January 25, 2007
Is DG Comp turning into an ivory tower?
European Commission officials essentially fall into one of two categories. On the one side there are the ordinary functionaries who spend years drawing up legislative proposals, writing up impact assessments or monitoring developments in the Italian olive oil market. Perfectly important business, mind you, but in the main their jobs rarely send the pulse racing.
The second (and far more dashing) type of official is the one you find at the directorate general for competition, or DG Comp in short. As Europe’s top competition enforcement officials, they do all kinds of exciting stuff. They get to raid the headquarters of big companies, impose huge fines on businesses that break the rules, and every so often they can tell Microsoft how to run its business.
But over the past year or so, I have detected a subtle change inside DG Comp. It seems that the hard-bitten trust-busters have gone, well, a little academic.
Take this month, for example, On Wednesday, Neelie Kroes published an interim report detailing the findings of an 18-month inquiry into the business insurance sector. The report had a few interesting things to say about the market, but I am pretty sure that insurance brokers and other industry executives were not exactly quaking in their boots.
Next week, the Commission is due to reveal the results of two further sector inquiries, into retail banking and into payment and credit cards. These two will be the final reports on the market probes, and follow the publication of interim results last year. Then there is also the massive energy sector inquiry, which was also completed earlier this month.
Ms Kroes and her advisers argue that such investigations are important because they help the Commission understand how certain markets work, and establish where it may be necessary to pursue individual antitrust cases against specific companies.
Yet many in the Brussels antitrust world are unconvinced by that argument, and I can’t help thinking that the sceptics have a point. Producing hundreds and hundreds of pages describing in intricate and mind-numbing detail the workings of the reinsurance market takes time (up to two years, in fact) and binds valuable resources. This is especially annoying when - as seems the case in the financial services inquiries - the findings offer very little that is genuinely new or surprising to insiders.
Though greater understanding of complex markets is always an asset, I wonder whether the price for this academic groundwork is not too high.
It is perhaps no coincidence that the Commission has so far failed to prosecute more than a handful of cases against companies in the financial services industry. With so many officials working on understanding the sector in the first place, there can be few left to do the actual work of uncovering the abuses.
Of course, the presentation of a sector inquiry gives Ms Kroes a good opportunity to make headlines by lashing out at illegal practices and market failures. But the broad and somewhat unfocused probes can be no replacement for singling out and punishing the companies that break competition rules.
DG Comp may be well advised to leave the analysis and reports to the academics. It is time to focus on the real job in hand.
I think Tobias Buck has been speaking to too many lawyers and other ’sceptics’ who make a living out competition cases. The overall function of a competition authority is to promote competition, and hence improve productivity and lower prices. It is not to prosecute companies. In far too many Comp cases the economic benefits are at best marginal - either because the sector is low priority, or because the case has focused too much on legal form over economic effect.
Europe’s competition deficit only partially results from the anti-competitive actions of companies. In the main, it results from the myriad of regulations, cosy relationships, hidden subsidies and other barriers to entry that characterise the market economy in large parts of the EU. A better undertanding of this, through sectoral studies, is essential to tackle the problem.
Posted by: Ed Smith | January 26th, 2007 at 11:03 am | Report this commentThe issue is not one of the value of such investigations - indeed a previous and widely voiced criticism of the commission was that it didn’t do enough such research (although to be fair to Mr Buck he may not have heard such concerns as they predate his tenure in Brussels).
Posted by: Rob McLeod | January 31st, 2007 at 9:12 am | Report this commentThe issue now is whether the commission now turns its resources to actively tackling the issues thrown up by these investigations or, in the time-honoured practice of governments and civil servants everywhere, decide instead to open further general inquiries.