11 July 2014

Global wars over competition policy are futile


So the French are unhappy with EU competition policy. In fact, the French are unhappy with any sort of competition, including the competition for French companies and the competition from imports. They are unhappy with the prospect of American competition with their less efficient farmers, and of competition from American Internet giants. They might be surprised to learn that many American policymakers are also unhappy with EU competition policy, but for far different reasons.

On this side of the ocean it seems to many observers that the EU authorities are targeting American companies, rather like the French complaint that our regulators are targeting French and other foreign banks. President Hollande took that complaint directly to President Obama, but like many others with demonstrably worthier causes, he failed to stir our President into action, even though US assertion of regulatory control of a foreign bank just might deter investment here. What is American sauce for BNP-Paribas is French and European sauce for many American companies, accused of serial violations of EU competition laws. Both the EU and the US inevitably have global, extra-territorial reach in this globalized world. Best to live with it than to try to de-globalize the world or convene some useless international conference to obtain consistency in the laws that reflect deep differences in societal values.

I recall meeting with several senators who were incensed when EU authorities fined Intel more than $1 billion (I was consulting with AMD, an aggrieved competitor at the time), and trying to explain that the punishment fit the multiple crimes, a view since supported by the EU’s second-highest court, the Luxembourg-based General Court. And I recall that the antitruster in me was delighted when the EU did something US authorities declined to do: bring Microsoft to heel for suppressing competition. (I won’t comment on the current open cases involving Google, since I was a consultant for a time to that company in those matters.)

The lesson in all of this is that competition policy, like privacy and other policies, is a reflection of the values of the societies that have embedded those values in laws and regulations. Americans, even after the recent NSA spat, worry less about privacy than Germany, with long — we hope long — memory of “We know where you live and what you believe,” followed by a knock on the door. Europeans generally worry more about the “destruction” in Schumpeter’s “creative destruction”, and Americans more about policies that might inhibit creativity in order to minimize the destruction of the value of incumbents’ assets. Europeans worry less about the growth-stifling effects of their one-track monetary policy because of prior experience with ruinous inflation and the rise of Hitler, while Americans prefer to have their central bank worry about full employment as well as inflation, with the result that the EU generally tolerates a jobless rate of about double that of America’s, and relies more heavily on its welfare state to ease the pain. Secular Europe sees religion as the cause of wars, while America is happy with a society in which church attendance is quite high and with laws that defend freedom of worship.

These differences are profound, rooted in history and cannot be reconciled: live and let live is about all that can be hoped for. If French banks do not like American regulation, they can stay home and work with President Hollande to reduce the role of the dollar in the world economy. If American companies find EU antitrust policy irrationally onerous or discriminatory, they can find other markets and leave European consumers to hunt for home-grown alternatives. Note, however, that is not happening. European banks are not going to depart New York for Paris or Frankfurt, and American companies are not going to close down their European operations. After all, pique might provide adequate motivation for politicians, but it is not a sensible basis for marketing and location decisions.

Best of all, the competition created by these differences is not without its advantages. Ireland’s decision to keep its corporate tax rates low is putting pressure on American politicians to lower ours — and on other European countries to do the same. EU toughness on Intel and Microsoft improved competitive vigour within the US. US regulation of foreign banks is contributing to the decline of money laundering on which terrorist and criminal thugs depend, and to the use of the stress tests that are improving the solidity of many European banks.

If I am wrong, I would dearly love to hear from dissenters.

Irwin Stelzer is Senior Fellow and Director of the Economic Policy Studies Group at the Hudson Institute and US economic correspondent for The Sunday Times.