The Competition Authority agrees with the consultancy firm McKinsey & Company, which states in its report on Economic growth prospects in Iceland („Charting a Growth Path for Iceland“) that competition is the key to increased productivity. The report states that competition promotes the efficient use of production factors, encourages managers to streamline operations and leads to new ideas, innovation and technological advances.
A McKinsey report states that the share of domestic services in GDP is 65%. This sector is largely protected from foreign competition and productivity is low. To improve living standards in Iceland, it is necessary to increase productivity in the domestic service sector. This is best achieved by allowing competition to flourish, opening up markets and bringing in foreign competitors. McKinsey specifically refers in this regard to the reports of the Competition Authority. No. 2/2008 Robust market development and No. 2/2011 Competition after the crash which contains over 100 proposals for opening up individual markets. McKinsey encourages the government and stakeholders to work with the Competition Authority to open up markets in the manner described in the Authority's aforementioned reports. The Competition Authority expects both public bodies and businesses to welcome these recommendations and to work with the Authority to enable new and smaller companies to start up and thrive in Icelandic business life.
McKinsey places particular emphasis in its report on the fact that high corporate debt and a lack of private capital can have a negative impact on competition in the short and long term. Excessive indebtedness can lead to the waste and inefficient use of production factors. McKinsey considers it important that the government ensures the competition authorities have the necessary tools and resources to prevent the negative long-term consequences of this particular situation. The current situation, with an excessively long investigation period for important competition matters, creates significant uncertainty for the operations of many companies.
McKinsey believes that due to the country's small size, the Competition Authority has an important role to play in striking the right balance between the economies of scale of businesses and consumer protection. The Competition Authority must show a certain flexibility in its assessment, particularly with regard to the co-operation of competitors on critical infrastructure in capital-intensive industries.
In the conclusion of its report, McKinsey reiterates the necessity for important institutions to have the resources to tackle the challenging circumstances currently prevailing in Iceland. The Competition Authority wholeheartedly agrees with this. If the draft budget for 2013 is passed unchanged, real-terms funding for the Competition Authority's core functions will have fallen by a quarter since 2008. The funding allocated to the Authority is in no way sufficient to tackle the challenging conditions described by McKinsey in its report.
See report by McKinsey & Company (104-page PDF document).
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