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European Union
SPEECH/12/83
Joaquín Almunia
Vice President of the European Commission responsible for Competition
Policy
Industrial policy and Competition policy: Quo vadis Europa?
New Frontiers of Antitrust 2012 - Revue Concurrences
Paris, 10 February 2012
Ladies and Gentlemen:
It is a pleasure to return to your annual conference. In my first two
appearances, I shared with you my vision for competition policy. Today,
I will talk about industrial policy and the importance of competition
for its success.
I chose this topic because the debate on industrial policy is making a
comeback. Over the past four years, the crisis has unveiled serious
setbacks for economies in advanced countries and de-industrialisation
processes, and the calls for industrial-policy intervention have
multiplied in some quarters.
This is not surprising: globalisation and low-growth foster world-wide
competition, in particular from emerging countries where the State
often plays an active economic role.
In many cases, this leads to industrial restructuring in our companies
and sectors in order to adjust the factors of production - including
employment - to evolving competitive advantages.
Adjustments are always painful, and even more so at a time when the
debt consolidation process that is taking place across Europe prevents
domestic investment and consumption to boost growth.
In this environment, dangerous protectionist temptations risk
materialising.
Traditional arguments in favour of State support of certain activities,
considered to be strategic, are coming back to the political debate in
many advanced countries - including the core economies of the EU.
Let me anticipate the conclusion of my talk today: discretionary State
intervention and protectionism are not the way forward to overcome the
crisis and to adapt to the process of globalisation.
The way forward is precisely the opposite; more open and more
competitive markets and less discretionary public support.
We must renew our fight against monopolistic power that distorts the
level playing field and intervene only when market failures prevent
economic agents from taking the right decisions.
This is the best path to get out of the crisis stronger.
Today I will argue that - to achieve these goals - we need to move away
from the narrow, sectoral concept of industrial policy that was
prevailing in the past.
Why do I think so?
After the second World War, the industrial-policy toolbox included
several forms of government subsidies such as direct grants, credit
concessions, privileged access to public tenders, and trade protection.
These heavy-handed interventions in the economy assumed that
governments could pick winners.
The enforcement of competition rules, instead, was regarded as a
separate policy, often subordinated to other policy goals, such as
shielding infant industries; improving a country's trade balance
through import substitution; and protecting national jobs through
direct support, including in declining sectors.
The oil crises in the 70's revealed the weaknesses of sectoral
interventionist policies.
A new approach gained ground at the beginning of the 80's; governments
no longer meddled in the economy.
This new paradigm of de-regulation and laissez-faire capitalism was
also extended to the financial activities. But the present crisis has
shown its limits. Now we know that if financial markets are not
adequately regulated, they produce sooner or later huge negative
results for the economy and, more importantly, for the wellbeing of the
people.
The State should not intervene in the economy in ways that distort the
market; this principle continues to be true. But on the other hand, we
cannot accept that any market actor behaves as if there were no rules
and becomes a threat for the stability of the whole system.
Where should we draw the line? Does the need to regulate financial
markets justify similar State intervention in the non-financial parts
of the economy?
We need to draw a sharp distinction here. Governments should foster an
environment where companies can grow and innovation can flourish. But
it would be a mistake to go back to post-war industrial policy.
What we need is a broader approach where competition, regulation and
public support cooperate to foster growth, economic efficiency and
innovation.
The basic questions are: when are public intervention and regulation
justified? We have learned a lot since 2008 about regulations that are
justified for the financial sector.
What about the non-financial sectors?
There are rising fears in Europe that we are in a process of
de-industrialisation.
To allay these fears, it would be unwise to ask our governments to
subsidise industrial companies and keep them in operation regardless of
market conditions.
We should instead respond using the right arguments; which means
promoting competitiveness, productivity, and innovation.
Above all, we should do so not for individual companies or sectors, but
across the board.
In this context, competition policy lies at the basis of a modern
industrial policy because it ensures that the functioning of markets is
not distorted, either by government measures, or by the
anti-competitive behaviour of private firms.
The Commission's own industrial-policy action is a flagship initiative
of Europe 2020 - the growth strategy for the EU in the present decade.
The initiative is part of a set of other growth-enhancing policies for
the digital economy, for innovation, for a greener economy and other
areas that are vital for our future.
The broad objectives of our modern industrial policy include:
* promoting the transition towards a low-carbon and
resource-efficient economy;
* supporting small and medium-sized enterprises; and
* improving the business environment, in particular by reducing the
administrative burden on businesses and by promoting higher
productivity and competitiveness.
This latter is the clearest point of convergence with competition
policy.
The distinctive feature of a European company's business environment
today is the internal market. Tapping the potential of the internal
market is a priority for both competition policy and industrial policy
and it is the best route we can take towards the recovery.
I would like to give you the main reasons why competition policy can
help to create a good environment for business in Europe's internal
market.
The first reason is that it helps our economies become more
competitive.
By imposing competition on the merits - that is, competition on
innovation, quality and price - competitive markets are best placed to
produce firms that are equipped for long-term success.
To face the fierce competition of today's global markets, our companies
must pursue profitability through efficiency gains. Being customers
themselves, they simply cannot afford the hidden tax imposed on them by
the anti-competitive business practices of their suppliers.
This is where competition enforcement intervenes.
Let me give you a couple of recent examples from our enforcement
practice. At the end of 2010, we fined six producers of Liquid Crystal
Displays for operating a cartel between 2001 and 2006.
That arrangement had kept prices for an intermediate product
artificially high, which had the effect of increasing input costs for
the manufactures of TVs and computer monitors, which need LCD displays
for their products.
The result of the cartel was a loss of competitiveness and a loss for
final consumers.
Another, more recent example involves an ongoing investigation in the
development of a new refrigerant for air-conditioning systems in cars.
The product was developed to replace the fluid currently used by car
manufacturers, which no longer meets the EU's environmental rules.
Once again, if the companies restricted competition and hampered the
dissemination of the technology they would effectively impose an extra
cost to an industry in desperate need of efficiency gains.
This case was opened only last December, so we should not prejudge the
results of our investigations.
Another reason why EU competition policy can complement other public
policies in a joint effort to create a good environment for business is
its ability to facilitate the entry and exit of companies in the
market.
The Single Market must not only be stronger and more efficient; it must
also be more dynamic. This means that we have to create better
opportunities for new firms to enter the market; for successful firms
to grow stronger; and for unviable firms to exit.
The internal market should be open and contestable; there should be no
barriers for new firms to introduce and develop innovative processes,
products and services.
Competition policy can make the Single Market more dynamic in many
ways, for instance thanks to our action in antitrust.
Our enforcement work in this domain ensures that new companies can
enter the market and compete effectively - especially when it involves
incumbents in liberalised markets.
For instance, last June we imposed a million fine against the incumbent
telecoms operator in Poland. In that case, our investigations found
that for over four years the company had prevented, or at least
delayed, the entry of competitors into the broadband markets.
We have ongoing investigations in this sector in other countries as
well, including Slovakia, Spain, and Portugal.
The same applies in the energy sector, where thanks to our antitrust
investigations incumbent operators have offered commitments to open up
the market to competition.
Here I can recall the cases we closed in 2010 against GDF Suez and E.ON
after the two companies pledged to release their gas transport
capacity; and the case against Italy's ENI. Similar actions had
involved in the past E.ON and RWE in the electricity sector.
Keeping markets open to new entrants is a key factor for the promotion
of innovation.
When monopolies and tight oligopolies are allowed to occupy a market,
they tend to resist change and often end up caring only about the
preservation of their business models.
Contestable markets, instead, allow new players to experiment, and new
ideas to succeed. It is a major task of competition control to ensure
that new generations of businesses are given a fair chance.
I am notably thinking of the surge in the strategic use of patents that
confer market power to their holders.
The potential abuses around standard-essential patents are a specific
illustration of this concern.
Standards are the best tool to promote interoperability of devices or
to define safety or quality benchmarks. In the communications
technologies, standards are key for a universal interconnection and
seamless communication.
Once a standard is adopted, it becomes the norm and the underlying
patents are indispensable.
Owners of such standard essential patents are conferred a power on the
market that they cannot be allowed to misuse.
Standardisation processes must be fair and transparent, so that they
are not in the hands of established firms willing to impose their
technologies. But it is not enough. We must also ensure that, once they
hold standard essential patents, companies give effective access on
fair, reasonable and non discriminatory terms.
This is crucial if we want industries and businesses relying on such
patents to develop freely to their utmost potential.
I am determined to use antitrust enforcement to prevent the misuse of
patent rights to the detriment of a vigorous and accessible market. I
have initiated investigations on this issue in several sectors and we
will see the results in due time.
Another way to tackle market failures is direct public support through
State aid. This may be particularly important to underpin innovation.
For instance, State aid rules for research, development and innovation
provide that public support can be used to share the risk of the
development of new technologies when these risks are too high for the
market or when the expected rewards are too far in the future.
Another example: State aid rules on risk capital allow public money to
leverage private funds to support start ups with a strong potential for
innovation and growth.
But in all these cases, we also require that public funds are spent to
address genuine market failures: their use must be limited to finance
activities that the market would not fund.
These rules are designed to change the behaviour of beneficiaries. The
aid should encourage companies to venture into projects they would not
have considered without the public support.
In this way, taxpayers' money is used to generate fresh research and
innovation - and not to merely replace private investment.
Spending public funds on projects that private investors would have
financed anyway is a waste of taxpayers' money; it hurts the
competitors that do not receive the public support; and it ultimately
weakens the entire innovative process.
Of course, these orientations are valid beyond the areas of innovation
and risk capital and can be extended to the whole of our State aid
policy.
As a matter of fact, this is at the core of the plan I announced last
week for the modernisation of our State aid policy.
This reform has three main goals;
* First it intends to support the efforts made by public authorities
to redirect their spending to boost growth. I believe that
governments can use all the help we can give them to promote
competitiveness and innovation.
* Second, the reform will streamline our control. This means
reserving a simpler treatment to the cases that have little effect
on trade in the Single Market and shifting the focus on the cases
that have a real impact on competition, which I intend to
investigate more thoroughly.
* Finally, I think that we can have fewer, simpler and more
consistent rules. Over the years, our system has become very
complex and our rules can be better explained.
After the reform - which I will start to introduce before the end of
2013 - our State aid rules will be in better shape to encourage the
kind of public support that fosters growth without distorting
competition.
At the same time, we will have a sharper instrument to control public
support that does not tackle genuine market failure and weakens
competition in the internal market.
In particular, we will continue to make sure that public money is not
used to finance the growth of companies, regardless of the market
distortions that this sort of funding imply.
Which brings me to the final topic I will cover today: the debate about
the way our competition policy deals with large European companies.
Is it true that the Commission puts obstacles to our "European
champions"?
Let us look at the facts.
In the list of the world's largest companies, the number of European
firms is roughly the same as for the US. So, there is no scarcity of
corporate giants in Europe.
Another issue is when they entered for the first time in this list;
here the facts are less encouraging. The number of new EU-comers to
this list is very small; while this is the opposite for the US.
This is an indication that our economy is less dynamic and that new
companies in Europe find it hard to enter successfully a market and
bring fresh air.
Of course, another way for companies to grow in size is through mergers
and acquisitions.
In 2011, we received 309 merger notifications. All but one were
cleared. The only merger we blocked last year was the one between
Aegean Airlines and Olympic Air, which would have created a
quasi-monopoly on the Greek air transport market.
We know that companies need to reach a certain size to be competitive -
especially in certain sectors and markets - and when a proposed merger
does not present competition problems, we clear it.
I could give you many examples of mergers that have led to the creation
of large companies, such as the merger between Air France and KLM some
years ago or - more recently - those of Iberia and British Airways,
Veolia Transport and Trenitalia, Fiat and Chrysler, and Volkswagen and
MAN - to name just a few.
But when the company that would result from a proposed merger threatens
the competitive conditions of a market and the interests of businesses
and consumers, then, it is my duty to intervene.
The latest proof of this determination was the decision taken by the
European Commission one week ago to block the proposed merger between
DB and NYSE Euronext.
The deal would have created the largest exchange in the world, but it
would have also created a near monopoly in crucial markets to the
detriment of thousands of EU companies and of innovation in financial
services.
But size is not the only thing that matters; Europe's economy must be
competitive and innovative.
It should be easier for European entrepreneurs to set up a business;
challenge the established players; and grow on their ability to bring
innovation to the market.
This is the best way to encourage the emergence of competitive firms at
EU and global level, without hindering competition.
Ladies and Gentlemen:
Today, I have described the objectives of a modern industrial policy,
which are embodied in a flagship initiative of the Europe 2020
initiative.
We have also seen that competition keeps markets open and contestable,
fosters competitiveness and innovation, and prepares Europe's companies
for global success.
Finally, we have seen how our control of State aid can help public
authorities make a smarter use of taxpayers' money, which is the main
objective of the plan I recently unveiled to modernise our State aid
policy.
This goal is becoming increasingly urgent: the cost of distortive
public support is higher in these times of crisis and fiscal
consolidation. Europe's economy can not afford unviable firms kept on
life support by bad government decisions. It needs new and innovative
business models capable of taking full advantage of our Single market.
This is why I believe that we cannot tackle the challenges of the XXIst
century with the instruments used fifty years ago. What we need is a
modern industrial policy and robust competition enforcement can
contribute to put Europe back on track and kick start a sustainable
process of growth.
Thank you.
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