Mission letter to Ribera – “a new approach to competition policy” on 17 September

Draghi report – urgent invitation to “adapt European competition policy” to the grave challenges that Europe faces today. Competition policy “must continue to adapt to changes in the economy so that it does not become a barrier to Europe’s goals”. And it must align “industrial, competition and trade policies, which interact closely and must be part of an overall strategy” (p.9).

Message I heard for a long time. Not new to me. My January conference sessions on industrial policy & trade – “Rebooting the Next Commission” – Guersent “competition is a side dish”. Consternation. So what Draghi says is not news to me and overdue – finally saying like it is.

What it means for the future Commission. But to do this important to look back somewhat to understand how we get here.

1. Lament this is all about turning antitrust “political” – as opposed to “pure”, “scientific” and “based on sound economics”

NO. This idea that antitrust is pure and based on economic science is a very blinkered view.  Antitrust IS POLITICAL AND HAS BEEN POLITICAL FOR THE PAST 50 years. Only it was a super slick operation which managed to convince everybody we entered PURE SCIENCE – OR DID WE? Ref to Fanis.

What happened. Chicago School, Aaron Director – convinced colleagues like Friedman and Stigler that monopolies would cease to be a problem under the neoliberal framework.

This neoliberal Chicago vision became dominant in the US in the 80s with Reagan and was exported in Europe at turn of the century.  GE/Hon – Kovacic – Bush – Monti.

First decade of the century one of the most effective lobbying exercise by economists. MORE ECONOMIC APPROACH. Culminated with Guidance paper Damien my conference 2008.  Integrity and idealism. Yes.  No presumptions, so crude, all case by case, AECT, margin squeeze, merger modelling, UPP, GUPPIS, bidding studies…. And YES economic intuition was useful.

BUT THEN to me things started to ring strange around 10 years ago.

What are we doing – merger after merger approved with joke remedies, AECT?  Is that real? Are we saying deserve to die? How ROBUST are these calculations? They are NOT.

All snake oil – WE created an industry – Unilever case

In the US we’ve seen since 2018 a profound revisionism of neoliberal vision – way beyond antitrust – trickle down economics, hyper globalization / efficiency myth which offshored production and created the disenfranchised problem because social amortizers not in place

In antitrust – tide turned in 2019 – returning to original animating values – freedom from all masters – small firms, labour, fairness, equality, distribution – hated by Wall Street and Silicon Valley, but no more “political” than what came before – it reflects a political economy in which we are no longer genuflecting to efficiency. But certainly one in which there was massive underenforcement and now this is being corrected.

• Is Europe going through the same trajectory? NO

Europe imported the Chicago/nbeoliberal/efficiency approach in 1999-2000 and then went with it – testimony to the successful lobbying of economists

“milder version”, we have not gone as a continent all neoliberal, we have different social and policy norms, except in antitrust we got quite close to the US way of doing things – quite a lot convergence

And in fairness unlike the US we got round early to the concerns about digital platforms – not perhaps because of some genius foresight but because we are as usual driven by complaints.  Case selection is complaint driven.

But we have not quite had the same debate about the end of neoliberalism here –

1. because we were not quite as deep into it –
2. we are not quite in the same place on monopolies,  unlike US wall to wall
3. but also because the last 5 years were totally occupied by the fixation with regulation.  That’s taken up all the intellectual and emotional knowledge.

So we have not spent time questioning what we are doing, how does it work for society, because consumer welfare has been the cover up.

So where are we: in the US we have seen the transatlantic REALLY turn – 2019 – State AGs and Federal agencies (note under TRUMP) and then that momentum accelerating. Here we did things pretty much the same, very little policy innovation – steady as she goes. Was a huge effort to make even incremental changes. Reverse killer acquisitions. Ecosystem theories of harm. But veeeery slow.

• But actually now comes in Draghi.

400 pages of dense analyses and prescriptions to address a profound crisis of productivity and growth in Europe.  The broad thrust is a call for muscular industrial policy led from the centre, options for funding, and simplification of an ever-expanding maize of regulations that European businesses struggle with.

What has captured much attention is a perception that Draghi is also prescribing a rollback of competition enforcement and regulation, a much more laissez-faire approach particularly in telecoms and digital – music to the ears of US tech giants subject to European Commission scrutiny (e.g. Washington Post 2024). = misrepresentation of what Draghi says, weaponised by Big Tech proxies and telecoms incumbents in their campaign to stave off merger vetos and curb regulation.  Draghi does say “there is a question about whether vigorous competition policy conflicts with European companies’ need for sufficient scale”, and “lack of innovation in Europe is sometimes blamed on competition enforcement” (p. 298). However, he also stands by the received wisdom that “stronger competition not only delivers lower prices, but also tends to stimulate greater productivity, investment and innovation” (ibid), and puts forward proposals which would do anything but relax competition.

Has a number of recommendations not about reforming existing laws, but adopting a more “innovation and growth-focused” posture in selecting and investigating cases. The response of the competition community has predictably been “we don’t need to change anything, we know everything and we are already doing everything right”, “beware this is a slippery slope, a Pandora’s box, the national champions trap” and “Draghi wants to soften merger control – look at the telco example haha he does not understand market definition! we cannot just define “European markets” to approve mergers! that’s Wonderland”.   (In case not clear, this response is stupid and does not engage with the issues).

But in designing the incoming Commission, VdL has indeed distributed competences across DGs and Commissioners.  The Mission Letter for Ribera has a number of prescriptions – reform merger control, killer acquisitions, New Competition Tool, innovative merger defence

We’ll see what happens and the extent she is coopted by the traditional DG Comp core, or has her own mind and is willing to push changes.

But to me this is time for a deep rethink, in the last 20 years we have had a narrow box of tools, a set of rules which we apply across all industries much the same way – start with market shares, then some toy models to predict merger effects, some categories of bad behaviour like tying/bundling/exclusivity discounts/self preferencing etc. which we look at.  So it’s not surprising we ended up in a siloed church  perfecting some of these arcane tools/toys, case by case, rather than trying to understand how a merger or a firm conduct sit in an industry’s trajectory, what’s the bigger picture of how a market fits in the evolution of that industry locally and globally.

Now along comes Draghi and says – well what are y’all doing over there in antitrust. How does it help Europe getting out of its predicament. If you use your cookie cutting approach for thousand of mergers in the last 10 years (4000 to be exact, of which only NINE prohibited), how have you helped the cause? You are just a merger factory, aren’t you DG Comp? or is there any higher thinking behind it?

What can competition policy do to support the mission in Europe. My view we should not just talk among ourselves competition nerds, Let’s bring in different perspectives. Let’s talk about industrial policy and trade. Draghi has a number of prescriptions for sector-specific policies in strategic sectors (not a generic scattergun approach). He suggests a 800bn a year fund to bridge the gap. What is likely to happen with industrial policy? This is the most momentous change we could see in the new Commission: a proper industrial policy?  And let’s talk about trade: Europe relies increasingly on exports to the US to absorb production, more than into China, yet it is trading cautiously with tariffs (see Germany) and nominally trying to stick to WTO rules when the world has moved on. How we play it here between US and China will determine what competitive pressures our manufacturing will be under. Which will create pressures for consolidation etc. So it’s all joined up.