Speech

Alex Chisholm speaks about competition and politics

Speech given by CMA Chief Executive, Alex Chisholm, at the Chatham House conference 'Politicisation of Competition Policy'.

Competition and politics: what does a healthy relationship look like?

Thank you for inviting me to close today’s excellent event (1 - see footnotes at the end).

The question posed in the title of the event – myth or reality – is a binary one, but it is clear that we are not really talking about a binary situation. Markets and their regulation cannot be entirely insulated from politics, nor should they be, and thus the real question for us is one of degree – where should we draw the line between the inevitable and understandable political interest in our work, and unreasonable political interference?

On the one hand, the independence and judgment of competition authorities is vitally important, and fundamentally underpins their value to the societies that pay for them. On the other, we are part of a broader public dialogue on the issues that those societies want us to address and resolve, and we cannot duck our responsibility to engage in that dialogue by retreating to the proverbial ivory tower. It is tempting to think that our work should speak for itself, but if it does so in a language that only the competition community can understand, it will not be heard by the public or the politicians that represent them. If we want our decisions and our recommendations to be taken seriously by the wider world, and to have the best possible effect, we need to be prepared to make our case to those in power, and in a public and accessible fashion.

The UK perspective on the question of politicisation and political influence is a relevant one. Our competition regime was recently scrutinised and overhauled by our politicians through the 2013 Act of Parliament (2) that established the CMA, and our work since taking up our powers in 2014 has frequently taken us into areas of considerable political interest – particularly around market investigations and mergers, though so far notably less so in antitrust enforcement. The UK’s political landscape was itself redrawn just a few weeks ago in a general election. There is strong support for the notion of competition across the UK political spectrum, and that has been the case for some time now; but there is not necessarily a similar consensus on what competition should mean in practice. We believe there are a number of useful lessons that can be learned from our experience at a time when – as we have heard over the course of the day – the question of how much politics is too much is becoming ever more salient across the competition community.

For the remainder of my remarks today, though, I’d like to reframe the conference question slightly and consider how much political involvement with competition work is the right amount. We will be in a much stronger position to defend against unwarranted political interference, and to have politicians trust us to make our contribution to economic life and better outcomes for consumers, if we can articulate a positive vision of what a healthy relationship between politics and competition should look like – rather than just looking to draw red lines that must never be crossed. So what should the role of politics and politicians in regard to competition policy be?

Political interests in competition

A starting point must be to acknowledge warmly that the representatives of the people have legitimate interests in competition and our role in promoting it. Broadly, these might come under 3 headings – accountability, values and context.

At the most basic level, we spend public money to deliver public goods, and we can rightly be held accountable by politicians for our performance in doing so. The Competition and Markets Authority (CMA) is an independent government department, accountable to the UK Parliament for its use of public money, and we agree with the Treasury and the Department of Business, Innovation and Skills on a regular basis what we propose to deliver with the resources allocated to us. We also have a broader accountability to the public to act in their interests, and their political representatives can hold us to account on this front in a variety of ways – from full-scale Parliamentary inquiries to individual representations on behalf of their constituents. And at an even wider level, we are accountable for the extent to which competition regimes are trusted to address market problems and failures. Where we fail to convince people that we are acting to resolve competition issues in the public interest, pressure to do so will shift from the competition authorities to politicians and we will lose legitimacy in the eyes of public and politicians alike – making it less likely that we will be trusted with such issues in the future.

Under the heading of values, we were fortunate to hear today the remarks of Commissioner Vestager, who reminded us that competition policy is based on the political values of openness, fairness and equal treatment. We can also all agree that the pursuit of economic efficiency is an important goal – but it has to be reconciled with what is acceptable to the public. The concept of the Overton Window (3) is useful here – the range of potential public policy options available to policymakers is limited in practical terms to those that are within the window of political acceptability at the time. The window shifts over time, and can be shunted around through deliberate effort – but politicians will always be in a better position to judge where the window currently sits than competition authorities. Similarly, pro-competition policies frequently come into perceived conflict with other policy aims – examples might include situations in which consumer choice leads to poor public health outcomes, or the need to protect the social value of businesses that are nevertheless losing out in the marketplace – and it is for politicians to manage those conflicts, whether we ultimately agree with their decisions or not. In a more positive vein, politicians can also seek to champion competition as a value in itself that leads to better outcomes for the economy, for business and consumers.

On context, the role and relative importance of competition in overall government policy will always change according to external developments, different situations and economic megacycles – and again, this is for politicians to manage. To take an obvious example from the UK, in September 2008 the government had to make a very quick decision on the merits of a merger between the Lloyds and HBOS banking groups, weighing up the perceived benefits to financial and economic stability from a merger against the fact that it would require them to override the competition authorities on public interest grounds. This was a decision they could not have envisaged a few months earlier; it was no more foreseen than the global financial crisis. Whatever the merits of the decision they reached on that occasion, it is clearly preferable for politicians to take decisions of that nature and magnitude. Defence interests and media plurality are other recognised areas of public interest where competition analysis can be only part of the overall assessment.

How should politicians work with us?

There is, then, a strong basis for politicians to work with the competition regime. The next question to consider is how they can best do so – what would the competition community’s ideal politician do, and what do we want from them?

Of course, competition authorities first and foremost need the tools and resources necessary to allow us to do our jobs effectively, and in most cases the allocation of those tools and resources is done by politicians. Clearly, no one in this audience will need convincing of the need for sufficient powers and resources. However, there are other and in some cases arguably more important aspects to the support that we would want.

It is vitally important that whatever the nature of our dealings with politicians, they should be as transparent as possible. Bruno Lasserre, Head of the French competition authority, spoke earlier of the French system whereby the government can express an opinion on a case but it must be in writing and on the record. We would face a very steep task convincing the media and the public that there was no dialogue between competition authorities and politicians, even where it were true; better instead to acknowledge the existence of such dealings and to make them open and transparent. A couple of examples from the UK context – first, under the new competition regime, we are required to have regard to a ‘Strategic Steer’ from government, which sets out their view of the relationship between our work and broader economic policy and the high-level priorities that they would want us to consider. Rather than acting as a fetter on the CMA, the existence of the Steer has simply made explicit the government’s expectations for us, and made clear the importance placed on our work as an input into economic success. And similarly, in our market investigations work, we are happy to consider suggestions and contributions from politicians – but we do so on the record, published and minuted for all to see.

Once we have the process we want, and have established its transparency, politicians then need to respect the process in all cases. It is of course entirely understandable that politicians have a strong interest in specific merger or enforcement decisions, and they may well have a valid contribution to make to the process – but they should be careful not to interfere with it or to be seen to do so. The CMA’s work on the acquisition of the defunct SeaFrance ferry service by Eurotunnel has attracted considerable political interest on both sides of what we have learnt to call ‘the short sea’, and understandably so. However, whilst there have been many views expressed, and the process threw up some lessons to be learned around institutional cooperation, politicians did not attempt to intervene in the CMA decision-making process. It was also notable that the UK’s largest political parties included in their manifestos reference to the importance of the competition process with regard to our current work – the Conservatives committed to implementing the conclusions of our inquiry into the energy market, for example, whilst Labour made clear that they would wait for our work on banking to be completed before implementing further proposals for changes to that market.

Similarly, there has to be respect for the frontiers between the roles of the various parties involved. As far as possible, there needs to be clear delineation of the boundary between regulation and policy, and clear allocation of responsibility for each area – and then all concerned should look to avoid crossing these boundaries into each other’s territory. Regulators should not be working to deliver political outcomes and government should not be trying to do the job of the regulator. The CMA’s Chairman, David Currie, has cited (4) UK energy regulation in the early 2000s as an example of the difficulties that can arise in this area – with the government’s guidance to the independent regulator underplaying the inherent and highly political trade-offs involved in achieving all of its objectives of decarbonisation, security of supply, competition and affordability at once. This left the regulator to make those political decisions, and to deal with the consequences of doing so.

That is not to say that government should not set expectations for competition authorities. They should – but the right kind of expectations and they should be clear to all concerned. This goes back to our discussion of accountability earlier on, and it is of course right that we should sit down with government and agree a level of performance that can be expected from us; we should look upon this as an opportunity to underline the importance of our work to the economy and to the taxpayers who fund it. But too much direction from government undermines both the point and the appearance of independence – to quote from the BBC’s seminal ‘Yes Minister’ TV series, “railway trains are impartial too, but if you lay down the lines for them that’s the way they go”. An appropriate approach would focus on the overall outcomes that are desired, and measuring outputs where appropriate, but not venture too far down the road of specifying what choices the authority should make or how it should achieve them. The CMA’s target of achieving 10 times its cost to the taxpayer in benefits to consumers is a helpful measure of our impact, specifying a sum total of what should be measurably achieved without unduly influencing our decision-making as to which particular cases and projects we take forward.

The value of independence

Having set out our shopping list of ingredients for the kind of political interaction that we want, we then need to be able to convince politicians to give them to us. This entails making an argument for robust, independent competition authorities and their contribution to society, in terms that will be convincing to our audience and the people they represent (5), as argued by my colleague on the CMA board, Professor Annetje Ottow, in her recent book on good agency principles for competition authorities. In doing so, we will always face the handicap of our limited claim on politicians’ attention; for the most part, politicians are in favour of what we do in general without being directly engaged with it, and when they do engage it is most often due to their preference for a particular outcome in a specific case. And they may be experiencing intense lobbying from specific commercial interests who do not appreciate our direction of travel. We thus need a strong enough general case for the value of our work to be so respected that it justifies some political discomfort on an individual case.

Fortunately, there is a strong argument to be made for our independence, and for politicians to follow an approach that supports and maintains it, because there are important benefits to politicians from doing so. We can act, in economic terms, as a commitment device for politicians, because bodies that are independent of political concerns can credibly talk about enforcing laws, maintaining price controls or other regulatory work in ways that politicians cannot – the pressures and incentives on them are such that they will be expected to act in their own relatively short-term political interests, regardless of their best intentions. As Allan Fels (former chairman of the Australian Competition and Consumer Commission) puts it (6): “the public and various interest groups pressing for a new policy often do not trust or support a government unless it makes the more serious and less easily reversible decision to establish an independent regulator”.

Independent bodies can also take on the responsibility of resolving very complex issues that need careful analysis, and the capacity and freedom to take potentially unpopular decisions. A current example from the UK is the Davies commission on airport expansion in the South East, where almost all parties are in agreement that there should be expansion but there are vociferous lobbies for and against all the options for achieving this – hence the need for an independent expert who can consider the issue without fear or favour, and within a robust and public process.

This is not to criticise politicians or to argue that they cannot be relied on to resolve important economic questions, but rather to emphasise that there are real and positive benefits to them in establishing impartial and independent bodies to do so. Investors and civil society more widely will be more likely to trust and invest their capital in a system where there are clear rules and an impartial referee. It is important that firms can make decisions based on as much certainty as possible around economic and regulatory processes. And consumers have to be confident in their dealings with markets in order to get the best possible outcomes from them. All of this extra certainty, trust and confidence adds up to real economic benefits, and we should look to place evidence of these benefits in front of politicians wherever we come across it. To cite just one example, the London School of Economics Growth Commission report in 2013 cited increasingly independent regulation as an ‘underrated strength of the UK economic framework’, and as having helped to ‘reverse a century of relative UK decline prior to the three decades leading up to the [2008] crisis’.

For these reasons, it is welcome that European Union (EU) institutions are considering new rules to bolster and, in some cases, extend the independence of EU competition authorities as part of their review of Regulation 1/2003. This element of the review represents a chance to ensure that the benefits of independent enforcement are embedded right across the EU, whilst maintaining accountability for performance and appropriate oversight.

Lessons learned from today’s sessions

So, having thought about how competition and politics should work together in general, let me turn now briefly to the specific issues discussed in today’s earlier sessions.

We began the day by considering politicisation in the context of mergers and the public interest (7). For me, this underlines the importance of keeping public interest intervention grounds narrowly drawn and specific, and the need for narrow competition-based assessment of mergers by independent bodies – preserving the economic certainty discussed earlier for firms and markets.

There are 6 key arguments to be made for this:

  1. Independent, specialised bodies will more likely develop the necessary technical expertise for the kind of complex analysis needed in merger scrutiny.
  2. Keeping to a single, narrow criteria focused on the competition impact of a merger makes for predictability and consistency.
  3. Public and business confidence in the kind of transparent, evidence-based decisions made by independent authorities is likely to be much higher.
  4. Assessments based on other criteria are liable to be much more subjective and thus unpredictable.
  5. There is less scope for lobbying to affect the outcome in a narrow competition-based assessment.
  6. Finally, decisions made by authorities using clear and transparent criteria can be challenged in full before the courts, an important safeguard.

On European state aid policy, we recognise that there are numerous ways in which tax regimes can affect competition. There thus needs to be an effective state aid regime that is immunised from political pressure, and the push to aid and protect national champions and national interests, as far as is practicable.

Finally, on antitrust enforcement and broader policy goals, enforcement has to be evidence-based, upholding the law and maximising its deterrent effect in doing so. A strong competition regime is an important tool for economic policy in itself, but it should never be an instrument for delivering other policy goals by the back door.

Our side of the deal

Before I conclude, it seems only fair, having set out my ’wish list’ for politicians, that we also think through what politicians and government are entitled to expect from us in return. We can take competence and efficiency in the running of our respective regimes as a given in this regard. But there is more we can do to deliver effective relationships with policymakers, and to satisfy them with our custodianship of the competition regime.

Fair and open dealing is an important principle and a good place to start. We want to ensure that public and political debate is informed by our expertise and our knowledge, so we should at minimum be ready to speak to politicians on all sides based on an understanding of their position as well as our own. As Bill Kovacic said in his opening remarks this morning, autonomy should not lapse into isolation. At the CMA we look to take opportunities to open dialogue wherever possible, so that when politicians want our view on issues within our remit they know how and when to get in contact with us. And our view is our view – we are consistent in what we say to all parties who speak to us.

In order to do this effectively, we need to pay close attention to trends in markets, evidence from the latest research, and views of the full range of stakeholder groups. To take a sporting analogy, the best footballers don’t just keep their eye on the ball – they understand and process the movement in the game all around them as well, so that they can make the best possible use of the ball when they get it. We should recognise that there is a wider game going on beyond the ‘ball’ that we’re entrusted with, how what we do can affect it, and vice versa.

We need to be ready to tell truth to power, regardless of the palatability of our message. We should know when our views may cause political difficulties, and give thought to how best to do this. But we should not change our views as a result. Politicians may well want to override competition concerns that we raise or to choose policies that are not what we would recommend, and that is of course their right; we should make sure that when they do so, it is in the full knowledge of the likely consequences. The CMA has just been given a statutory power to comment on legislative proposals that may affect competition, and this will represent an interesting test of our capacity to influence and stand up to government. We will always prefer to work with politicians to resolve competition concerns at the earliest possible stage of the policy process, but we should not fear to make our views known more widely if we feel it necessary to do so.

We also need to be ready to listen to others’ view of us and be ready to hear constructive criticism, keeping our rules, our policies and our procedures under constant review to ensure that they remain as good as they can be. We have a duty to be proportionate in intervening in markets, and what is proportionate will change over time and in different contexts – wherever we can avoid or minimise regulatory intervention whilst achieving the necessary effect on markets, politicians will likely appreciate our efforts.

Finally, we have a mission to explain what we do and why it matters. Most politicians, and the public, will only engage with us on an infrequent basis. They will have limited windows of attention to devote to competition issues, and we cannot assume that they will simply defer to our expertise or accept our conclusions without question. Thus we need to think very carefully about how we present our work to the people who pay for us to do it. Having our analysis right is necessary for us to achieve the kinds of change we want to make in markets, but it will not be sufficient to do so if our work is not understood more widely.

In particular, we need to avoid – as far as is possible – focusing on the theoretical over the practical in describing consumer harm from infringements of competition law and market failures. We should always be clear that our work means significant, real-world benefits to consumers, and reflect that in how we describe it.

Conclusions

I opened by suggesting that we should consider where the ‘sweet spot’ might be on the spectrum between a fully politicised competition policy and an idealistic – and entirely unrealistic – one that sat completely untouched by political concerns. In my view, this ‘sweet spot’ would necessarily involve a healthy and mutually reinforcing relationship between politicians and competition authorities. We should not be, and should not leave ourselves open to the perception that we are, ‘in bed with’ politicians; but we should not be in a standoff with them except where there are serious and vital issues at stake. Both we and they should define clear, complementary roles – ideally via dialogue and agreement – and we should perform our own roles well. And all of our dealings should be based on mutual respect, and a clear understanding of how independent competition regulation delivers real benefits for the taxpayers and consumers that both we and they aim to serve.

Footnotes

  1. My thanks to my CMA colleague, Mark Dungworth, for his work on this speech.
  2. Enterprise and Regulatory Reform Act 2013.
  3. An introduction to the Overton Window of political possibilities.
  4. The case for the British model of independent regulation 30 years on, Currie Lecture, London (2014).
  5. ‘Market & Competition Authorities: good agency principles’, Annetje Ottow, Oxford University Press, 2015, pp242-244.
  6. A Model of Antitrust Regulatory Strategy, Loyola University Chicago Law Journal, vol.41, 2010, p513.
  7. These issues are considered in more detail in the speech delivered at last year’s Fordham CLI Annual Conference and the associated CPI article