How can competition contribute to fairer societies? – BALISACAN – November 2018 OECD GFC discussion

This presentation by Arsenio M. Balisacan, Chairman, Philippine Competition Commission, was made during the discussion “How can competition contribute to fairer societies?” held during the 17th OECD Global Forum on Competition on 29 November 2018. More documents and presentations on this topic can be found at oe.cd/cfs.

1. Arsenio M. Balisacan, PhD
Chairman
Philippine Competition Commission
2
nd
Meeting of High-Level Representatives of Asia-Pacific Competition Authorities
CC4 OECD Conference Centre
Paris, France
28 November 2018
Fairness, Inequality, and Competition Policy
in Developing Asia
Arsenio M. Balisacan
Philippine Competition Commission
17th Global Forum on Competition
OECD Conference Centre, Paris
29 November 2018

2. The Frame
•This presentation: “Fairer society” simply means a more
equitable distribution of income (opportunities generally)
•Is competition policy appropriate to address rising
economic inequality in developing Asia?
•No straightforward answer: Countries are very diverse,
economically & institutionally.
•Competition policy & its effectiveness are not framed in a
vacuum. They are situated in a particular space, time, &
conditions.
•The Philippines as an illustrative case.

3. Inequality & Growth in Developing Asia
•Developing Asia in recent decades
-Rapid economic growth, rising income inequality, falling poverty
-Structural transformation opening up employment opportunities for
vast number of unskilled & semi-skilled workers, particularly in
manufacturing
•But differences across Developing Asia are wide
-Low inequality at the start of rapid growth (e.g., China, Vietnam,
Indonesia): response of poverty to growth was relatively strong (high
growth elasticity of poverty reduction)
-High inequality at the start of the growth process (e.g., Philippines):
response of poverty to growth was comparatively weak (low growth
elasticity of poverty reduction)

4. …while rapid poverty reduction was achieved.
Income inequality has risen in Developing Asia…
Asia-wide Gini increased from 38 (1990s) to 45 (2010s), contrasting with
“growth with equity” in the 1960s and 1970s
(Sawada, “Technology and Inclusion in Asia,” 2018)
80.5
73.8
66.7
59.360.7
58.8
53.7
45.2
40.138.5
32.8
26.4
19.2
16.5
13.2
8.6
3.7
1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011
Poverty headcount ratio in East Asia & Pacific
at USD1.90 a day (2011 PPP) (% of population)
Source of basic data: World Development Indicators (WDI)

5. 9.7
5.7 5.8 5.9
6.9
2.0
7.3
4.5
7.9
7.3
5.5 5.5
4.1
6.4
3.7
6.1
China India Indonesia Malaysia Pakistan Philippines Thailand Vietnam
Average GDP growth rate among selected Asian economies
(1980s vs. 2010s)
1980s2010s
18.8
34.5
33.0
47.3
33.3
40.8
44.5
35.536.0
39.0
41.7 42.1
31.2
41.2
37.8
36.2
China India Indonesia Malaysia Pakistan Philippines Thailand Vietnam*
Average Gini coefficient among selected Asian economies
(1980s vs. 2010s)
1980s/*1990s 2010s
Source of basic data: World Bank PovCalData, World Development Indicators (WDI)

6. Inequality & Growth in Developing Asia
•Rapidly rising inequality poses a serious threat to poverty
reduction; may even undermine the sustainability of
growth itself
-Political polarization and breakdown of social cohesion
-“Imperfect credit market”: Reduced opportunity for the
poor to invest in human capital, leading to lower
productivity and income growth
-“Economic power begets political power”: Increased
political inequality, reshaping the rules of the game that
perpetuate economic inequality

7. •Persistently high level of inequality in the distribution of
income & wealth—opportunities, in general.
•Past 40 years: Unenviable record in poverty reduction
vis-à-vis developing Asia is the combined outcome of
(1) low per capita GDP growth, and (2) weak response of
poverty to growth (low growth elasticity of poverty reduction).
•Empirical evidence shows causal link between excessive
income inequality and lower future income growth.
Inequality in Philippine Development

8. •Since 2000: PH economy
has been one of the
fastest-growing emerging
economies in Asia
•But serious concerns about
the sustainability of growth
Weakly inclusive:
-Real wages hardly
changed
-Absolute deprivation
(poverty) remained
high
0%
2%
4%
6%
8%
10%
12%
PhilippinesIndonesiaMalaysiaThailandVietnam China India
1980s 1990s 2000s 2010-2017 2017 only
Source of basic data and figure: World Development Indicators (WDI), World Bank (2018)
LHS Axis RHS Axis
Average GDP growth rate
Inequality in Philippine Development

9. Inequality in Philippine Development
Weak response of poverty to growth
Country Estimate Source
A. Percent change in poverty incidence arising from 1% change in mean income
Philippines (1988-1997) -1.6 Balisacanand Fuwa(2004)
Philippines (1988-2003) -1.3 Balisacan(2007)
East Asia (1990-2006) -2.1 World Bank (2009)
Indonesia -2.3
Philippines -1.6
Thailand -4.9
Vietnam -1.6
47 Developing Countries -2.5 Ravallion(2001)
Philippines -1.6 Balisacanand Fuwa(2004)
B. Percent change in the income of the poorest quintile arising from 1% change in mean income
Indonesia 0.7 Balisacan, Perniaand Asra(2003)
Vietnam 1.3 Balisacan, Perniaand Estrada (2003)
Philippines 0.5 Balisacanand Pernia(2003)

10. Policy Reforms in Historical Context
1960s –1970s
•Highly restrictive
and regulated economy
•High level of external debt
1980s –2000s
•Selective reforms (trade
liberalization, deregulation,
privatization)
•Political instability and social unrest
•Global financial crisis
•High level of external debt
Late 2000s onward
•Relatively open trade regime
•Deepening of economic reforms
•More manageable external debt
•Stronger push for more inclusive growth
•Philippine Competition Act (PCA)
Boom-busteconomic growth
Rapid economic growth…
but is it sustainable?
10

11. •Fragmented provisions in over 30 statutes covering specific sectors &
implemented by various government agencies.
•The Philippine Competition Act (PCA) of 2015
-Strong political commitment after nearly 25 years of failure in Congress to pass a
comprehensive competition law
-Policy context: Key policy reinforcement of past reform efforts toward establishing
a more effective competition environment. CP is recognized as key to sustaining
rapid growth and achieving a more equitable distribution of incomes &
opportunities
-Reinforcing trigger: Recent economic growth, though rapid, has not been
inclusive –weak poverty reduction, constant real wages
-Goal: Protecting consumer welfare and advancing economic development by
preventing economic concentration and market power that unduly stifles
competition
Competition Policy in the Philippine Context

12. •Implementation approach: Mainstreaming CP to form part of the
government’s reform agenda to sustain rapid growth and achieve
inclusive development
-Recognizing that the effects of CP depend on other policy tools in place
-Philippine Development Plan 2017-2022
•Though broad goals & considerations (protecting consumer welfare,
advancing economic development, “public interest” considerations),
Commission employs filtersto prioritize enforcement:
-Impact on consumer welfare
-Likelihood of success
-Resource constraint
-Jurisdiction
Competition Policy in the Philippine Context

13. •The pursuit of consumer welfare standard has the effect of enhancing economic
growth while achieving a fairer distribution of incomes
-Mutually reinforcing effects of policy distortions, market power, and rent-seeking
activities, have perpetuated market inefficiencies, pushing consumer welfare down and
the economy below its potential (inside the possibility frontier).
-Public choice theory: Despite being numerically large & having much to gain from
undoing market distortions, low-income consumers tend to lose—and economic elites to
win—in the competition for political influence over public policies governing markets.
-Total welfare can be enhanced via a competition authority acting on behalf of
consumers (countervailing force).
-Efficiency (i.e., growing the economy) is best enhanced by promoting consumer
welfare.
Competition Policy in the Philippine Context

14. Source of basic data: Philippine Statistics Authority, Family Income and Expenditure Survey 2015
21.0
18.4
16.1
14.0
12.0
10.1
8.6
7.0
5.4
3.5
0 5 10 15 20
1
2
3
4
5
6
7
8
9
10
Share in Total Household Expenditure (in percent)
Decile
Share of Rice in Total Household Expenditure
Forthepoorest30%ofFilipinos,rice—the
country'sfoodstaple—accountsforas
muchas16to21%oftheirtotalhousehold
expenditure.
Richest
Poorest
Illustrative Case: Who benefits the most from increased
competitive pressure in the Philippine market for rice?
Rice prices are higher by as much as
50% owing to distortions in the
competition landscape.

15. 11.8
9.4
7.8
6.5
5.5
4.5
3.7
2.9
2.1
1.2
4.1
3.3
2.7
2.3
1.9
1.6
1.3
1.0
0.8
0.4
1
2
3
4
5
6
7
8
9
10
Percentage Change (%)
Decile
Percentage Change (Increase) in Per Capita Income, By Decile
Scenario 1: Repeal of quantitative restrictions but imposition of 35% tariff
(i.e., greater competitive pressure compared to status quo)
Scenario 2: No trade barriers on rice importation
(i.e., unimpeded competition from world market)
Source of basic data: Philippine Statistics Authority, Family Income and Expenditure Survey 2015
Illustrative Case: Who benefits the most from increased
competitive pressure in the Philippine market for rice?
Greatercompetitivepressurein
thedomestic ricemarket
increasessavingsofthepoorand
leadstoreducedpovertyand
improvedincomedistribution.
Richest
Poorest

16. •Competition policy (CP) & its effectiveness can’t be discussed in a vacuum:
they must be properly situated in a specific space & time, including the
country’s initial conditions.
•In the case of the Philippines, the mutually reinforcing effects of policy
distortions, market power, and rent-seeking activities, have perpetuated
market inefficiencies, pushing consumer welfare down and the economy
below its potential.
•CP is part and parcel of the country’s reform agenda to achieve inclusive
economic development.
•From a second-best perspective (public choice considerations), the pursuit of
consumer welfare standard in CP enforcement enhances economic growth
while achieving a fairer distribution of incomes (and opportunities generally).
Takeaways

17. Photo Sources:
https://d2v 9y0dukr6mq2.cl oudfront.net/v i deo/thumbnai l /9QnrhD8/videoblocks-day-to-ni ght-ti me-l apse-v i ew-of-metro-mani l a-skyl ine-looki ng-ov er-boni faci o-gl obal-ci ty-bgc-duri ng-the-rai ny-season-in-mani l a-l uzon-phi l i ppi nes_s1wrmgc1w_thumbnai l-ful l 06.png
http://desti nati oncebu.com/bl og/trav el-roundup/attachment/ol ympus-di gi tal-camera-63/ (Carl o V i l larica, 2013)
Thank you.
www.phcc.gov.ph
[email protected]
CompetitionPH
CompetitionPH