Competition law & policy, economic growth & development: Australia & Indonesia

1. Competition law & policy, economic growth & development: Australia & Indonesia A Brief Discussion Rafaelita M. Aldaba, PIDS 15 November 2011 Bali, Indonesia

2. Australia & Indonesia: competition gains • Very different countries: stage of development, institutions, history, culture • ACCC: relatively long history of competition law; KPPUin its nascent stage; objective is to enhance national welfare & efficiency • Benefits from competition law & policy esp. reduced prices for utilities & basic commodities • Australia: efficiency gains: 2.5% of GDP or $20B/year • Indonesia: consumer savings from reduced prices of basic commodities & mobile telecommunications • Australia: evolving nature of competition law & policy in response to business behavior & economy

3. Debate on merits of competition law continues: main arguments • Missing markets: financial markets, investments can only be financed by retained profits, eroded by unfettered competition • Achieve a certain size to compete in world markets: implications for conduct of reviews of mergers • No need for government to promote rivalry in markets where innovation is principal source of competition; monopoly profits are incentives for firms to innovate • Maximizing rivalry leads to inefficient outcomes in natural monopolies & some network industries • Philippines, no comprehensive competition law, same arguments raised by skeptics

4. Philippines: a study in contrast • Shallow, hollow, & lagging growth; failed to create jobs • Gross domestic investment has been low & declining from 25% in ‘97 to 14% in ‘09 • Phils 16.5% (average) lagged behind Indonesia 25%, Malaysia 22%, Thailand 26% VN 36% • Phils 1.4% & Indonesia 0.52% lagging, Malaysia & Thailand 3%, Cambodia 4.7%, Viet Nam 5.5%

5. Why has the Philippines lagged in attracting investment? • Weak institutional & regulatory mechanisms • Poor infrastructure • Weak competition • Weak competitiveness of Philippine industries, low productivity, & low trade gains (exports as % of GDP rose 82% in ‘90s to 97% in ‘00s; imports 44% to 50%; unfavorable trade balance )

6. Competition issues in vital industries: rising prices, high cost & low quality services • First country in Asia to enact competition law (1925); not effectively implemented; since 1980s attempts to legislate • Cement cartel: controlled by the world’s big 3, prices continued to rise even during the GFC, government eliminated tariffs in ‘08-’09 but to no avail • Interconnection issues • Merger took place, duopoly • Strengthened incumbent’s market dominance • High entry barriers: congressional franchise, 40% foreign equity limit • Merger can endanger competition & welfare improvement arising from the deal

7. Other competition problems & major lessons from Australia & Indonesia • Shipping cartel & inefficient ports: lack of regulatory independence & credibility; uses its power to protect its own ports against competition from privately-owned ports (conflict of interest) • Low quality of service, high logistics & shipping costs affecting competitiveness: one of the longest duration & high cost for port & terminal handling in Asia (exports: 3 days/$270; Indonesia: 2 days/$165 ) • Australia & Indonesia: greater competition leads to welfare gains & benefits • Philippines: weak competition has led to poor economic performance, lack of investments, low competitiveness • Done quite a lot of liberalization but not efficient institutions/regulatory • Liberalization & shift to more open economy requires changes in legislations & policies, building efficient institutions & good infrastructure to support reforms, generate supply side responses & reap gains in terms of employment & growth