P2C: What
did we
mean, what
does it
imply, what
do we do
next?
What do we mean by Competition?
Getting at the Rents: Competition matters for
efficiency
• “Analyses based on micro data show that firm
dynamics (i.e., birth and death, growth and decline
of individual firms) is an important component of
innovation and aggregate productivity growth.”
• However, this growth through dynamic efficiency
gains requires competitive factor markets as well,
to “reallocate labor and capital of shrinking/ exiting
firms to entering/growing firms.”
Sanghoon Ahn Competition, Innovation and Productivity Growth: A Review of Theory
and Evidence (Economics Department Working Papers No. 317, OECD, Jan.17, 2002.
Competition drives efficiency, innovation, consumer
welfare
The Market for
Corporate Control
Encourages
better
corporate
governance,
maximized
corporate
value.
Efficiency,
Innovation
The
Product Market
Encourages
efficiency,
innovation,
and
consumer
welfare.
Competition policy relates to mobility of
resources and incentives for efficiency
Competition
Policy
Micro-economic Policies
(Regulation, Trade, Investment)
Competition (Anti-Trust) Law
Promote Regulatory Reform,
Market Openness
Prevent Anti-Competitive
Conduct and Market Structures
Fosters Mobility of Resources, Competitive Environment, Less
Restricted Business Practices
The new PSD agenda: thinking about
transparency
•
•
•
•
Diagnostics: measuring public sector performance,
uncertainty, monopolistic behavior.
Evaluations of policies, impacts; analysis of
beneficiaries.
Information sharing, harmonization among public
agencies dealing with firms (e.g. unique identifier),
opening-up access to firm-level information.
Public sector reform: process simplification and
institutional reform in key areas of interface with the
private sector, e.g. customs, tax authority.
Governance Implications: Taking
Political Economy Seriously
The flagship suggests we need to pay more attention
to:
• The motivation of government and the private sector
to improve
policies
and this
institutions.
What
changes
does
imply for the
• way
The capacity
of government to generate good
we do business?
policies.
• The capacity of government to implement policies.
• The systems of coordination.
• The generation of information by which policy
effectiveness can be understood and judged.
Thinking about political economy (1)
• Reforming discretionary allocation of rents to the private sector
implies altering replacing privilege with evenhanded rules and
competition. This requires limiting leaders’ ability to interfere
with how policies are applied, delegating power to rule-bound
institutions.
• Understandably, some leaders are reluctant to accept such
limits. Unlike democracies, regional autocracies lack political
checks and balances, independent judiciaries, and
institutionalized political parties.
• In MENA, a more developmental and less rent-seeking private
sector has been slow to emerge. There has been a tacit
alliance between politicians and the more prominent members
of the private sector to maintain the status quo.
Thinking about political economy (2)
• Recent economic liberalization measures created new
private sector actors more eager for reforms to enhance
competitiveness and growth—exporters in particular. As
private sector diversity increases, so too does the
capacity of new private actors to advocate for change.
• Credibility with investors also requires strong cohesion
between all stakeholders—government agencies and
ministries, with the different private sector
constituencies—and mobilization around a clear long
term economic strategy. This also needs to be built in
many countries—to create consensus and coordinates
activity around the growth objective.
The new PSD agenda: thinking about
transparency
•
•
•
•
Diagnostics: measuring public sector performance,
uncertainty, monopolistic behavior.
Evaluations of policies, impacts; analysis of
beneficiaries.
Information sharing, harmonization among public
agencies dealing with firms (e.g. unique identifier),
opening-up access to firm-level information.
Public sector reform: process simplification and
institutional reform in key areas of interface with the
private sector, e.g. customs, tax authority.
Questions
• Do we accept as given “political will” of government, organized
private business to change policies and institutions or try to
change it? (Are our instruments and resources up to the task?)
• Do we know how to build government capacity to generate good
policies (as opposed to our prescribing)?
• Where have we improved government implementation capacity?
Is anything short of comprehensive civil service/public
administrative reforms successful?
• How can client governments improve interagency coordination?
• How can we build a culture oriented towards results and
monitoring where the free flow of information (and associated
accountability) are anathema?
• How do we overcome mutual hostility or capture to promote
broadly-based consultation?
• What are the skill and resource requirements for us if we wish to
take on these challenges as though the political economy
matters?
Industrial Policies: What to Do? (Prerequisites)
•A sound investment climate.
•An institutionalized, inclusive process of private sector
consultation in designing, monitoring, evaluating interventions.
•Transparent subsidies, including clear identification of
beneficiaries.
•Clear, measurable, and transparent indicators of each
intervention’s success.
•Arms-length relations between Government and private sector.
• Governance arrangements that hold government sufficiently
accountability to prevent capture and shut down failing efforts.
Today, no MENA country has these. High risk of reproducing
past failures. Can’t imitate East Asian success without
institutional capacity, transparency, and credible commitment.
Tahrir Square: Echoing Key Flagship Themes ?
Get at the rents!
•
•
•
Remove formal barriers to entry!
Get politicians out of business !
Reform institutions!
•
•
Transparency, accountability, measurement!
Reform the public sector!
Address monopolistic behavior!
Change the process of policy-making!
• Broaden consultations!
• Allow entry of new organizations!
• Coordinate across Government!