Industrial and competition policy

The perceived conflict between industrial policy and competition law is more apparent than real. Industrial policy is less likely to achieve satisfactory results when it is not accompanied by active enforcement of competition policy, as illustrated by the case of Korea. Where tensions exist, competition law can be drafted and implemented to accommodate challenges. Similarly, measures to promote the aims of industrial policy need not interfere heavily with competition in markets. Some notable measures to support growth and achieve social goals may include public expenditures on infrastructure and education, strengthening of property rights to support invention and innovation, deepening of capital markets, and creation of an investor-friendly business environment.

Evenett (2005) offers five suggestions for how competition law is, or can be, designed or implemented to minimize adverse impacts on industrial policy:

1. government actions are not actionable under many competition laws;
2. developmental objectives can be explicitly incorporated in national competition laws;
3. application of competition laws can take into account dynamic as well as static efficiency considerations;
4. exemptions, exceptions, and exclusions from competition law can be allowed, and mechanisms to create future exemptions included. For example, "national interest" or "public interest" clauses can be included in competition policy for flexibility.
5. a governmental body can have authority to overrule a competition decision in cases where the ruling would work against national development priorities.

Each of these suggestions has pros and cons. The basic approach is to ask: Which instruments of industrial policy directly conflict with the application of competition policy? Are there any equally effective alternatives? To ensure transparency, applications of exemptions or exclusions should be based on publicized rules and open to public hearings, as well as subject to regulatory oversight.

Similarly, an industrial policy environment that is designed to maximize informational benefits and to limit rent-seeking costs should follow the principles of open architecture, self-organization and transparency, without predetermination of which sectors or activities will directly benefit (Hausmann and Rodrik 2006).

Experiences with industrial policy, and the desires for its goals, have been shaping the debate over competition policy in Asia. Most countries in the region have found, or are finding, ways to accommodate efforts to achieve those goals in their design and implementation of competition policy. Competition policy, which places greater weight on short term concerns but is increasingly considering longer term effects, and industrial policy, with its generally converse weighting, appear to be converging in their goals. As a result, more and more countries are finding that carefully crafted, industrial and competition policies can be mutually reinforcing.

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