Troubled Times: What role for Competition and Regulatory Policy?

Evidence Points Towards Need for Robust Competition and Regulatory Policies

Ireland's economic recovery could be hastened by robust enforcement of competition and regulatory policy, according to new ESRI research. Reviewing international evidence and best practice, the ESRI study argues that policymakers must not give in to demands to shelter some parts of the economy from market forces – demands that typically arise in troubled times. Such policies are likely to delay recovery, while offering only transitory benefits. Hard times, occasioned by a deep and long recession resulting in high unemployment, slow growth, and austerity budgets, generate much economic insecurity. Enterprises and workers appeal for shelter from market forces, to protect jobs and income. Relaxing competition and regulatory policy is a tempting response. Restricting the number of enterprises, for example, that can open business in a particular activity can take the pressure off existing enterprises. The ESRI study concludes, however, that relaxing competition and regulatory policies would be an economically costly way of providing security, which would provide only short-term benefits. The paper argues that the result would be higher prices in the non-traded sector, which would feed through into the traded sector and thus damage Ireland's competitiveness and consequently its ability to export. Ultimately, this would slow economic recovery and the rate of growth in employment. Competition and regulatory policy do, however, contain provisions that permit otherwise restrictive arrangements, providing that the benefits exceed the costs. There are well established precedents contained within competition law. However, the regulatory process in Ireland has, as yet, to fully reflect international best practice in judging new regulations. The regulatory reform agenda, set out in the OECD 2010 report provides a roadmap to address this situation.

Note to Editors: 1. Troubled Times: What role for Competition and Regulatory Policy?, by Paul K. Gorecki (ESRI), is the 10th paper in a special series of ESRI studies that survey available evidence to address issues related to Ireland's ongoing economic crisis. It will be published online on the ESRI website at 00:01 a.m. Wednesday 18th April. 2. A total of 12 studies are being undertaken as part of this “Renewal” project, which is supported by FBD Trust . 3. This paper will be presented at the ESRI Conference on Economic Renewal: 'Economic Adjustment' , to be held at the ESRI on Wednesday 18th April 2012.