The Politics of European Competition Regulation

Hubert Buch-Hansen, Angela Wigger

• Publisher: Routledge
• Year: 2011
• ISBN:
  9781136808920
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

The Politics of European Competition Regulation provides an original and theoretically informed account of the political power struggles that have shaped the evolution of European competition regulation over the past six decades.

Applying a critical political economy perspective, this book analyses the establishment and development of competition regulation at European Community and national level since the 1950s. It puts forth the central argument that competition regulation came to reflect the broader shift towards a neoliberal order since the 1980s. Buch-Hansen and Wigger argue that this shift, which took place against the background of the gradual transnationalisation of capitalist production and the economic crisis of the late 1970s, was driven by the European Commission in alliance with the emerging transnational capitalist class.

The authors examine the political responses to the current global economic crisis in the fields of state aid, cartel prosecution and merger control and conclude that an alternative type of competition regulation, which forms part of a much broader transformation of the current socioeconomic order, is needed. This book will be of interest to students and scholars of (global) political economy, European integration and competition law.

1 Theorising competition regulation

A critical political economy perspective

This chapter outlines the theoretical perspective underpinning the analysis of the politics of six decades of competition regulation in Europe. It begins by spelling out the ontological assumptions of this perspective and explicating the ensuing theoretical implications. Section two conceptualises competition as a central feature of capitalism and as a phenomenon with both positive and negative societal consequences. Section three presents a novel perspective on competition regulation, which links the regulation of competition to capitalist market regulation more generally. It highlights that the content, form and scope of competition regulation is never given beforehand, but always discursively shaped, reflecting, albeit imperfectly, social power relations. Section four addresses the importance and nature of classes and class fractions, whilst section five links the preferences of such fractions to different discourses of competition regulation. The final section conceptualises states and supranational institutions, highlighting the degree of operational autonomy they enjoy.

1.1 Ontological reflections

All social scientific theories and, for that matter, all explanations of phenomena in the social world, entail a particular social ontology – understood as an abstract articulation of social being (Patomäki 2002: 77). The theoretical perspective outlined here embodies insights from a social ontology associated with critical realism (see Bhaskar 1979). At the heart of this ontology is an account of the agency-structure relationship, with agency denoting the capacity of agents to act, and structure referring to the relational context within which agents operate (Hay 2002: 94). Structures are always the outcome of human activities undertaken in the past. This means that, at any given point in time, agents are confronted with preexisting structures that either facilitate or constrain their social activities. Bhaskar (1979: 51) introduces the notion of the position-practice system to highlight that agents occupy structural positions associated with particular resources, constraints, predicaments and powers, which motivate their ‘occupiers’ to engage in specific social practices. Importantly, this does not imply a deterministic understanding of structure and agency. Agents reproduce or transform social structures through their practices (Archer 1995; Bhaskar 1979). As social reality is populated by real human beings who have different characteristics and inclinations, events and phenomena are never predetermined before they happen, meaning that ‘the future remains pregnant with a surplus of opportunities’ (Jessop 2005: 53).

Agents and structures do not stand in a one-to-one relationship with each other. Rather ‘society must be regarded as an ensemble of structures, practices and conventions’ (Bhaskar 1979: 45). Agents are thus faced with a complex web of interrelated (political, economic, social, communicative) structures of which they only have partial knowledge. This means that unacknowledged structural consequences can follow from intentional activities, and that agents rely on particular (fallible) interpretations of social reality when formulating their preferences and strategies (Hay 2002: 209–10). In the political economy sphere, such interpretations are informed by discourses, defined as structured sets of ideas that ‘provide a cognitive filter, frame or conceptual lens or paradigm through which social, political and economic developments might be ordered and rendered intelligible’ (Hay and Rosamond 2002: 151). In other words, such ideas or discourses exist independently of agents, but can be internalised and deployed in rhetoric (ibid.: 150–2). Importantly, agents always interpret the world from the structural positions they occupy and this impacts on their ideational inclinations. As a consequence, ‘it is very likely to make a difference for your ideological predisposition or world view whether you are the Chief Executive Officer (CEO) of Shell or one of that company’s low-skilled employees’ (Van Apeldoorn 2002: 19).

The theoretical implications of this social ontology are manifold. First, theoretical reductionism is ruled out from the outset. Only a theoretical perspective that ascribes genuine importance to agents, material structures and ideas or discourses can be considered acceptable. Second, if society comprises an ensemble of interrelated structures, the particular subject of investigation needs to be studied as a component of the greater whole of which it forms part. Rather than conceptualising the social world ‘as an assemblage of clearly bounded objective entities which exist independently of each other’ (Dean et al. 2006: 24), a theory has to support dialectical research, namely research that places the particular part that we are studying in the context of the broader whole in order to arrive at an improved understanding of both (see also Ollman 2003: 14).

Finally, the social ontology also has implications for the form the theoretical perspective takes. Taking agency seriously, and accepting the related assertion about the complex and open-ended nature of social reality, involves rejecting theories that purport to explain social phenomena by means of generally valid laws about social regularities and a small number of ‘independent variables’. Such theories constitute a straitjacket that distorts the dynamic nature of social reality by pretending that the world is essentially static (Buch-Hansen 2008: 46).¹ In addition to this, they ‘are apt to provide scientific legitimacy for particular forms of political practice’ (Wight 2006: 8), often in favour of maintaining the status quo, and ruling out the emancipatory role of social science as a practice with the potential to change the world (Cox 1996: 89). A theoretical perspective rather has to ‘point us towards the most important factors which conjointly shape that “complex synthesis of multiple determinations”’ we are studying (Jessop 1990: 249). At the same time, it has to provide room for a significant degree of flexibility. The critical political economy perspective of this book has been specifically designed ‘to allow for’ genuine changes in the nature of competition and competition regulation at different junctures and for different types of agents to play decisive roles.

1.2 Capitalism and competition

Free competition brings out the inherent laws of capitalist production, in the shape of external coercive laws having power over every individual capitalist.

Karl Marx (1965 [1887]: 270)

Contemporary Western societies are capitalist societies. This does not mean that all phenomena in such societies can be reduced to manifestations of capitalism and the imperatives of its functioning. However, in social spaces where the economic sphere is capitalist, this sphere is dominant over other spheres, and thus able to impose its primary logic on institutions in other spheres more than such other spheres are able to impose their primary logics on the economic sphere (see also Jessop 2000; Lipietz 1983: 19). The overshadowing logic in capitalist economies is that of capital accumulation, with ‘capital’ denoting accumulated wealth that can be used to accumulate more wealth. Indeed, ‘[c]apitalism as a historical system is defined by the fact that it makes structurally central and primary the endless accumulation of capital’ (Wallerstein 2000: 147; see also Jessop 1990: 152 on the notion of capital).

Any attempt to provide a general description of capitalism runs into the problem that the particular forms of capitalism have varied from location to location and also over time. In fact, ‘capitalist relations are themselves subject to profound historical alteration and to major variations between one socioeconomic formation and another, depending on the history of struggle and social movements’ (Lipietz 1983: 19; see also Robinson 2004: 4–5).² Capitalism thus has no ‘final telos’: it is historically contingent and ‘its future remains open in the face of structural changes and social struggles’ (Jessop 1997: 561). Nonetheless, at a very general level, capitalism can be defined as an economic system in which a large number of companies, using privately owned capital, goods and wage-labour, produce and sell goods and services with the intention of making profit (Jessop 2002a: 12). The main source of real added value is the labour power consumed in the production process. It ultimately makes possible a process where capital expands through the successful reinvestment of past profits.³ The commodification of labour is a distinguishing feature of capitalism: workers exchange their capacity to work for a wage and accept the right of their employer (the capitalist) to reap the profits (or absorb losses) that result from the sale of the produced goods and services.

The process of capital accumulation generally takes place in the context of competition. Competition is a crucial aspect of capitalist systems, and it is thus not surprising that it constitutes a key concept in most economic theories. (Neo-)classical theories depart from David Ricardo’s and/or Adam Smith’s positive sum idea, which associates competition with a number of desirable effects such as economic progress and innovation, the creation of wealth and the reduction of poverty.⁴ Competition is seen as a driving force of capitalism that, as spelled out in Smith’s The Wealth of Nations (2003[1776]: 623) ‘is advantageous to the great body of the people’. It drives ‘every man to endeavour to execute his work with a certain degree of exactness’ (ibid.: 963). Consequently, ‘[i]n general, if any branch of trade, or any division of labour, be advantageous to the public, the freer and more general the competition, it will always be the more so’ (ibid.: 420). Competition in other words, is assumed to result in the maximisation of social wealth and welfare. Neoclassical theories share this view and base their understanding on the notion of ‘perfect competition’, an imaginary state of affairs, in which a large number of small companies are unable to influence the market conditions to their own benefit. This presumes a harmonious equilibrium situation in which no further welfare increases are possible, neither for buyers or sellers, nor for the final consumers (cf. Eekhoff and Moch 2004; Neumann 2001).

The critical political economy perspective outlined here insists on taking a more critical and balanced view on the effects of capitalist competition, understood as the process of rivalry between particular companies in their struggle for profits. Certainly, intercompany competition can trigger a dynamic interplay with positive effects, such as giving companies a strong incentive to invest in R&D, improve the quality of the products and services whilst keeping prices down, hereby benefitting consumers. Yet at the same time, competition has a range of significant negative consequences that are far from trivial. It exerts direct pressures ‘to the sphere of production, and particularly labour to deliver higher profitability, be it by higher productivity, longer working days or lower wages’ (Bryan and Rafferty 2006: 162; see also Marx 1965[1887]: Chapter 20). Companies thus tend to impose the costs on labour when responding to competitive pressures. This means that not everybody can profit equally from competition. The critical question is for whom wealth is increased.

There is no such thing as a politically innocent capitalist market (Sklar 1988: 88). The extension and intensity of competition lays at the very foundation of conflict of capitalist relations. It generates incompatible interests with regard to the surplus created in the process of production. Moreover, it also prompts companies to act in ways that have profoundly negative societal consequences. As Stanford (2008: 135–8) notes, ‘[s]ome of the downsides are exactly opposite to the upsides, indicating the complex and often contradictory character of real-world competition’. Among other things, companies may seek to improve their competitive position by ‘externalising’ their costs, for instance by polluting or selling unsafe products, thereby shedding their liabilities outside the market place. Likewise, they may seek to differentiate their products ‘in ways that are wasteful, useless, or even destructive: massive (and often misleading) advertising, excess packaging (to make products look “bigger”), and artificial obsolescence (where products are artificially designed to wear out or become useless prematurely)’ (ibid.: 137). Moreover, there are no guarantees that competition results in innovation. To the contrary, competition can get so intense that companies are not making sufficient profit for new investments in R&D, and opt for a wasteful duplication of their competitors' products instead.

In marked contrast, the neoclassical perspective elevates competition to a force that leads to ‘a high degree of wealth in society’ (Eekhoff and Moch 2004: 4). This very biased and one-sided view ignores that there are no guarantees that competition in today’s globalised capitalist economy has positive effects at societal level. It also ignores that competition does not only take place in markets, but also for markets. Competition prompts a process of commodification, namely the subjugation of ever-more facets of human existence and interaction to the logics of the market and thus, the price mechanism (Overbeek 2004: 4). As far as labour is concerned, the extended logic of competition reveals itself in the individualisation of the wage relationship, individual performance evaluations with the prospect of salary increases, bonuses and individual career advances (Bourdieu 1998). Furthermore, entire territories (states, regions, or cities) compete with each other, striving to create a business-friendly regulatory climate that attracts and secures capital. Winners and losers are not distributed evenly. As a result ‘some companies, sectors, regions and even entire countries grow and prosper while others decline’ (Stanford 2008: 136). Endorsing a macro-view lays bare that competition is not only an essential driving force of capitalism, but also results in a number of absurdities. It erects a hierarchy of socioeconomic relations marked by inequalities in wealth and power, which extend from the individual to groups or classes and to geographical regions in the world. The social costs of competition are significant and thus should not be ignored.

Another defining feature of the process of competition is that it is highly fragile. A major contradiction in the process of capital accumulation arises because ‘[c]apitalism is driven by competition, yet capital must always seek to thwart competition’ (Wood 2003: 22). In its strongest form competition confronts companies as an objective threat, ‘which strikes not at the margins of the profits and the outputs of the existing firms but at their foundations and their very lives’ (Schumpeter 1947: 84). In the long run, only the most powerful survive, while weaker companies are either absorbed by other companies or simply perish. To put it metaphorically, competition forces market players to swim or to sink, and competition takes place only between the swimmers. It is not a game in which everyone who plays can win (see Arnold in Kolasky 2002a). In the vicious struggle to secure profits and economic survival, many capitalists are thus inclined to avoid or reduce the ‘feverish agitation’ of price and product rivalry (see Marx 2006[1891]: 44). Companies can evade the vicissitudes of the competitive process by engaging in cartels and other forms of collusive arrangements, or by seeking to receive various types of state aid. Another option is to secure a competitive market position by means of economic concentration through mergers and acquisitions or to out-compete competitors by temporarily reducing the price of produced goods or services.

Competition and the attempt to monopolise the market are irreversibly coupled. Mergers and the conclusion of collusive agreements are both responses to, and elements of, the concentration of capital. Fierce competition intensifies the trend towards economic power concentration: the more economic power concentrates, the more onerous it is for smaller competitors to keep up, and the more the option of a merger is a viable solution for corporate survival. This can trigger a self-perpetuating mechanism in which jumping on the merger bandwagon becomes a necessity for companies in dire straits. At the same time, shockwaves created by enhanced concentrations may eventually result in the oligopolisation or monopolisation of market power – at the expense of competition and market diversity. As Marx (1965[1887]: 626) observed, ‘competition rages in direct proportion to the number, and in inverse proportion to the magnitudes, of the antagonistic capitals. It always ends in the ruin of many small capitalists, whose capitals partly pass into the hands of their conquerors, partly vanish’. Economic concentration in the form of monopolies or oligopolies, with no or only few competitors left, concomitantly reveals the inherent contradictions of the capitalist system.⁵ Wanniski (1992: 18) captured this contradiction well by noting that ‘Marx was extremely close to the truth’ when he discovered that ‘[c]apitalism could not succeed because capitalists would sow the seeds of their own destruction. That is, if capitalism requires relentless competition, yet capitalists are doing everything they can to destroy competition, we have a system that is inherently unsustainable’. This and other contradictions, explain why capitalism’s expanded reproduction cannot be secured by markets and market actors alone, but depends on various forms of regulation (cf. Polanyi 1992[1944]).

1.3 Theorising competition regulation

Markets are not natural facts that represent some sort of God-given order that existed prior to and despite of various extra-economic interferences. On the contrary, markets are social constructs that only exist because of the existence of extra-economic spheres such as education, nature, security, the family and the interventions by legal-regulatory and political institutions (see also Van Apeldoorn and Horn 2007: 211–15). The reproduction of capitalism thus ‘depends on its achieving an inherently unstable balance among market-oriented economic supports whose efficacy depends on their location beyond market mechanisms’ (Jessop 2002a: 19). This ‘balance’ is by definition unstable because of the contradictions that lie at the heart of capitalism and its dynamic nature. Over time, the continued accumulation of capital depends on gradual transformations, and possibly the replacement of the various ‘supports’.

In what follows, the concept of regulation refers to different types of interventions in (parts of) the economic sphere by political and legal-regulatory institutions.⁶ The totality of regulatory practices in a given social space, such as a country or a region, and the instit...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Preface and acknowledgments
• Foreword
• Introduction
• 1.Theorising competition regulation
• 2.The origins of European competition regulation I
• 3.The origins of European competition regulation II
• 4.European competition regulation in the era of embedded liberalism
• 5.The neoliberalisation of European competition regulation
• 6.Consolidating neoliberalism
• 7.EC competition regulation at the dawn of the century
• 8.The neoliberal crusade for bilateral and multilateral competition rules
• Concluding remarks
• Notes
• References
• Index