DARYL DINGLEY: Be aware of populism in competition law

President Cyril Ramaphosa has on several occasions cautioned against the rise of populism. For example, in his opening address in parliament earlier this year he described a possible coalition outcome for SA that was symbolised by a vulture — “a desperate nation governed by a populist coalition”. In this futuristic world he envisioned “investment confidence being eroded, the growth path being low, and unemployment, poverty and inequality remaining extremely high”.

Populism in the form of the vulture is combative, opportunistic and politically driven. A reasoned ideology doesn’t often define it, and it promotes grandiose results in a variety of ways. However, in the context of competition law populism can be quite different. Or is it? At a basic level there appear to be two main movements that encapsulate populism in competition law.

The first is referred to as “anti-bigness” populism, which seeks to protect small and medium-sized businesses (SMEs) and sees business size as a potential evil. Under this banner the competition authority is SMEs’ main champion. Proponents of this movement are known as “antitrust hipsters”, as they often target big tech using old-fashioned concepts such as the power of monopolies being a threat to democracy.

They typically advocate for stricter enforcement of competition laws, structural remedies to competition problems and a broader set of competition law goals that include sociopolitical objectives. In addition, the inclusion of a public interest standard in merger control and increased use of presumptions of illegality are sacrosanct to their cause.

In SA the hallmarks of this movement are ever-present. There are constant references by proponents of this movement to the high levels of concentration in many industries. Market concentration has also been identified as one of the main drivers of societal inequality. Furthermore, there is a lot of rhetoric reflected in investigations, commentary and decisions by the authorities regarding the threat of large firms to SMEs.

Justifications for decisions, market inquiries and amendments to legislation often cite transformational and distributive justice goals. Applying the long-established public interest standard in merger control usually results in conditions being imposed that relate to goals such as the greater spread of ownership and maintenance of employment levels, as well as the promotion of SMEs and firms owned by historically disadvantaged people, at different levels of the value chain.

Our authorities also exhibit a strong preference for structural remedies over behavioural remedies, particularly in merger cases between competitors. In restrictive horizontal practice matters (those involving potentially unlawful conduct between competitors), followers of this movement believe the characterisation test (determining whether conduct is anticompetitive by object) is detrimental to their enforcement function, and are emphatic that it should be substituted with an illegality presumption.

The second movement subscribes to what is known as “anti-enforcement” populism. This is heavily critical of competition law enforcement as its advocates believe markets are competitive and naturally correct, and hence intervention is unnecessary. In addition, they believe vertical restraints are unlikely to harm competition and distributive policies have no place in competition law.

Accordingly, intervention by competition authorities negatively affects the beneficial business of firms and market functioning. Evidence of this movement can be found everywhere in the commentary and critique of the authorities, but nowhere more so than in the rising digital economy, where any criticism of big tech triggers an immediate response that competition law enforcement will punish innovation and efficiency to the detriment of consumers.

Both movements make it clear that they are somewhat dismissive of the economic bedrock of competition law, which is the consumer welfare standard with its focus on prices, choice, output, quality and innovation. These benefits to consumers translate into productivity growth, which in turn improves the standard of living of individuals. Thus, competition law and the drive to ensure effective competition have an indirect link to distributive justice.

Defenders of this consumer welfare standard view of competition law sometimes mistakenly argue that authorities should “stay in their lane” and not include broader socioeconomic and other distributive justice goals. They further argue that the role of competition law in promoting competition may be undermined if it is called on or expected to address problems not directly relating to competition.

Equality effect

However, they clearly miss the fact that consumer wellbeing in markets has an equality effect, especially in SA where consumers are often at lower income levels. It is also worth pointing out that our competition law has evolved to specifically include, in the black letter of the law, employment and other public interest considerations.

However, defending this standard requires one to recognise that certain populist goals or approaches should be considered on their merits, using the consumer welfare standard as the benchmark. Populists should be recognised for their contributions and approaches.

The fundamental danger of populism to competition law is that selective facts, exaggerations and uncompromising beliefs may lead to the abandonment of the welfare standard. As Prof Carl Shapiro of the University of California, Berkeley, has stated, “consumers would then be deprived of the many benefits of competition and economic growth will be undermined as firms are likely to be discouraged from effectively competing for fear that they will be found to have contravened competition law or for fear that they will be broken up if they are too prosperous”.

Shapiro hopes “the intense energy of populism will empower stronger competition law enforcement with the goal of protecting the competitive process and channelling more of the benefits of economic growth to consumers”. To achieve that outcome it will be important to raise awareness of the limitations of competition law in solving our many political and social struggles. While competition law can reduce inequality, it shouldn’t be the primary method.

Tax, social welfare and employment policies need to play a more meaningful role to deliver change. If we stumble on without proper awareness of populism in competition law, the vulture is likely to prevail, leaving us with a carcass of an economy and social instability.

• Dingley is a partner at Webber Wentzel.