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Tuesday, 24 October 2017 09:02
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Establishing a constructive government to facilitate healthy competition

(LLCT) - Only healthy competition makes the economy work effectively. It brings customers diversified products at reasonable prices, facilitating scientific and technological achievements as well as good use of economic resources. For enterprises, healthy competition acts as a fair arbitrator to choose competent and capable enterprises to exist and develop.

Shopping in a supermarket in Ho Chi Minh City _ Photo: sggp.org.vn

1. Competition in the market economy and views on the State’s inteference

Competition, in economic terms, is the contest or fighting among economic entities (producers, distributors, businessmen, retailers, consumers, ect) in order to gain advantages in production, distribution and consumption of goods and products or other economic and commercial advantages to gain the most possible benefits. As market economy means overproduction, competition is almost among producers, products and services suppliers.

Competition is a prominent phenomenon in the market economy. It may happen among businesses of different or same industries, nations and territories. In the competition, business entities may take many measures to compete such as price (production input price, products, services price) and non-price (advertisements).

Competition affects the market economy in both positive and negative ways. That is why it is a matter of concerns and topic of discussion among economists of different theories.

Originally, it is the view of economists of English Classical School in the 17th -19th centuries. Among them, Adam Smith, the author of The Wealth of Nations (1776) said that the real wealth of a nation includes the products and services that a economy creates. And the way to maximize wealth generation is to unleash all production forces of the country. Free competition is the necessary condition for all economic entities to allocate resources in the best way for society. In his opinion, in that condition, “every individual is continually exerting himself to find out the most advantageous employment for whatever capital he can command. It is his own advantage, indeed, and not that of the society, which he has in view. But the study of his own advantage naturally, or rather necessarily, leads him to prefer that employment which is most advantageous to the society” (1). He also recognized that “The same increase of competition would reduce the profits of the masters, as well as the wages of workmen. The trades, the crafts, the mysteries, would all be losers. But the public would be a gainer, the work of all artificers coming in this way much cheaper to market’’(2). Adam Smith pointed out that “free competition” would lead to “monopolies”, thus making the economy underperform, and causing losses to society and consumers. Based on the view of “an invisible hand”, he recommended that the role of market self-adjustment in the operation of business owners should be promoted. The State’s interference into the economy is not necessary(3).

Smith’s competition theory is developed by Neo-classical economists in later 19th century and early 20th century with the fundamental idea that market economy self-adjusts the supply and demand balance. Enterprises compete to find a favourable place for investment for higher profits. The process happens with the influence of the market which is led by consumers’ demand. Once a product price goes up - the demand increases, enterprises will push up the production and vice versa, when the price goes down, they will divert the production to other products with higher profits. The State’s interference into the competition in market economy is not necessary.

However, economic crisis, specifically, the global economic depression from 1929 to 1933 made J.M. Keynes - an English economist - loose trust in the “invisible hand”. He said that the market economy is not a miracle which can solve all socio-economic problems. Competition results in overproduction, causing economic chaos. In order to overcome this situation, states have to interfere into the market via investment allocation and expense adjustment with financial and monetary means. However, while putting too much emphasis on states’ role, Keynes overlooked the role of the market and the positive impacts of competition on the economy.

Economists of Neo-liberalism critized the limitations in Keynes’ theory and brought the idea that market mechanism needs State’s adjustment at a certain level. They asserted that economic liberty and competition freedom is a right. This requires a special social status for businessmen, specifically, businessmen and the market need to be given the right to control the economy. States only maintain a stable environment for entities to work freely without being interfered, or under little interference when necessary, especially under very little administrative and political interference. When running for presidency, R.Reagan said: “we cannot have prosperity and successful development without economic freedom. Nor can we preserve our personal and political freedoms without economic freedom”(4).

In order to find solutions to the capital market economy in late 20th century, based on previous theories, P.A. Samuelson, an American economist, asserted and highly valued the positive impacts of competition in the allocation and use of resources in the direction of an effective economy and social equality. He is the first person who put forth thorough analysis of competition and named it “market’s failures”. According to him, competition, if not controlled, will lead to monopoly and makes the whole economy underperform. In pursuing competition, entrepreneurs may cause “external influence”, such as overexploitation of resources, leading to resources exhaustation and eco-environmental pollution. Competition also results in income inequality in society. He wrote, “Even the most effective market mechanism can cause big inequality”(5). As the market cannot fix failures it causes, the State’s interference into the economy is necessary. The objective is to fix failures of the market so that it can work effectively. He also proposed measures that the State can take to interfere into the capital market economy.

Economists all say that competition is inherent in the market economy. However, its impacts on socio-economic life have been fully acknowledged since later 20th century until now.

At present, the view that states need to protect healthy competition and eliminate unhealthy competition as well as fight against monopoly is popular. The implementation of this viewpoint of countries with more experience in developing a market economy will provide valuable lessons to latecomers like Vietnam.

2. The CPV’s viewpoint on the role of the State over competition

The objective of competition is to seek for higher gains compared with average gains that economic owners have. Based on economic owners’ nature and influence on the market, competition is categorized into three groups: healthy competition, unhealthy competition and limited competition. Healthy competition is “the public, fair and honest form among competitors in business”(6). Healthy competition and unhealthy competition are different. While the former is based on existing potentialities of enterprises and aimed at attracting customers, bringing optimal benefits to customers, the latter is not based on real potentialities of the enterprise; it purely targets profits based on dishonest behaviors, causing loss to customers and competitors. Healthy competition observes competition laws and normal business practices while unhealthy competition is against them.

Healthy competition is also different from limited competition. In healthy competition, enterprises do not encounter any “hindrances” accessing production resources, while in limited competition some enterprises are unable to access these resources. In healthy competition, prices of products and services are determined by the market supply-demand, in limited competition, prices are set by the behavioural performer (monopoly price). Healthy competition allows flexible and optimal use of production resources while limited competition underuses production resources. Limited competition always looks for the establishment of a market power or makes use of it to distort competition in the market. There are two signals to identify anti-competitive behaviours: (i) behaviour performer can be one enterprise or a group of enterprises which have market power or look for market power through economic negotiation and concentration; and (ii) behaviours are done in order to distort competition, meaning that they can change market structure, change the relative positions of enterprises in the competition, eliminate competitors, hinder potential competitors to reduce immediate competition pressure, and exploit customers. Normally, limited competition has three forms of behaviour: negotiation to limit competition, abuse of the leading position or monopoly to limit competition and economic concentration.

Compared with unhealthy competition, behaviours limiting competition may cause more damages. Only healthy competition makes the economy work effectively. It brings customers diversified products at reasonable prices, facilitating scientific and technological achievements as well as good use of economic resources. For enterprises, healthy competition acts as a fair arbitrator to choose competent and capable enterprises to exist and develop. Healthy competition also can be understood as “effective competition” as viewed by economists from the school of Federal Republic of Germany social market economy, in the mid-20th century.

Acknowledging the positive impacts of healthy competition, in the strategy for socio-economic development in the 2001-2010 period, the CPV set the following requirements: “Synchronously form and continuously develop different types of market, together with shaping the legal framework and mechanism for active, effective and orderly operation of the market in an environment with healthy competition, transparency, limiting and controlling business monopoly”(7). To this end, the State needs to renovate and complete legal framework, remove all mechanism, administrative and policy hindrances to optimize all resources, creating a new thriving force for production development of all economic sectors with the view that economic sectors are key components of the socialist-oriented market economy.

This requirement was also mentioned in the 12th National Congress of the CPV: “All enterprises of various economic sectors shall operate according to market mechanism equally or compete by law”(8); “The market plays an important role in mobilizing and allocating development resources, is a key force to liberate production... The State should orientate, plan and complete economic mechanism, creating an environment with healthy competition, transparency and wholesomeness”(9).

So, the developmental State’s mission is clearly identified. The State cannot replace the market but with its role, it can orientate production and business owners to pay attention to consumers’ benefits, besides theirs, and work for chosen oriented target of economic development and growth. The development orientation of the market economy is strongly affected by political nature and constructive competence of the State. As ours is the State of the people, by the people and for the people, we can create a totally healthy competition environment, a fair playground for enterprises in the economy.

3. The developmental State and measures to facilitate healthy competition

As a country with not much experience in developing the market economy, the change of State’s role from a commander to a facilitator is underway. From our own experience and that of others, the developmental State need to do the following things in order to promote healthy competition:

First, completing the existing legal regulations on competition.

The Vietnam Law on Competition was issued and became effective since 1 July 2005. After more than 10 years of implementation, the law and its inappropriateness and limitations have been revealed. For instance, how to identify an enterprise which violates the regulations on limiting competition. Violations include such behaviours as negotiating to limit competition, abusing monopoly position, or economic concentration.

There are problems related to the consistency of legal documents and executive mechanism such as one behaviour is regulated in many legal documents which are issued at different points of time by different authorities, causing inadequacies in implementation. Legal regulations of the Law on Competition have not actually been applicable and have not proved their role in protecting healthy and fair environment for competition, acting as a foundation to develop the country’s economy. That is why the Law on Competition should be reviewed in the direction of protecting and promoting healthy competition, facilitating entrepreneurs’ creativity, giving them good conditions to make the best use of competitive advantages in the market and grasping business opportunities.

The modifications to the Law on Competition should also pay attention to relevant international laws.

In addition, the Law on Competition has been promulgated, but Vietnam has not issued any competition policies. These policies should be researched and issued to ensure the consistency in management mechanism, promoting the role of the developmental State. Competition policies should clearly identify criteria to enter the market, cases for the State’s support and interference with the market, industrial competition policies, and policies on State-owned enterprises. Separate articles and clauses to deal with administrative monopoly are to be devised.

Second, improving the competence of competition law-enforcement agencies.

Currently, competition law-enforcement agencies in Vietnam are the Competition Authority, and the Competition Council. Under the Ministry of Industry and Trade, the Vietnam Competition Authority (VCA) is responsible for controlling the process of economic concentration; receiving applications for exemptions; investigating competition cases related to limiting competition and unhealthy competition; punishing those behaviours. The Vietnam Competition Council (VCC) is set up by the Government, including representatives from the Ministry of Industry and Trade, Ministry of Justice, Ministry of Investment and Planning, Ministry of Construction, Ministry of Transport, etc, being in charge of handling competition claims.

Given the above-mentioned functions of the two agencies, the model of competition law enforcement in Vietnam is now separating the investigation (VCA) from case treating (VCC). Even the VCA has not been able to ensure its autonomy in budget management, recruitment, promotion as well as human resources training to meet increasing demand of international integration when cases of violations against competition law are significantly increasing. Moreover, competition law-enforcement agencies still face limited human resources and facilities while some people do not willingly take part in legal cases, they are not cooperative and reluctant to provide information.

Therefore, it is necessary to take measures to improve human resources, facilities and management skill of VCA; at the same time, it is imperative to review and complete the cooperation mechanism between the two agencies to ensure consistency. People should be given opportunities to understand these agencies, then they will have more awareness to cooperate in providing information.

Finally, continuing to renovate the management mechanism of state-owned enterprises on the view of promoting healthy competition, ensuring fairness.

In Vietnam, State-owned enterprises hold important positions in almost all key industries of the economy, thus investigation objects of competition authorities can be State-owned corporations, big economic groups, even state management organizations. However, the management model for State-owned enterprises has not separated state administrative management from corporate management; as well as politics from business, especially in profit-making activities. That power of State-owned enterprises of all industries and fields is gathered in one organization - SCIC (State Capital and Investment Corporation) may increase risks and problems related to transparency and accountability. Meanwhile, competition management agencies do not have enough power to fulfill their assigned functions. Also, that VCA and VCC investigate and handle cases related to State-owned enterprises may lead to concerns about the objectiveness because of the concept they are judges in their own cases.

In order to fulfill the task of a developmental State, firstly, state administrative management and corporate management should be separated; and politics and business as well, to choose the model of management for State-owned enterprises. State-owned enterpises should be made equal with all enterprises of other economic sectors. At the same time, the position and competence of agencies in charge of competition management need improving to fulfill the task of a judge so that the playground for enterprises of different economic sectors becomes fair and effective n

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Endnotes:

(1), (2), (3) Adam Smith: The Wealth of Nations, The Pennsylvania State University, http://eet.pixel-online, org, 2005, pp.362, 107, 111.

(4) USICA, Official text, President Reagan’s Speech to World Bank/IMF, 30-9-1981.

(5) P.A.Samuelson, William Nordhaus: Economics 19e, McGraw-Hill Irwin, 2009, p.38.

(6) Bryan A.Garner: Black’s Law Dictionary. ISBN-13: 978-0314613004, Thomson West Publishing House; 10 e (9-5-2014), p.279.

(7) CPV: Documents of the 9th National Assembly, National Political Publishing House, Ha Noi, 2001, p.192.

(8), (9) CPV: Documents of the 12th National Assembly, Central Office of the CPV, Hanoi, 2016, pp.106, 103.

Assoc. Prof., Dr. An Nhu Hai

Institute of Political Economics,

Ho Chi Minh National Academy of Politics

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