Updated: May 25, 2020
(This article was published by City A.M.)
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I am not one to argue for policies of centralization. I am a great believer in the principle of subsidiarity as a practical reality rather than as empty words in a treaty.
Nevertheless, there are areas where Europe is better served by acting as one. One such area is competition policy, where Europe has to face the increasing might of oligopolistic corporations that would dominate all markets, strip people of choice, and stifle progress and innovation.
It is therefore disappointing to see France and Germany, supposedly the motors of European integration, arguing for national governments to be allowed to overturn EU-level competition decisions.
This is the crux of the row concerning the Siemens-Alstom merger, blocked by the EU on competition grounds, to the outrage of Berlin and Paris.
The putative reason for the calls to disregard European competition policy with such a mega-merger is the need to compete with China and its ever-growing threat. This is false reasoning.
Faced with competition from the east, France and Germany seem to be returning to the policy ideas of the 1970s, which, in their failure, we thought had been consigned to the dustbin of history.
Once again, we are hearing talk of constructing “European champions” – by which we can read state-protected monopolies that breed inefficiency, kill off challengers, tend towards low productivity, and ultimately provide inferior products and services.
Corporations such as Germany’s Siemens and France’s Alstom argue that they need economies of scale to compete effectively. What a surprise. Has anyone ever heard big corporations argue otherwise?
Since the formation of trade guilds in the Middle Ages, businesses have always tried to form closed shops and stifle competition. Market dominance is a comfortable way to live, and is the reason why competition policy exists in the first place.
These calls should be ignored – as Margrethe Vestager, the European competition commissioner, has rightly done.
One need only look at the European car industry to see the perils of size. Large, politically powerful and mollycoddled, especially in Germany, the industry has embarked upon fraudulent practices, seemingly believing that its power puts it above the law. In thinking itself protected, it has failed to innovate to keep pace with the transition to electric and self-driving vehicles. So much for European champions.
Here we see the dangers of governments yielding to lobbying from their biggest industries. But what can be said to the argument often heard from the European corporations that they need special treatment in order to compete with China?
In short, China has a system of political economy that is fundamentally different to that in the west. It is a fully state-directed economy, with no real separation between the state and the private sector.
It remains to be seen whether this model can be successful in the long term, but one thing is certain: Europe cannot hope to compete through pale and partial imitation – a market economy with a smattering of statism and dirigisme thrown in every so often.
That would make Europe neither fish nor fowl. Stuck in the middle, it would be assured of failure.
It is true that European (and US) corporations are at a disadvantage compared to state-subsidised Chinese entities. But that must be addressed through trade policy, not by fragmenting and destroying the EU’s stance on competition to the detriment of European consumers and innovation.
In the long term, Europe probably needs to rethink its trade policy with China. This is no easy feat – WTO trading rules were never intended to accommodate large, state-directed economies. Now the world’s second largest economy is one for which the whole WTO structure in unfit.
Alas, Europe, unlike the US, appears to have neither the ability, nor the courage to take a robust approach to China operating outside the rules. Instead of reacting to this failure in one policy area, the EU is piling on failure in another.
As a liberal, Vestager’s stint as competition commissioner has been a refreshing change from the somnolence of her predecessors. In my opinion, she could, and maybe should, have been even tougher. While headline-grabbing fines have been imposed, there has not been enough intervention to change monopolistic market structures.
It would tragic for Europe if all her good work were to be undone and we were to return to the failed policies of the past.