OECD for strong competition policy to ensure growth

Written by Sanjay Jog | Mumbai | Updated: Feb 22 2009, 04:03am hrs
Close on the heels of finance minister Pranab Mukherjees outburst against the US governments protectionist tendencies against India, the Organisation for Economic Cooperation and Development (OECD) has called for a strong competition policy for speed recovery especially during the current global meltdown. It has opined that protectionist measures may dampen growth in both developed and developing countries.

According to OECD, it is crucial that any restriction of competition during this critical period be carefully thought out and monitored. Robust competition policy is essential if we are to prevent long-run impact when economic conditions stabilise.

OECDs paper is quite relevant when Mukherjee on Friday hit out at the US and said We are already witnessing worrying signs of protectionism in the worlds biggest economy. We need to argue against this trend at the international fora.

We all know that political concerns sometimes influence solutions to economic crisis. The unfortunate reality is that emergency measures in such times may sometime stray from the principles of sound competition. We must ensure that competition law and policy apply to are respected in all sectors of our economies, including the financial sector, OECD said.

According to OECD, competition law and policy has an important role to play. It should continue to ensure a level playing field that is underpinned by clear rules and strong enforcement by competition authorities.

The OECD Competition Committee has been discussing competition law and policy issues in relation to the financial crisis.

Governments are taking short-term actions to deal with the crisisactions which will have long-term repercussions on markets. These actions include, taking financial stakes in banks or full nationalisation of banks; encouraging mergers with the effect of creating mega-banks and providing or considering state support to non-financial firms such as airlines or car manufacturers. Consideration is also being given to light-touch enforcement of competition rules in order to clear otherwise questionable mergers and alliances.

We must never lose sight of the underlying principles of sound competition. The case for national champions is weakthe protection of incumbents and ailing firms is likely to dampen growth in both developing and developed countries, stated OECD. We must avoid interventionist industrial policies that favour incumbents, that seek to pick winners, or to reward losers. When unavoidable, we must make sure that any such measure is transparent and temporary. This is the challenge currently facing those governments adopting emergency measures to deal with the impact of the crisis on the real economy, OECD observed.