TUAC written contribution to OECD session on Competition & Poverty
OECD Global Forum on Competition, 28 February - 1 March 2013
25/02/2013
Downloads
- DAF-COMP-GF-WD(2013)65pdf
1. We welcome the opportunity to contribute to the OECD discussion on competition policies and poverty reduction. The discussion should seek to assess the poverty impact of past competition policy reforms advocated by the OECD and consequently draw lessons for future recommendations on competition policy. The relationship between competition and poverty is a complex one. The OECD should refrain from adopting simplified or simplistic messages such as “making-competition-work-for-thepoor”.
2. Market competition aims first and foremost at developing the
private sector. This has the potential to lift people out of
poverty, but the caveats are many. There should be no assumption
that private
sector development alone would automatically achieve poverty
reduction. A pre-requisite for this to happen is the empowerment of
people in or at risk of poverty so that they have the capabilities
to
effectively exercise their rights and to make effective use of
their entitlements inter alia to health and education. They need to
acquire sufficient bargaining power as consumers, as workers, as
producers and as
citizens. It would be wrong to simplistically use the “poverty
agenda” to promote competition and market liberalisation
reforms.
3. There is a general presumption that greater competition in
product markets would serve well poverty reduction goals. As
shown by OECD work, there is need to curb the excessive market
power of
multinational enterprises and networks through oligopsonies and in
some cases monopsonies. Low added value manufacturing and
agricultural markets for example are typically dominated by few big
buyers of
intermediate or final goods with an excess of producers of same or
similar products. Small producers are then forced to agree to harsh
pricing and other trade-related conditions, which costs most often
are passed on to workers by way of compressed wages, poor working
conditions and greater informality.
4. Ensuring fair competition in markets for commercial goods and
services can then redress the balance of power throughout the
supply chain, by improving the bargaining power at both ends –
final
consumers and small producers – and hence ensuring fair sharing of
the wealth creation. Consumers and small producers of goods and
services hence have interest in greater competitive and
transparent
international trade and markets. They also require that both
domestic and cross-border competition take place with a minimum
level playing field regarding social and environmental standards
and norms,
including core labour standards and wage setting institutions.
5. Labour market institutions, including collective bargaining
and legal minimum wages, set floors in markets and are fundamental
to ensuring decent work and beyond that help ensure robust
solvent
domestic demand and therefore to poverty alleviation. The weakening
of workers bargaining power and the rise of income inequality
across OECD economies during the pre-crisis period has contributed
to the
emergence of the “working poor”– trapped in precarious jobs, with
no or little security regarding health and pensions – and to
growing disconnection between rise in productivity and real wage
levels. In the
developing world, absence of labour market institutions has
disproportional consequences not only on workers’ wages but also on
their very rights to decent working conditions – violation of
labour and other
human rights appears to be acceptable “business model” for some
exporting industries.
6. Labour market institutions also help workers adjust to labour
market changes and reduce the risk for hysteresis. Many OECD
countries that grant a greater role to wage setting institutions
and greater
employment protection legislation have fared better than others in
keep workers in employment and hence reducing poverty risks in the
current post-2008 crisis period.
7. Greater commercial market competition is desirable as long as it
builds on, not weakens the capability of workers to bargain for
their fair share of productivity increases and the capability
of
consumers to make informed choices – that is the exact opposite
situation of what we witness across the OECD with a
“walmartization” of jobs and the economy.
8. For some specific services however, market competition may do
more harm than good. Healthcare insurance, education and pension
rights are in our view public goods which entail long
term risks for which private sector options are inadequate as
the main source of service delivery.
9. For example introducing or promoting competition in pension
systems would supposedly offer workers and their families a greater
choice in financing their rights to pensions. However the
“pension
risk” (i.e. the uncertainty about the level pension income at
retirement arising from political, investment and longevity risks)
is hard to assess from an individual worker perspective. There is
ample academic
literature that shows that workers under individual
defined-contribution pension plans often fail to manage plan assets
in a rational way. The economic model of private pension plans as
the principal source of
retirement finance also appears to be underperforming compared with
public pay-as-you-go options on key poverty-related criteria such
as population coverage and pension income security.