Creating a Culture of Competition: The Essential Role of Competition Advocacy

Prepared Remarks before International Competition Network, Panel on Competition Advocacy and Antitrust Authorities

Naples, Italy

Date:
By: 
Timothy J. Muris, Former Chairman

Competition advocates have won many victories over the last few decades. We have largely won the intellectual debate: Economists and legal scholars around the globe now recognize the benefits of competition to consumers and to the economy as a whole. We are winning the legal debate: Courts now recognize the importance of efficiency and robust price competition in evaluating mergers and business conduct. Lastly, and perhaps most critically, we are starting to win the policy debate: From airlines to electricity to telecommunications, industry after industry has been privatized or liberalized. Legislators more frequently are turning to competition policy, rather than to more burdensome forms of regulation, to create a well functioning marketplace. 

The question before us today is: What are the most effective ways to encourage greater competition? Of course, enforcement is an important tool. The FTC remains committed to aggressive enforcement of the competition and consumer protection laws. But enforcement is not our only tool, and others may be better or more effective, especially when governments are making major policy changes that fundamentally will reshape the competitive landscape.

Competition policy is more than enforcement - it is a way of organizing our economy. In this sense, competition policy is a form of regulation that competes with other regulatory structures, many of which are hostile to free markets.

For this reason, competition policy must become more aggressive in competing with other forms of regulation. As competition advocates, we should support the philosophy of competition policy at every opportunity and in every forum. In executive councils, before national and local legislatures, and through public opinion, we should increase our efforts to produce the evidence and rhetoric necessary to defend the marketplace.

In the United States, we repeatedly have seen the benefits of successful competition advocacy. Return to 1974. The Vietnam War and the Watergate scandal were ending. Surfing involved the ocean, not the Internet, and spam was still something you ate for lunch. Economically, the United States was not doing well. It was suffering from stagflation - the pernicious double-whammy of low growth combined with high inflation.

In the fall of 1974, the Chairman of the Federal Trade Commission, Lewis Engman, gave a speech to financial analysts in which he tied the country's macroeconomic problems to its competition policy. (One of my first tasks at the FTC as a young staffer was to help fact-check this speech.) In particular, Engman argued that burdensome federal transportation regulations contributed to the problems. Engman discussed how the Civil Aeronautics Board raised prices by limiting the entry of new carriers and controlling the distribution of airline routes. He noted that the Interstate Commerce Commission effectively sanctioned price fixing among trucking companies. Engman then concluded that the country's lack of sound competition policy led to higher transportation costs, which in turn hurt the U.S. economy overall.

Engman's speech may be considered one of the first contemporary examples of successful competition advocacy. Because his speech presented competition policy as a means of addressing the country's pressing economic problems, the speech received substantial coverage in the popular press. It was even covered on the front page of the New York Times.(2)

The result was new interest in deregulating the transportation sector. During the next decade, the Commission aggressively pursued competition advocacy to promote deregulation of airlines, railroads, trucking, and inter-city buses. This advocacy used not only speeches, but also formal written submissions to regulatory agencies and legislative committees. Scholars estimate that transportation deregulation improved consumer welfare by more than $50 billion annually.(3) Although it is difficult to quantify the impact of competition advocacy, I believe it is fair to conclude that the Commission's advocacy, later joined by the Antitrust Division, helped create a policy climate in the 1970s and early 1980s that favored liberalizing transport regulation.

Another example of competition advocacy that is both successful and continuing is one with which I have a great deal of personal experience: the regulation of professions. In many regulated professions, regulatory bodies and/or practitioners continually attempt to restrict advertising, proscribe relationships with commercial firms, prevent consumers from buying related goods and services from non-professionals, and expand the list of services that only professionals can provide.

During the past three decades, a combination of court challenges and FTC advocacy before regulatory bodies has eliminated most barriers to truthful, nondeceptive advertising by professionals. As a result, prices have decreased. But many of the other types of barriers to competition remain. In some states, only funeral directors can sell caskets; earlier this month, the FTC filed an amicus brief in a case that seeks to overturn such a law in Oklahoma. Several states require home buyers to hire an attorney to handle real estate and mortgage closings; just this year, Charles James and I urged policymakers in two states not to implement such measures. 

Given the importance of health care to our economy, many of our advocacy initiatives have focused on this crucial industry. The escalation of health care costs is especially acute in the United States, which spends 14 percent of its GDP on health care. U.S. tax and regulatory policies create significant incentives for increased health care costs. Within this system, we can moderate cost increases by promoting competition for medical services, pharmaceuticals, and health insurance. The FTC has acted aggressively to eliminate restraints on advertising, both by bringing cases to lift advertising bans and through advocacy in front of other government bodies (most notably involving direct-to-consumer prescription drug advertising). On several recent occasions, the FTC also has helped persuade state governments to avoid granting antitrust exemptions that would allow medical professionals to fix prices. We continue to oppose regulatory restrictions that would reduce competition in the sale of eye wear; this year, FTC staff filed comments before a Connecticut state optical board that is considering whether to force out-of-state contact lens vendors to obtain a license if they want to ship lenses to customers in Connecticut.

Two weeks ago, we held a public workshop on health care. Our primary purpose was to learn how we can better apply competition and consumer protection law to the health care industry. We also hope the workshop will increase awareness of competition and consumer protection issues among health care policymakers and in the health care industry.

These few examples drawn from the U.S. experience underscore what all of us already know: competition advocacy is a complex and difficult process, and outright victories are relatively rare. Constant vigilance and continuing efforts are necessary because there will always be pressures from the private sector, and often its government allies, to maintain old anticompetitive constructs or to create new ones.

The very valuable work of this Group only confirms these conclusions. The comprehensive Report includes a detailed presentation on both the theory and the practice of competition advocacy. The responses to the Questionnaire support two broad conclusions:

(1) All countries agree that competition advocacy can contribute to the creation and maintenance of free markets, and  

(2) Advocacy is a process that can benefit from greater resources and expertise. Advocacy is also more effective in the presence of enhanced legal provisions that guarantee the agency the right to speak and increase the likelihood that other elements of the government must listen, if not always heed.

In a world in which resources will always be insufficient and unequally distributed, the ICN is uniquely situated to make a substantial contribution. The projects that this Group plans for the coming months will allow us to share the resources that many of us now enjoy individually. The Resource Center will create, and allow immediate access to, a potentially invaluable collection of information, including advocacy filings and international experts on a variety of topics. The collection and analysis of existing statutory provisions, with the drafting of model clauses to follow, will allow interested countries to propose amendments that would strengthen their advocacy efforts. The compilation of practical techniques will enable Members to share their experience to target their advocacy efforts and to communicate the competitive message to their governments and the public most effectively.

These goals are worthy and necessary, but they will not be achieved effortlessly. In most cases the process will require assembly, transmission, and organization of existing materials. Both the Commission and the Antitrust Division are glad to contribute to this process. In our case, I am also pleased to report that our Webmaster has volunteered to participate in the technical aspects of the task, whenever and however his assistance can be useful.

In the past months this Working Group, under the able leadership of Dr. Sanchez Ugarte and his dedicated staff, has taken important first steps. The proceedings of today's panel undoubtedly will make further contributions. In the months until the ICN meets in Mexico City, together we will create new ways to communicate a message that we all agree is vital.

Endnotes:

1. The views expressed are those of the Chairman, and do not necessarily reflect the views of the Commission or of any other Commissioner.

2. New York Times, October 8, 1974, p. 1, col. 6.

3. Robert Crandall and Jerry Ellig, Economic Deregulation and Customer Choice (1997) at 2.