Why market economies need watchdogs

Are independent antitrust authorities a must-have for free market economies? Take Mexico as an example: The competition agency COFECE is investigating the country’s rail freight sector for anticompetitive conditions. It has a probe ongoing into abusive exploitation by retailer Walmart. It recently questioned Google over advertising. After Hurricane Otis struck last year in Guerrero, it took care that companies did not exploit the need for recovery with anticompetitive means.

Such interventions usually promote consumer welfare and maximize efficiency in an economy. Yet, some politicians — notably in Mexico, but also in Argentina and Colombia — see independent competition agencies as superfluous, bureaucratic symbols of overregulation. These politicians are wrong.

Competition, the mechanism at the heart of a market economy, keeps companies efficient and innovative. Where they try to cheat by forming cartels or bid-rigging, the watchdogs step in. They also go against abusive practices by dominant firms and stop the excessive concentration of markets through mergers. When economic freedom is granted without any control, it is poised to derail. Free markets with no regulation do not mean freedom but the tyranny of some companies and an unmerited distribution of rents. Competition rules put safeguards in place to prevent extreme cases of collusion or monopolization. And it is beneficial: A 2022 World Bank Report showed in a long-term study that sales, wages, and employment went up when COFECE enforced antitrust rules in a sector.

Such enforcement depends on strong agencies. One particular danger for competition enforcement is when politicians attempt to capture agencies. The agencies’ independence and strict focus on their objectives is essential for the health of competition enforcement systems. In some Latin American countries, the functioning and even existence of competition agencies are in peril due to interventions by national governments. In Mexico, President Andrés Manuel López Obrador recently announced that he would present a reform to eliminate the competition agencies (COFECE, which has general oversight of markets, and IFT, which oversees the telecommunications sector), as well as the data protection and transparency agency (INAI). In a press conference, he stated: “There are many onerous agencies that serve no purpose; they are superfluous expenses… We have to carry out an administrative reform, and all these supposedly autonomous agencies must disappear.” In a recent interview, the president of COFECE responded to President López Obrador’s statements: “We first want to wait to see his initiative before formally presenting our position… But in this new competition policy era, we have renewed efforts to bring tangible benefits to the population.”

If not wholly eliminated, as proposed in Mexico, competition agencies can die with a whimper, being raided of powers by limited budgets, political interference, or a leadership vacuum.

In Colombia, President Gustavo Petro has left the Superintendencia de Industria y Comercio in a leadership vacuum for most of his term in office. It took the President nine months to appoint the new head of the agency, and only seven months later, he sacked her. The President did not explain why, and the reasons remain unclear. Some news outlets have hypothesized that the outcome was associated with the agency’s antitrust investigations against football clubs and national football organizations; others pointed at supposed conflicts of interest. On February 2, President Petro swore in Cielo Rusinque as the new head of the agency, a close ally who has fiercely defended his political project and a lawyer who lacks experience in competition law.

The Argentinian President Javier Milei recently proposed a reform, the so-called “omnibus law”, to dismantle the welfare state and deregulate markets. The reform includes amendments to the competition law, which, according to Pablo Trevisán, a renowned lawyer from Argentina, are “unnecessary, inconvenient and untimely”. The law would create a new competition agency (AMC), setting aside a decent institutional arrangement approved in 2018 (but still not in operation). The plans, as they stand, would also reduce the independence of antitrust decision-makers.

In sum, three of Latin America’s most important competition agencies are facing turbulent times due to national governments’ actions, which may hinder their functioning or even threaten their existence. This is unsettling news for consumers, businesses, and investors. But competition has no lobby. It is a public good for which interest groups rarely invest support. The agencies are out on their own. They fight powerful companies that sometimes take an interest in weakening enforcement, getting exceptions, or making antitrust more susceptible to political influence. Competition law in the hands of a market-oriented, objective agency is an insurance against market failures based on power. If enforcement is captured by politicians with close ties to some powerful businesses, it is a program for decay.

This is not to say that competition agencies are always right. Sometimes, enforcement is too harsh and sometimes too slow. People in agencies make mistakes. Yet, competition agencies are often front-runners in avant-garde public service; they are leaders in market-oriented, smart regulation. The staff, usu-ally recruited from top law firms or economic consultancies, knows how markets work and how to promote efficiency and innovation.

Scholars worldwide disagree on nearly everything in competition law. But no one questions that some antitrust rules are needed and that specialized enforcement agencies are essential. The laissez-faire of radical proponents of the Chicago School is outdated (and most Chicago scholars had never advocated the complete abolishment of agencies). Their ideology has made way for much improved economic and legal tests. Research shows that strong institutions, in-dependence, and a toolbox inspired by international best practices serve the economy best. The watchdogs worldwide have reached a level of sophistication that builds on decades of experience. The Latin American agencies have greatly inspired the debate in the past years.

The institutional design for competition agencies can be reformed. Accountability and judicial control can be strengthened. Abolishing or significantly debilitating competition agencies is a measure that comes close to abolishing free markets. The knowledge of sectors, the experience with tools and case management, the understanding of law and economics, and the vital international contacts would be lost. They could not be rebuilt overnight in a country should it turn out that eradicating competition agencies was a mistake. Above all, companies in their home country would become complacent, and consumers would be at the mercy of a few barons who would thrive at their expense.

Professor Rupprecht Podszun is the President of the Academic Society for Com-petition Law (ASCOLA), the global organization of antitrust scholars. Professor Juan David Gutiérrez is the head of the Latin America Chapter of ASCOLA.

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