DENNIS DAVIS: Competition Commission aims too high in applying act

The Competition Act was introduced in 1998. It confronted the then hegemonic status of efficiency and particularly wealth maximisation as the key value guiding the process of adjudication within the context of competition law.

In brief, wealth maximisation represented the theory that the law should be directed to ensuring the greatest aggregate wealth or the greatest total consumer and producer surplus generated by goods and services produced in the economy. 

Section 2 of the act made clear the legislative intention to embrace a more ambitious set of objectives beyond those that had been introduced by way of the Chicago school of economics about 30 years before its inception.

It proclaimed the objectives of the act to be to promote and maintain competition in the republic to:

• Promote the efficiency, adaptability and development of the economy.
• Provide consumers with competitive prices and product choices.
• Promote employment and advance the social and economic welfare of South Africans.
• Expand opportunities for SA participation in world markets and recognise the role of foreign competition in the republic.
• Ensure that small and medium-sized enterprises have an equitable opportunity to participate in the economy.
• Promote a greater spread of ownership, in particular to increase the ownership stakes of historically disadvantaged people. 

Two Nobel economic prize winners have recently argued that the move away from a narrowly construed conception of efficiency is manifestly justifiable.

Columbia University’s Joseph Stiglitz has noted that the “presumption that the distribution does not matter is reflected in the use of a total welfare standard. An adverse impact on consumers could be set against positive benefits to the corporate sector.

“Such a perspective is particularly perverse both from an economic and moral point of view in SA and other emerging countries.”

The exclusion of the majority of South Africans from fair participation in the economy was uppermost in the minds of the drafters of the SA legislation, in particular the idea that a strict model of efficiency or wealth maximisation was unsuitable for the SA sociopolitical context. 

Economic power

In similar fashion, Princeton University’s Angus Deaton has written: “Our emphasis on the virtues of free, competitive markets and exogenous technical change can distract us from the importance of power in setting prices and wages, in choosing the direction of technical change, and in influencing politics to change the rules of the game. Without an analysis of power, it is hard to understand inequality or much else in modern capitalism.” 

Twenty-five years ago the SA legislation had to be concerned with the way economic power inherited from the history of apartheid and before had distorted our economy, shaped our politics and disenfranchised the majority politically and economically. 

The question to be posed about 25 years after its introduction is the extent to which this legislation has succeeded. At a broad macro level prevailing levels of inequality, in which race and class overlay, remain depressingly resilient. SA traditionally has had one of the world’s most egregious Gini coefficients, and regrettably nothing has changed after 30 years of democratic governance. Our Gini is still at 0.67. 

Competition policy and law cannot, on its own, change these structural patterns. But it can make a contribution to ensuring the development of a competitive process that is accessible to all South Africans, and curb existing forms of economic power so that they are not employed to subvert this vital objective.

Some of the jurisprudence, particularly key decisions of the Competition Tribunal in its early years under the outstanding leadership of David Lewis, sought to show fidelity to the complex objectives of the act. This was most notable in curbing the competitively subverting effects of excessive market power.

Similarly, the decision of the Competition Appeal Court in the Walmart case promised a path to ensuring SA merger law would develop to coherently embrace a balance between ensuring low prices and multiple product choices for consumers, and the need for the competitive process to promote the interests of small and medium enterprises (SMEs) in general and those initiated by black residents of this country in particular.

Rent-seeking  

Regrettably, in its recent conduct the Competition Commission has engaged in overambitious applications of the act. For example, a fundamental recent problem is that the guidelines the commission gazetted in March regarding public interest removed any reference to considering the net effects of the public interest consideration or determining whether an effect is positive or negative. 

The commission thus no longer seeks to engage with a holistic approach to assessing the impact of a merger on the public interest. All too often rent-seeking, rather than the promotion of an inclusive economy, has been a consequence of the application of this approach.

The need to balance legitimate arguments of greater efficiency that can redound to the benefit of poorer consumers with public interest concerns can give way to rent capture. 

The exponential growth of the digital economy is another major worldwide challenge for competition policy, and thus the law. Apart from the power of digital giants Amazon, Google, Meta and Apple to subvert the growth of small innovators, the protection of privacy and personal data there is a further problem vexing competition authorities. The manner in which they deal with disruptive technology is now on the agenda. 

All of this compounds the challenge ahead. For SA competition authorities that means seeking to develop greater coherence of policy and law, to ensure that while consumer choices remain central, ultimately questions of subversion of a genuine competitive process must be addressed.

In this balance, questions of distribution along with allocation of resources remain central Eliding over these issues means competition policy will not have risen to the contemporary challenge. 

Much has been achieved in the past 25 years. In many ways, as indicated, SA has been a pioneer. It has been far more loyal to the legitimate use of law to curb market excess than most jurisdictions. It needs to remain so while ensuring the objectives of the act are not undermined by a belief that the ravages of our economic history can be solved through competition policy alone. 

• Davis, a retired judge president of the Competition Appeal Court, is an honorary professor of law at the universities of Cape Town, Western Cape and Witwatersrand.