It is urgent to begin a major expansion of Icelandic industry.Following the economic collapse in the country, many businesses are struggling, unemployment is rising, and households are grappling with debt and reduced incomes. There is a risk that the number of businesses will decrease in key markets due to operational difficulties. In these circumstances, there is a risk that barriers to competition and oligopoly will increase.
It is of the utmost importance that the government and businesses do everything in their power to limit the damage to society caused by reduced competition. It is also important to learn from past experience with the aim of creating the conditions for healthier and more competitive business operations. Economic research and the experience of other countries that have gone through similar difficulties show that measures to maintain and strengthen competition contribute to a faster recovery of the business sector.
With this in mind, it is imperative to take action to open markets and maintain or strengthen competition in this country. This paves the way for job-creating business operations. To this end, the following measures are proposed:
The Competition Authority is today publishing a detailed report (150 pages) on the opening up of markets and the promotion of business activity and competition. The report discusses the following:
Numerous ideas and proposals are put forward by the Competition Authority, which are intended to eliminate or reduce barriers and thus create the conditions for more robust business operations and increased opportunities for entrepreneurs and innovative companies. The proposals are aimed at both public bodies and businesses. These proposals are based on an investigation by the Competition Authority, which began immediately after the collapse of the commercial banks. This investigation has included, among other things, discussions with numerous companies, interest groups, public bodies and academics at universities.
The report will be sent to numerous parties for comment and will be made publicly available on the Competition Authority's website. It is hoped that public bodies, businesses and the public will give their views on these proposals and put forward new information and ideas about these and other markets. It is requested that such information and viewpoints are submitted The Competition Authority at the earliest opportunity and no later than 15 January next. Following this, the Competition Authority will further assess which proposals are likely to succeed and decide on measures to implement them. It is also important to note that, based on the report, the government and businesses can, on their own initiative, immediately take positive measures to boost the economy.
The report can be read here, It is also possible to get information and viewpoints across.
To limit the damage from reduced competition as much as possible, it is extremely important that the banks, now owned by the state, take into account the important long-term interests of the public and the business community in allowing active competition to flourish when decisions are made about the future of the companies. With this in mind, the Competition Authority has directed the banks to have regard to ten specific key principles when making such decisions. The key principles are set out in the opinion No. 3/2008. Decisions by banks and governments on the future of companies in competitive markets
It is important that the aforementioned report on robust development and the opening of markets is taken into account when the banks further elaborate on these principles and when making decisions about the future of businesses.
The Competition Authority is working on a report on ownership links in Icelandic business life and the lessons that can be drawn from the connections that have existed. It is clear that cross-shareholding, hidden ownership and opaque conflicts of interest can distort competition and undermine healthy business practices. The report will address these issues and propose solutions for improvement.
Public procurement by the state and local authorities can have a significant impact on the competitive environment for businesses. The same applies to various forms of involvement or interference by public authorities in business operations. The Competition Authority is investigating this and aims to issue guidance to public authorities on measures that can promote competition and improve the interests of the public.
Background information
The current state of the economy makes it imperative to embark on a major programme of development in the Icelandic business sector. In this context, the strengthening of competition has a significant role to play. Competition is not an end in itself, but rather a tool for enhancing the general welfare. The reason for this is that active competition between companies brings out the positive aspects of the business sector. It leads to lower prices and increased business activity. Competition thus creates jobs, promotes economic progress and encourages companies to offer the public lower prices and better services than would otherwise be the case. This also leads to a lack of competition and restrictive business practices causing significant harm to the public and the business community, with higher prices, customer exploitation, poorer service, and less accountability and efficiency in the operations of the companies concerned. It can be argued that the damage caused by competition-restricting practices may be even greater in Iceland than in larger countries. A recent assessment by economists Guðrún Johnsen and Gylfi Zoëga, submitted in the case of the oil companies against the Competition Authority, states:
… Iceland is a sparsely populated country and its society is characterised by a close-knit, personal community. In such circumstances, the chances of company managers succeeding in coordinating their efforts, both in terms of tacit agreements and consultation, are increased. For this reason, it can be concluded that consultation established in this country will be more effective than consultation in larger societies.
The positive effects of competition do not only apply in times of prosperity. On the contrary, it is particularly crucial in economic hardship to maintain active competition as much as possible. The experience of other countries that have gone through similar difficulties and academic research show that measures to maintain and enhance competition contribute to a faster recovery of the economy. Similarly, it is clear that measures which limit competition prolong economic hardship and work against recovery.
In light of the current situation, it is important that work is undertaken to protect and strengthen economic activity and to ensure that the forces of competition are harnessed so that the wheels of industry can once again turn with vigour. One way to achieve this is to open up markets and remove unnecessary barriers to the establishment and operation of innovative and competitive companies, thereby creating a fertile ground for new activities and employment opportunities. It is crucial that highly skilled people who have recently lost their jobs have the option and a real opportunity to start a business and enter the market here in Iceland. Tackling such barriers also has the advantage of giving small businesses a greater opportunity to gain a firmer foothold in the market, and to grow and prosper. In this way, competition increases, which improves the welfare of households.
The management of the new state-owned banks holds very extensive decision-making power over the course of business life. In this sphere, measures will be taken that will determine the fate of important companies and can have a significant impact on the development of Icelandic business life and competition in key markets. It must be ensured that these decisions by the banks are made through a professional and transparent process, and that they are objective and promote increased competition and diversity in the business sector as much as possible.
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