Keynote address by Managing Director Kristalina Georgieva at the OECD Global Forum on Competition
By Kristalina Georgieva
The state of competition has significant implications for macroeconomic and financial stability; thus, it has direct relevance for the work of the IMF. And, as policymaking becomes more specialized, it is even more important to explore how the policies that each of us work on impact the goal we share of fostering economic dynamism and growth. This is especially true as competition-driven dynamism will be vital for the strength of post-pandemic economies.
Yet, from our vantage point, we see a number of global trends that are dampening, not deepening, competition.
The 20th anniversary of this Forum is the perfect occasion to reflect on those big trends. Looking back, recent decades have been marked by a rise in market power. And that is a natural springboard to discuss newer global trends, driven by forces of fragmentation spanning trade and geopolitics. These are trends that, if left unaddressed, could further undermine competition and complicate the work of both competition and macroeconomic policymakers.
So, the question is: how do we move beyond growing fragmentation to the cooperative approach needed to boost competition and shared prosperity?
Macroeconomic harms from excessive market power and policies to curb it
Let me start with a look back. Over the past twenty years or so, rising market power has hurt, not helped, investment and output. And it has further hurt workers by giving large firms undue influence in labor markets, and rewarding them with extraordinary profits. The IMF estimates that rising market power accounts for at least 10 percent of the decline in the share of income going to workers in advanced economies.
Next, and near to our hearts at the Fund, weaker competition risks making monetary and fiscal policy less effective. Why? Because companies with excessive market power often have huge cash piles – which makes them less responsive to market rates and fiscal stimulus.
Add to this the impact of the pandemic. While decisive action by governments to provide policy support has helped many smaller businesses survive, we have also seen anti-competitive trends intensify. This crisis-related increase in market concentration could lower capital investment and innovation. And that could reduce the level of GDP in advanced economies by 1 percent in the medium term—a serious blow when we project growth rates in advanced economics to remain low in the medium term.
So, what can be done? How can governments curb excessive market power and foster stronger, more inclusive growth?
Let’s start with some elements of competition policy frameworks that your countries have worked on. Germany and Austria have strengthened merger control by reviewing acquisitions of small players based on deal price. Australia and the United Kingdom have been conducting market investigations to identify and act on issues early.
Making labor markets more competitive is another key priority. For many countries, this means preventing “no-poaching” pacts between firms – or stopping non-compete clauses for lower-skilled workers in sectors such as retail and fast food.
And better data portability and interoperability rules can make the digital economy more vibrant—just as phone number portability in the EU and US boosted competition among mobile carriers.
The proposed EU Digital Markets Act and the American Innovation and Choice Online Act are driving useful discussions. And of course, for many of you, having adequate budgets to develop and enforce policy matters!
Even with a push on these policy fronts, efforts to address the rise in market power and, importantly, to counter the harm to competition, are not a short‑term endeavor. As competition policymakers, you will need to persevere.
Three trends that threaten competition and options to address them
Yet, as you continue to wrestle with rising market power, we see three emerging global trends that pose risks to competition -and risks to a resilient recovery from the pandemic. The imperative to counter these trends and make economies more dynamic is not your responsibility alone. Macroeconomic policymakers need also to be mindful of the risks to competition and the costs that follow.
The first of these trends is technological decoupling
We face a growing ‘digital Berlin Wall’ built on import and export restrictions, and reduced cooperation in scientific research. That approach would leave everyone worse off – from economic powerhouses to poorer countries.
If some combination of the US, EU, and China were to “decouple,” firms will find it increasingly difficult to compete as much as they do now. Already dominant tech players would gain even larger market shares, with fewer incentives to keep innovating.
Global tech standards could also break down, reducing the interoperability of tools that businesses rely on. And the ability to share data and build on each other’s work would be further reduced.
In such a scenario, low- and middle-income countries would have to choose sides – and once they are locked in, they could face higher prices, worse service, and diminished prospects for development. And that would have global costs. Depending on the scenario, decoupling could see global GDP losses in the order of 3 to 6 percent over the next decade or so.
How can competition and trade authorities best advocate for keeping the tech sector “coupled” and avoid such a terrible loss?
Close collaboration with national security and cybersecurity agencies within countries is essential. Policymakers in areas like intellectual property rights and data privacy also bring valuable perspectives. Working together, you can give your countries’ leaders a wider range of policy options that can help bridge divides.
More can also be done through the OECD and other multilateral fora to disseminate best practices and enhance cross-border coordination. There is limited value in one country addressing the anti-competitive behavior of a large tech firm if equally powerful foreign competitors remain untouched.
Now, turning to the second global trend: Trade restrictions
We all know that by reducing foreign competition, you end up with greater strains on supply chains, higher prices for consumers, less innovation, and diminished growth potential.
In 2019, the IMF estimated that tariffs either created or raised in the previous two years had reduced global GDP by 0.4 percent. These pre-pandemic restrictions largely remain in place, and they continue to hold back global output.
The good news is we have generally done better during the pandemic. To be sure, there were some problematic trade policies early on, but the crisis itself did not result in full-blown protectionism, especially in food, drugs, and medical supplies—to the credit of governments and, I am sure, many of you.
That said, restrictions in these areas have contributed to the massive vaccine inequity we see today, which has made the global recovery more uneven and fragile for all. And left us hostage to the risk of new variants – a risk sadly realized with the Omicron variant.
While there is good dialogue on easing the flow of vaccine exports to COVAX, there is still much work to do – both to ease pandemic-era restrictions and to jump-start the broader trade agenda.
In this regard, global reforms have been largely stalled. And we cannot take existing trade openness for granted.
The leadership of the WTO brings new energy as we seek progress on a range of issues – from trade-distorting subsidies and industrial tariffs that have long been a concern, to fast-evolving areas such as tradable services, investment, and e-commerce. And there is a real appetite for new agreements, as we saw last week, with the conclusion of the WTO Joint Initiative on Services Domestic Regulation.
Which brings me to the third global trend: Climate
Countries not only need to come together to stop global warming, they must work hard to avoid asymmetric, or uncoordinated, climate policies.
Think of large variations in carbon prices across markets that could distort competition, because some countries are not taking adequate mitigation policies. And “carbon leakage” – where efforts to cut emissions in one country lead production to relocate to another – could undermine countries’ incentives to raise their carbon prices.
Attempts to reduce leakage through border carbon adjustments present practical challenges. If not carefully designed and coordinated with partners, they could disrupt climate cooperation and even cause trade retaliation.
Instead, we need policies that send the right price signals on climate but do not undermine competition, trade, and investment. I look forward to working with the OECD and others on equivalency of different carbon pricing approaches.
We have made a proposal for an international carbon price floor among large emitters. It is efficient, practical, and flexible, allowing regulations as well as explicit pricing, and differentiation among countries based on level of development. And as well as ensuring adequate reductions in global emissions, the proposal should promote fairness and more evenhanded competition across industries and countries.
That is a perfect note on which to wrap up: fairness and evenhanded competition. These matter globally and locally.
With the Fund’s broad view of the world economy and our detailed view of each of our 190 members, we care about how policies interact, both positively and negatively, and how policies play out domestically and globally.
That is as true of competition policy as it is of many of the IMF’s ‘bread and butter’ issues.
That is also why we believe it is so important to work together – be it the IMF and OECD, or countries coordinating policies, or national competition agencies working with macro policy officials in each country – because global competition depends on domestic policy action and global cooperation.
And to overcome the fragmentation that is driving the global trends that threaten competition, we need much stronger cooperation, within and across borders.
Together, let’s spread the message far and wide, if you care about innovation, jobs, and broadly-shared prosperity, you must care about better competition policies!