Competition puts a downward pressure on prices. It is one of the forces behind innovation. It enhances welfare. Therefore, initiatives aimed at creating a competitive market are worth supporting.

For those who truly believe in a free and competitive market, however, the Malaysian Competition Act passed last year deserves neither admiration nor respect. It is worthless.

How can one respect the Act when the government itself is unimpressed with the spirit of the Act?

This question is especially pertinent after the Najib administration recently granted Bernas with another 10-year monopoly over rice imports in Malaysia.

The Act will be enforced in 2012. One would expect any government that is sincere or serious about encouraging competition to prepare the ground. What we are seeing instead is business as usual. Instead, the government continues to grant monopoly power to a specific company without any regards for the Act.

Government-sanctioned monopoly is not a phenomenon exclusive to the rice market. In the sugar market, the government awards import quota to a limited number of sugar producers. Here is something that makes it even more interesting. Tradewinds effectively monopolizes the sugar market, and it is related to Bernas.

In Sarawak, there is CMS Berhad, which has a disproportionate access to government procurements and tenders. It is the grand monopoly of Sarawak and it is a prime target for a proper anti-trust law.

One must not forget the various government-linked companies. They are so large and so powerful that their ability to distort the market is not doubtable. What makes it worse is that, one would rightly expect these companies to sleep in the same bed as the government, at the expense of consumer welfare.

The government after all has an interest to see that these companies are profitable because the government is the shareholder. For companies that it only has an indirect relationship with, bad performance is just bad politics.

In the name of competition, a respectable anti-trust law must subject everybody under the same rules.

Yet, ”activities, directly or indirectly in the exercise of government authority” are excluded from the Act. Companies that obtain their monopoly power through a government authority like Bernas easily fit the bill. It is also easy to argue that GLCs will enjoy the exemption as well.

Even if that stated exemption does not cover those companies, the Competition Commission as established by the Act has wide discretionary powers to exempt anybody from the Act. With a perverse incentive system that exists within the government, selective prosecution will likely be the norm. Private firms that attain large market share through sheer ingenuity will be prosecuted in the name of competition while GLCs and companies like Bernas continue to be shielded from market forces by the government.

In short, not only does the Act not encourage competition, it is a tool to make the market less perfect.  This Competition Act is no anti-trust law. It is a discrimination law.

The truth is that competitiveness of the Malaysian market can be enhanced without this Act, which shamelessly masquerades as an anti-trust law.

Government policy created these monopolies and because of that, it is arguable that a proper anti-trust law is like taking a sledgehammer to a nut. Instead of expanding the role of government, a reduction can be just as effective as a proper anti-trust law. Such a retreat will definitely be more effective than the farce that is the Competition Act.

This is how a retreat should look like: The government to divest away from most GLCs, to institute an open and competitive process to most of its procurements and to stop granting monopoly powers to the likes of Bernas. Do all that and with a little luck, even a real anti-trust law might be redundant.

Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved Mohd Hafiz Noor Shams. Some rights reserved

First published in The Malaysian Insider on May 4 2011.

One Response to “[2360] Competition Act is a farce”

  1. on 08 May 2011 at 12:01 Bobby

    It wouldn’t be too hard to surmise that the whole purpose of this Act is to enable the BN government to SUPPRESS competition against their GLCs.

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