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The Competition Authority`s impact in the economy

The Competition Authority`s impact in the economy

Interview with Gyerko Laszlo, Consiliul Concurentei

Q: Romania is in the sixth consecutive year of economic growth. In your view, what are the strategical directions for the Romanian Economy in the next three year in order to continue this growth cycle?

Gyerko Laszlo: Romania had a strong run in recent years, fuelled mostly by fiscal stimulus and low interest rates. In developmental economics theory, this is considered a paradox because developed countries usually have low interest rates and high taxes and developing countries the other way around. So, from a macroeconomic perspective, this period with both low taxes and low interest rates can be considered an anomaly. We can see now that interest rates started climbing, some may call it “normalising” and most economic experts are forecasting a slowdown in economic growth. But I think that if you look closer you can see some important structural changes in the economy. One aspect that may go unnoticed is the notable increase in competitiveness for a lot of national sectors and markets. From a structural perspective, it is quite hard to come up with negative examples in our key sectors. Most of the important sectors in the Romanian economy have quite competitive market structures and a lot of competitors. This is very important, it makes the economy much more resilient because it keeps the companies focused, efficient and innovative, and it is good for consumers too. Of course, there is still a lot of room for improvement in administrative reform, especially in cutting red tape and in public infrastructure investment, and these should be the strategic directions going forward.

 

Q: Do you see any particular opportunities for the Romanian economy in the next three years?

Gyerko Laszlo: I think that the strength of Romania`s IT&C industry is not a surprise anymore, since it surpassed agriculture in the contribution to the GDP, but some of the positive externalities of this strong technology sector may be surprising. Some industries that are not obvious victims of technological disruptions may find out that nobody is perfectly insulated from this. As Niels Bohr is credited with saying: “It`s hard to make predictions, especially about the future”, but one thing that will probably happen is the increase in volatility in international markets, and we have to be prepared to take advantage of this, or at least not be surprised by it.

 

Q: According to the latest statistics, the Competition Council generated more than 1 billion Euros in its 20 years of existence, by over-sighting 10 key industries. Are the opportunities in these 10 key industries? What is the Top 3 industries in term of opportunities and what it is needed in order to materialise those opportunities?

Gyerko Laszlo: First, I have to mention that the 1 billion euros amount is just a very conservative assessment done by the Bucharest University of Economic Studies of the consumer benefits generated by a sample of the most important enforcement and advocacy efforts of the Competition Authority. So, when we talk about the Competition Authority`s total impact in the economy we have to think about an amount that is orders of magnitude higher. The study just shows that a relatively small public authority, with a small budget, can have a great impact if it`s committed and professional, and that the big fines in high profile cases that everyone is talking about are just half of the story. Secondly, Romania has become in recent years a regional leader in technology intensive industries, mostly due to strong entrepreneurial ambitions and in energy, due to its resources and assets. Two examples that stand out are: the telecom market, which is quite strong in Romania and where we also have regional relevance, and e-commerce, where we also have strong trends and a powerful regional presence.

 

Q: How do you see the Industrial Revolution 4.0 in terms of competition and opportunities both for companies and consumers?

Gyerko Laszlo: The problem with this new industrial revolution is that, as the past industrial revolutions have, it will render a lot of industries (and jobs) obsolete. As Schumpeter said, innovation is the most extreme form of competition because it threatens the very existence of businesses. Of course, this will be great for consumers but it raises some risks that competition authorities are currently trying to understand and prepare to address. For example, innovative markets tend to lead to “winner takes all” outcomes, where you have “competition for the market” and not that much “competition in the market”. New powerful tools like platforms, big data and price algorithms could generate situations that, for now, competition authorities may not fully grasp. The good part is that economic theory and practice clearly states that big profits attract fierce competition and the recent history shows us that dominant companies in highly innovative markets tend to be disrupted and attacked by highly aggressive innovators. One clear example is Microsoft, which, in the long term, faced a lot more threatening challenges from Google and Apple than the ones faced from the European Commission and US competition authorities.

Q: As a Competition Council board member you are in charge with the state aid also. How do you see this component of the economy and what have you learnt from the Romanian experience of implementing the state aid?

Gyerko Laszlo: State aid was one of our main problems before our EU accession, but that incredible effort helped us build inside the Competition Council a very strong expertise in this area. One challenge that state aid poses is that the straightforward relationship between state and private actors that you have in a typical regulatory body – industry environment becomes more complex in cases where state aid is involved. In such cases you have a more complex relationship between businesses – state aid grantors (which are state entities) – national point of contact (Competition Council) – the final approval and control body (the European Commission). This is where our state aid expertise comes into play, in advising grantors to efficiently use this policy instrument while fully observing the EU State Aid policy framework. Nowadays, certain types of state aid, which were mostly intended to saving dying companies tend to decrease with economic development, and other types of state aid, such as aids for R&D&I or for start-ups, meant to generate growth and positive externalities, tend to increase. We can see this phenomenon currently in Romania`s economy, although we still have some big state-owned enterprises that face state aid issues.

 

Q: Where is Romania better compared to its competitors? In other words, what is Romania sustainable comparative advantage that might and should be used until 2020? What can Romania potentially do better than other economies?

Gyerko Laszlo: Romania has a lot of room to run, and even if we may lack one clear competitive advantage, we have a combination of advantages that can fuel growth and development for a long time. Some of these are well known, like the relative size of our market, the low public debt, the stability of our financial system and the low energy dependence but some might not be so obvious, like the structure of our most important markets, that I already mentioned, and a relative diversification of our economy. Some of these not-so-obvious advantages may even be counterintuitive depending on the context, and I`m thinking of the relative underdevelopment of our financial system that, in a way, insulated our economy during the financial crisis. In this logic, the important efficiency and productivity reserves that we can access in a future crisis may be considered one of our main advantages, provided we manage to implement simple reforms in some key areas.

Q: How could Romania’s economy better match its strengths with market opportunities?

Gyerko Laszlo: One important problem in Romania is that we tend to ignore opportunities. This could be more of a cultural problem, but we focus too much on problems and we tend to lose sight of our objectives. If we can have less self-doubt and more optimism, I think we can manage to better identify opportunities and use our strengths to seize them.

Q: What’s the next challenge for the Romanian economy?

Gyerko Laszlo: One important challenge that is already here is the high inflation and interest rate environment. This will put pressure on businesses and consumers alike. But as I already mentioned, the competitive structure of the markets will hopefully mitigate some of this pressure. In the long term, maybe our greatest challenges are related to demographics and emigration, which are already creating problems for the labor market and the educational system. If we can manage to implement some kind of coherent program for stopping this brain-drain and bringing back our workforce, this will mean not only the elimination of the greatest risk, but also a huge step forward for Romania.

Q: These are all our questions. Please specify if you have something else to add for our readers.

Gyerko Laszlo: One important resource that we need to take more care of is trust. Trust between the people and also trust in public authorities and policies. Despite the noise that policies in certain areas may generate, from an economic perspective, Romanian authorities have done a lot to improve the business environment in the recent past. And, on this topic, quality business press and media, like yourself, has a key role in both presenting the business realities that matter and that have an impact on economic incentives, and also in educating the society in turning down the noise and focusing on the real problems and opportunities.