Competition Law – Central to  India’s Global Dreams

Theme  address of Dr Madhav Mehra at the Second
International Conference on Competition Law on 12 Nov 2010

India is at a crossroads. It has achieved spectacular economic growth during the past decade that has understandably led to a growing conviction among Indians that the upcoming century belongs to India. India has become one of the world’s fastest growing economies with a global presence in automotives, business process outsourcing, telecommunications, pharmaceuticals and information technology. India’s GDP in purchasing power terms is $3,526 billion averaging a GDP growth rate of 8.5% for the last five years making  India world’s fourth largest and second fastest growing economy.

Unfortunately this growth has not translated into human development which has to be the overriding purpose of public policy. India is still home to world’s largest number of illiterate, undernourished and hungry people. Of the 771 million illiterates in the world 268 million are Indians. While its GDP and Sensex has been registering meteoric rises, growth in literacy  over the same period has been paltry 12%. 2010 Human Development Report puts India at shameful 119 below that of even Sri Lanka and Maldives. Its Gender Inequality at 122 is worse than even Pakistan.

India’s growth narrative is linked to the dreams and hopes of its youth. With average age of an Indian under 26 years, India is one of world’s most aspirational economies.  Not surprisingly India tops Nielson’s Global Consumer Confidence Index. This has potentially catastrophic consequences . If Indian youth does not find jobs, it becomes  an  easy target for  terror groups. Terror from within is far more lethal than terror from outside. There is abundant empirical evidence that economic deprivation is the root cause for terrorism. We have already lost third of the country to Naxalites. Our overriding objective has to be  to ensure our poor access market benefits.  India’s Planning Commission has aptly adopted "Inclusive Growth" as a guiding principle.

The good news is that inclusive growth is achievable. All it needs is a trigger to spark a nationwide explosion of innovation. Competition law can provide that trigger. By curbing abuse of dominance it opens the terrain for radical innovators to achieve the twin objective of offering new technologies and lustier products at lower costs and throw out old technology incumbents thus widening the economic base that results in inclusive growth. We need  fast, fearless  and furious enforcement for fair and open competition regime with proactive participation from  executive, legislative and judiciary.

In “Mastering the Dynamics of Innovation”, James Utterback, MIT Professor of Management and innovation illustrates how no real innovation has come from within the industry. It has always been an outside job. All through history rank outsiders brought new technologies that overthrew age old successful companies after protracted battles in which dominant players abused  their market dominance,  fortressing themselves through entry barriers and disparaging  new products to  delay as long as possible the cutting edge technologies that eventually replaced them. His case studies include the 50 year battle in which refrigeration replaced New England’s block ice industry and the 30 year battle to replace gas lighting with electric lighting.

The following quote sums up the  thesis of James Utterback:

“Industry outsiders have little to lose in pursuing radical innovations. They have no infrastructure of existing technology to defend or maintain and, as is made clear through the case of ice innovators in the southern United States, they have every economic incentive to overturn the existing order. Industry insiders, on the other hand, have abundant reasons to be slow to mobilize in developing radical innovations. Economically, they have huge investments in current technology; emotionally, they and their fortunes are heavily bound up in the status quo; and from a practical point of view, their managerial attention is encumbered by the system they have?just maintaining and marginally improving their existing systems is a full-time occupation. Owners and managers of dominant firms who are deliberate in their pursuit of radical innovation are remarkable and few.”  (p161-162)

The irony is that each start up repeats the behavior once it achieves success . Thomas Edison, the inventor of the light bulb, is a classic example. A radical innovator himself who once fought the entrenched gas lighting companies with a slogan,   "We will make electricity so cheap that only the rich will burn candles” fought protracted battles against his competitors offering better technology.   Alarmed by the success of his competitor George Westinghouse, Edison launched a smear campaign to disparage alternating current even going to the extent of publicly electrocuting  animals to demonstrate the lethal consequences of alternating current.

History shows that success is its own enemy and incumbents are often unable to forget what made them great. Radical innovators unleash Schumpeter’s creative destruction and break their  moulds. No wonder that from the Forbes’ list of 100 top companies of 1917 not one is making money.

India today suffers from a host of entry barriers. Motorists cannot use steel radials because the tyre cartels would not permit them. Governments themselves are a source of anticompetitive behaviour though public restraints. Movie buffs would have been denied the pleasure of watching Salman starrer Dabaang, Aishwarya and Abhishek in Ravan and Ranbir and Priyanka in Anjana Anjani but for the intervention of Competition Commission of India. The local associations had banned their screening by abusing their dominant position.

We are living in one of the most inequitable worlds in history.  This is because of widespread cartelisation. Cartels are so strong that even governments and enforcement authorities fear them. Our food chain is cartelised from farm to the food shop. In Fault Lines, How Hidden Fractures Still Threaten the World Economy, celebrated economist Raghuram Rajan demonstrates how sharpening inequalities have been the root cause of the shifting of earth’s tectonic plates in 2008. He blames India’s skewed growth on its policy makers being too close to big business.

Cartels are a conspiracy against the poor and major contributors of inflation and skewed distribution. Bursting cartels has to be a national pastime. Competition Commission of India has enormous powers to deal with cartels. Section 27 of the Competition Act empowers the CCI to  impose a penalty equivalent to three times of the  profits made out of such agreement  or ten per cent of the average turnover of the cartel for the last preceding three financial years, whichever is higher for each year.

Protection of big business during times of recession is entirely misplaced. Protecting stagnant industry prolongs recession because they are only interested in downsizing. It is the new technology radicals and upstarts who have potential for  upsizing and job creation. Using competition law to curb abuse of dominance and busting of cartels will infuse blood into the choked arteries and rejuvenate the economy.

For competition regime to work, transparency has to be its hand maiden. Its role cannot be overemphasised in this oxymoronic world of constant turmoil, turbulence and Twitter. Had Toyota, BP, CWG or the IPL been transparent in their conduct they could have avoided the flak that engulfed them. In this world of uncertainty, the only thing certain is that “thou shalt be found out.” Lord Widgery’s is a classic example.
 
On 30 January 1972, unarmed civil rights marchers in Londonderry,were fired at by a Parachute Regiment of the British Army killing 13 males including 7 teenagers. The outcry led to the appointment of a Tribunal under Lord Widgery, the then Lord Chief Justice of England and Wales. The report exonerated  the army and said “there was no reason for a soldier to fire at the marchers unless he was fired at in the first place.” The public outcry led to the appointment of a second commission of enquiry in 1998 under Lord Saville assisted by a Canadian and a New Zealander jurist. The report published in June 2010, 38 years after the massacre with testimony of 900 witnesses and cost of £195 million held the army unequivocally responsible. The failure to face the truth resulted in an explosion of violence in Northern Ireland and complete alienation of Catholics who till then had backed British Army as being neutral. Wikileaks exposing Iraq war atrocities are another example.

Competition policy is a highly complex, cross-cutting and inter connected instrument. Its effective implementation requires a holistic and integrated mind with  ability to hold two opposing views in mind and still have the capacity to function. Its enforcement is a public policy challenge than a legal argument. Competition law is a socio-  economic law and must aim to secure socio-economic and environmental justice.

ECS Wade the Cambridge professor of law, while defining the purpose of law, emphasised: “We should teach and provide law as a great human institution serving social and economic end and in relation to the world in which we live.”  

Limiting anticompetitive behaviour is daunting. We have to navigate a delicate and difficult terrain of dodgy vested interests  and political pressures. 2% Haryanavis who won 40% medals in CWG should be our model. They destroyed established icons through disruptive innovations in training, practice  equipment and coaching, improvising all the time by extensive use of Jugaad.  Their feats should inspire  judicial activism to overcome purist , doctrinaire approaches, bureaucratic dogmas, legislative lethargy and administrative challenges to make law as a driver of innovation to usher a new era of competition regime. That is the only way to ensure enduring and sustainable prosperity  for our children. We need to remind our policy makers  the words of our Father of the Nation about the  purpose of all our effort: “Every action we contemplate or propose should in its implementation wipe the tears of poor and downtrodden. Only when we have wiped the tears from the faces of all the poor, have we truly arrived as a nation.”

Rigours of competition regime will make it hard to live with. But living without will be catastrophic. Let us use competition law to bridge  the divide between India and Bharat.

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*Dr Madhav Mehra is the founder of International Academy of Law and President UK based World Council For Corporate Governance

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