Enhancing Indonesia’s Competitiveness in Contemporary Trade

Enhancing lndonesia’s Competitiveness in Contemporary Trade

And just to make that we are all on the same page, perhaps we could first agree on how we define what is meant by competition policy, For the purposes of our discussion, competition policy is defined as a body of laws, administrative rules and case law which are employed to deter restrictive business practices so as to maintain fair competition.

Competition policy also includes rules and regulations governing mergers and acquisitions. Now that hopefully we are all on the same page on what competition is and what it is not, let us get to the matter at heart. And just to make that we are all on the same page, perhaps we could first agree on how we define what is meant by competition policy, For the purposes of our discussion, competition policy is defined as a body of laws, administrative rules and case law which are employed to deter restrictive business practices so as to maintain fair competition.

Competition policy also includes rules and regulations governing mergers and acquisitions. Now that hopefully we are all on the same page on what competition is and what it is not, let us get to the matter at heart.

The issue at hand is quite simple. How does one properly balance between competition policy and ensuring that trade guarantees development. However, as is with most things that seem simple on the surface, the reality is very complex, especially when it comes to reaching a consensus among developing and developed countries.

Why must we have a competition policy in international trade? To achieve “fairness”, as some would argue. Linking a national economy to international trade tends to increase the propensity of that economy to embrace anti-trust tendencies, hence exposing that economy to the maximum benefits of free trade.

Therefore, it is also important for developing countries to have a competition policy. However, what this argument suggests is not a one-fits-all policy but rather competition policy that takes into account the respective level of development of the country and the long-term sustained economic growth potential of the country. This stipulation is due in part to the trend in which many developing economies, especially the major ones, undergo similar cross border corporate transactions such as international mergers and acquisitions movements coupled with the common trend of privatization, deregulation, and liberalization.

To understand the rationale of this initiative, Professor Ajit Singh and Rahul Dhumale of Cambridge University suggested that one should look no further than the WTO Agreements that have long been made use of by developed countries. What they suggested here is that these agreements need to be adjusted to the stage of development of the countries concerned. For this adjustment to take place, a paradigm shift must occur resulting in several things.

One ought to focus on dynamic as opposed to static efficiency as the main objective of competitive policy. Moreover, in order to promote long-term growth resulting from productivity, one must optimize rather than maximize competition. In turn, firms ought to be able to strike a balance between competition and cooperation among themselves as to allow their countries to achieve fast long-term economic growth. For this to be possible, governments and businesses must cooperate closely to yield government coordination of investment decisions. In addition to market competition, one must also consider the presence of competition for the support of the state among firms which are just as powerful as market competition. And finally, developing countries must prioritize industrial policy, and more importantly, ensure that their industrial and competition policies are coherent.

Despite the best intentions of governments, leaving things to chance as to yield the materialization of this paradigm is synonymous to expecting failure before even trying. To guide governments in a policy direction, Singh and Dhumale recommended that countries set up an international competition authority that is designed to prevent large multinational companies from wielding too much market power resulting from cross-border mergers and acquisitions.

But let’s say if developing countries were to embrace an international competition agreement. What would be the implications of such a move?

For one thing, Sanoussi Bilal of the Overseas Development Institute in London pointed out that a culture of competition would be imbued within countries. Though perhaps unevenly implemented, governments would nonetheless be hesitant to deviate from enacting competitive policies. Any such agreement would provide a framework for countries in getting policy guidance, obtaining sustainable technical assistance, and developing coherence in competition policy.

Secondly, UNCTAD found links between a competitive environment and economic development. Mark Dutz and AydinHayri of the World Bank found that over a ten- year period using data from over 100 countries, there is a strong positive correlation between the intensity of domestic competition (excluding the effects resulting from trade liberalization) and economic growth. Their study suggested that effective implementation and enforcement of antitrust policy is positively related to long-run growth.

Although these arguments support developing countries in embracing competition policy, Indonesia and other developing countries face specific challenges.

The first challenge stems from the uniqueness of developing countries. Aside from anti-trust, anti-cartels, and similar market imperfections, even if competition policy were to be embraced, developing countries have serious problems with infrastructure, interest rate differential among countries, and limited electrical power supply. This condition is worsened by the specific challenges of creating employment that is commensurate with population growth. Therefore, in considering to embrace competition policy, accounting for the development dimension is not only an option but it is a must. In this line of thought, it would be best to decide on whether or not to embrace competition policy in a careful and unhurried manner as to prevent negative unforeseeable reverberating ramifications.

Secondly, there is an aspect that is often ignored in the economic analysis relating to developing countries, and that is the sociological dimension of agriculture and the social fabric. What is viewed as merely an economic activity, on the contrary agriculture is the source of social existence for millions worldwide. Not only does it constitute the primary source of income, agriculture functions as the tool of survival in many developing countries for it provides food security and is the driving force in the growth and sustainability of rural economies.

Thirdly, a single uniform competition regime cannot be imposed on a mismatched industrial lifecycle. In theory, infant industries require state support in order to be   able to reach maturity. Whereas at the other end of the spectrum, a mature industry is fully ready for competition. Imposing a uniform competition regime among both infant and mature industries would be counterproductive. Therefore, anti-dumping and countervailling measures are needed to address this concern. This idea is actually not new. These mechanisms were permitted by GATT Section C Article XVIII in that developing countries are able to impose restrictions and protect infant industries.

After having examined the arguments supporting and questioning competition policy, let us come back to the core topic of this international conference, and that is how, despite these various thoughts on the applicability of competition policy, Indonesia and other developing countries can become competitive in today’s international trade arena and how such competitiveness can contribute to the competitiveness in the world trade environment.

In my opinion, in order to become competitive Indonesia needs to do three things. First, improve domestic productivity. Second, improve infrastructure. Third, improve state apparatus.

In order to improve domestic productivity, Indonesia must find innovative ways to lower interest rates to support domestic production. Monetary policy alone is insufficient. We must employ some sort of balance of payment mechanism. Moreover, Indonesia must improve productivity rate by linking it to higher investments in quality and quantity of training all over the country and not just in Java.

Improved domestic productivity ensures that Indonesia becomes competitive which in turn shall propel other nations to also become competitive thus inducing an overall competitive spiral throughout the world. If countries become competitive overall, the whole playing field is no longer skewed to just for the advantage of developed countries but to everyone else as well. Hence, resulting in a more competitive world trade environment.

The second factor needed for Indonesia’s competitiveness is improved infrastructure. In order to improve infrastructure, Indonesia needs to seriously enhance the quality of its infrastructure, including roads, bridges, ports, and harbors. In order for large scale value added operations to sustainably occur, Indonesia needs to invest in electrical power supply and power generation capabilities. If viable, investment in sustainable energy and other green technologically driven capabilities is a must. And in today’s knowledge based global economy, knowledge is easily the fourth and may even be the most crucial factor of production.

Therefore, Indonesia needs to invest heavily in information and communication technology infrastructure. Reaching breadth of coverage (outreach capability) is no longer sufficient while achieving depth of data intensity (bandwidth capability) is the minimum requirement to become connected in this modern trade environment. Improved infrastructure not only enables regional and even global connectivity, but also reduces the overall cost of world trade, and may even alter the way trade is conducted for the better.

The third and last thing that Indonesia needs to do is to improve its state apparatus. Indonesia must beef up its legal institutions and monitoring mechanisms coupled with its law enforcement capacity to ensure the primacy of ‘Rule of Law.’ Presently, some can still point to a lack of clear dispute resolution mechanism which causes the country to become an uncompetitive high-cost economy. Indonesia must also improve its bureaucratic efficiency. In this regards, the priority for such an undertaking is to ultimately eradicate corruption. Corruption involves red taping, bribery, and similar crimes. This is the “the jewel of all evils” and the major hurdle for Indonesia in becoming not only a trade competitive nation but also a major power as well.

This third point is of utmost importance because improved state apparatus enables countries to be more efficient so that they become full fledged members of the global community of nations on par with one another in conducting global trade.

These three things are no doubt difficult to achieve in a year or beyond. But by no means they are just absolutely necessary. For competition is not just some international trade buzzword, but rather, it is a way of life. In short, I advise each country to embrace a competition policy that is specifically tailored according to its need. For if one of the most promising economies in this world embraces that way of life, others will surely follow. And when that happens, the world will become a world where the trade playing field will be just and equal for all. And when that happens, trade fulfills its true purpose, and that is not only to generate wealth, but also to guarantee development, and in turn, improve livelihoods for all.

Thank you.


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