — “Reflections on the effectiveness of competition enforcement in SA” — came to a rather hesitant conclusion, with the five prominent speakers seeming to agree that it has been effective.

There was considerably less agreement on the precise nature of that effectiveness. This was to be expected, given the different profiles of the panel members. Apart from Simelane and Lewis, there was Dennis Davis, judge president of the competition appeal court, David Unterhalter, a senior counsel who specialises in regulatory law, and Michael Katz, a leading corporate lawyer.

It wasn’t quite a case of poachers versus gamekeepers, but those not well versed in the technical nuance of competition law might have seen it that way.

Lewis and Davis seemed to believe that competition enforcement has been effective, and extending the remit of the competition authorities would help make competition law more effective as a promoter of economic growth.

Davis was particularly concerned about the need for law and policy to address the dangerous levels of inequality in our society.

But neither seemed wholly persuaded about what exactly has been achieved. Both referred to the remarkable number of cartels being investigated by the commission — a heady 133 — as evidence of effectiveness. And Lewis said it is likely that competition-reducing mergers that would once have been implemented are now not even being considered.

The rule of law has been extended to powerful interest groups that didn’t previously believe they were subject to the rule of law, Lewis said. But the problem for those supporting competition enforcement, he suggested, is that the nature of economic activity makes it difficult to determine whether or not such enforcement has been effective. As Simelane might have wondered, would the price of the Jo’burg-Cape Town flight be even more expensive without the competition authorities?

“We don’t know the counter-factual; market behaviour is influenced by so many factors we can’t know specifically what causes market behaviour to change,” said Lewis, who was tribunal chair for 10 years and is now head of Corruption Watch.

He said he refused to believe things wouldn’t be a lot worse without the introduction of a new and more vigorous competition regime in 1999, and suggested that the competition commission should research the effects of its activity and demonstrate the results more convincingly to the public.

For Davis, competition law is necessary because markets are not the autonomous self-correcting mechanisms they are made out to be. Competition law is necessary to affect the background rules and power relations that shape these far-from-efficient markets.

“Competition law can’t change the world, but it can make a difference to those background rules,” said Davis, who believes addressing inequality should become a specific objective of these laws.

In stark contrast with Unterhalter’s stance, Davis said he believes there is a growing need to develop regional regulators that could address the growing power of dominant multinational companies.

Unterhalter seemed unimpressed with whatever the benefits of competition law might be, suggesting that restrictions on mergers has contributed to or been part of SA’s “somewhat parochial and inward-looking” attitude.

As he sees it, the restrictions are inappropriate given developments in the global economy, where every day mergers mean powerful multinationals are becoming even more powerful.

Unterhalter said if SA wants to compete on the international stage it must allow the creation of powerful local players — he avoided the term “national champions” — and become more effective in ensuring they do not abuse their dominance. Otherwise “we might end up with a highly atomised form of competition in a shrinking economy”.

Unterhalter also believes the competition authorities should be more nuanced in their approach to cartels and distinguish between hard-core cartels and “other forms of collaboration”.

It was obvious that Katz believes competition policy is effective, but not necessarily in a good way. “There has been an unnecessary choking off of beneficial mergers,” said Katz, who argued for a change in the Competition Act’s definition of control to bring it in line with the Companies Act definition.

And so, with no firm conclusions, it seems the existential crisis will continue a while longer.