Global Leaders must reignite the engines of economic growth And Make The Market Work 

ECONOMIC ENVIRONMENT

Government responses to the global financial crisis took various interventionist forms: State bailouts of firms, cash injections into financial systems, acquisitions of large firms in financial difficulty were often encouraged by Governments (particularly encouragement of mergers in the financial sector). Also, Governments were encouraged to consider “light touch” enforcement to clear otherwise questionable mergers and alliances. Objectives unrelated to competition such as financial stability impacted upon merger clearance decisions, sometimes facilitated by public interest overrides in some national legislation. There was increased acceptance of the “failing firm defence”, enabling otherwise anti-competitive mergers to happen as one of the merging parties would otherwise cease to exist. In terms of remedies, the credit constraints arising from the financial crisis reduced the number of buyers able to purchase divestments, limiting the capacity of competition authorities to impose structural remedies. There were also pressures upon competition authorities to reduce delays and, in some cases, review periods for mergers involving parties in financial distress, to secure financial stability.

Concerns about failures of individual financial sector firms undermining confidence in the whole financial system are quite understandable. In difficult economic circumstances, effective enforcement of competition policy does require flexibility and innovative measures from competition authorities, which should also avoid discouraging harmless or economically beneficial activities as a result of perceived or real difficulties in obtaining clearance. Competition authorities would need to explore alternative options, such as parties identifying a buyer prior to completion, longer divestment periods or imposition of behavioral commitments.

However, undue pressures to relax merger controls in particular, especially though public interest overrides, pose challenges for competition authorities. Over-relaxation of competition rules and enforcement can have adverse consequences on domestic and international competition, impacting negatively on global economic welfare. Inappropriate recourse to the “failing firm” defense to justify anti-competitive mergers should be guarded against – competition authorities should ensure that each case adheres to fundamental competition principles. A balance should be struck between short-term gains in stability and the long-term benefits of sustaining competitive markets. Times of economic trouble are characterized by a distrust or increased intolerance of competition values, with competition sometimes being used as a scapegoat, despite its long-term benefits and instrumentality in relation to economic recovery and growth. In such cases, advocacy activities by competition authorities to explain the issues should be broadened to wider policy areas, while at the same time ensuring that the independence of competition authorities is not compromised.

Furthermore, the global nature of markets and the widespread reach of the recent crisis highlight the external impact which economic activities in one country may have on the markets of another. For competition to be enforced effectively, it is vital that countries do not solely pursue their own national interests but take a broader view. In recent years, the EC has recognized the need to “maintain a level playing field and to make sure that national measures would not simply export problems to other member States” and has taken measures to avoid a subsidy race. As the crisis has spread beyond the countries in which it originated, competition authorities should also consider cross-border effects when applying competition policy. Increased coordination and cooperation is fundamental. In this regard, UNCTAD’s Intergovernmental Group of Experts on Competition Policy would have an important role to play. In sum, it is essential that the impact on competition of crisis-mitigation policies be fully assessed from the outset so that the policy objectives they seek to address are not pursued at the expense of competition.

THE FUTURE

The global economy has not yet to fully stabilize. This instability applies not only to developed economies but also to emerging ones, which are experiencing the knock-on effect of advanced economy woes. Recovery efforts are still needed to address both lingering legacy issues, such as rising debt levels, and post-crisis issues, such as increasing unemployment, with the ultimate goal of creating long-term, sustainable growth. Given the crucial role that the financial system plays in any economy, recovery efforts will depend on a well-functioning system of saving and allocating capital, among other factors. Although a number of reforms that address some of the underlying issues within the system have been well received, there are still many issues that remain to be addressed, including effective supervisory frameworks, cross-border bank resolution in times of failure, and the role of the shadow banking system.

In order to reignite the engines of economic growth, global leaders must provide investors, consumers, entrepreneurs, and the like with the trust and support necessary to take risks and innovate. To accomplish this, they need to strengthen institutions through more efficient and effective legal and regulatory frameworks, as well as enhanced corporate governance mechanisms. Instilling trust back in the system could pay dividends as financial markets stabilize, liquidity increases, and capital is allocated to its most productive uses. Although emerging and advanced economies face challenges that will be neither easy nor straightforward to address, long-term sustainable growth can be attained through collective action and international cooperation. Dialogue at the local, regional, and global levels will be critical in providing greater assurance, minimizing negative outcomes, and promoting a more stable financial system. Improvement efforts need to be driven by local-level reforms to ensure that the appropriate financial systems are in place, thereby helping extend prosperity to all.

The emergence of new players in the world economy, intensification of South-South trade and diversification into skill-intensive activities may continue only in a dynamic economic and open trade environment. Current trends towards increased regionalization may be reversed, with multilateral trade relationships gaining in importance. Hypothetical mega-regionals could slow down, but not frustrate the prevalence of multilateralism. Continuing technological progress is likely to have the biggest impact on future economic developments around the globe. Population dynamics are influential as well: For some countries, up-skilling will be crucial, for others labour shortages may be addressed through migration. Several developing countries would benefit from increased capital mobility; others will only diversify into dynamic sectors, when trade costs are further reduced.

This report has examined the forces that will shape the future of world trade. These forces are complex and numerous. They interact with trade itself and with each other, as well as being influenced by government policy. One thing seems clear: the landscape and nature of world trade are changing fast. As trade evolves, new policy challenges will arise. If properly managed, international trade will further increase prosperity around the globe. What are the main issues, therefore, that policy-makers need to take into account?First of all, a country’s position in international trade is in constant flux. New players continue to emerge. In certain respects, the so-called “emerging economies” are similar to industrialized countries. In other ways, they still confront developing country challenges, especially in certain sectors. Others, sometimes called the “Next-11”, are pushing from behind and have the potential to become leading players in the 21st century. At the same time, a range of poor countries risk being further marginalized. Competitiveness depends on a range of factors, some of which can be more easily influenced by policy than others.Secondly, policy-makers need to take into account the changing nature and composition of trade. Finally, in a rapidly changing international trade environment, policy-makers may re-think current models of trade cooperation. This relates both to form and content. The reality of current practices has overtaken the way trade negotiation agendas have traditionally been set. In today’s world, it is increasingly hard to separate goods from services, and trade from investment.

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