Government News Reforms

Whistle-stop to collusion

Philippine Competition Commission (PCC), the country’s fledgling antitrust body, is hoping to lure informants in an effort to crack down on cartels

The Philippine Competition Commission (PCC), the country’s fledgling antitrust body, is hoping to lure informants in an effort to crack down on cartels – companies, often rivals, that collude to fix prices, fix bids and keep new competitors out of the marketplace. Right now, it’s hoping to attract whistle-blowers in the cement and power-generation industries for which it’s received a number of complaints concerning ant-competitive practices. Toll-road operations, shipping, agriculture and telecoms are also in the Commission’s firing line.

These practices, which hugely disadvantage consumers of goods and services, have been a feature of the Philippines’ commercial landscape for as long as anyone can remember. The country’s plutocratic oligarchs – mostly politically well-connected – between them have largely carved up industry and commerce in the country, preserving their dominance by establishing barriers to prevent new entrants to market sectors while maximising their profit margins, frustrating entrepreneurship and keeping jobs scarce.

The result, often, is high-priced inferior products. The knock-on effect has been to seriously handicap the country’s economic competitiveness as well as its inclusive economic growth and to hinder the alleviation of its poverty – the open wounds and scars of which can be seen right across the nation’s body. In no small part, the scale of poverty which exists in the Philippines is a direct result of these restrictive practices which have stunted the job market and made produce simply unaffordable.

In the Philippines, the effects of monopolies and market-entry barriers can also be seen in the country’s dismal showing across a range of metrics which compare the country’s fitness to other member countries of the Association of Southeast Asian Nations (Asean).

In the 2016-2017 Global Competitiveness Report, put out by the World Economic Forum, of the nine Asean countries ranked (Myanmar wasn’t included in the survey), the Philippines lags well behind the region’s four mature economies it really needs to get on terms with. Here are the report’s global rankings:  Singapore, 2nd; Malaysia, 25th; Thailand, 34th; Indonesia, 41st; Philippines, 57th; Brunei, 58th; Vietnam, 60th; Cambodia, 89th; Laos, 93rd.

Tellingly, under ‘Good market efficiency’ in the sub-category, ‘Effectiveness of anti-monopoly policy’, the Philippines was ranked 106th out of 138 countries worldwide. Under ‘Institutions’, in the sub-category, ‘Irregular payments and bribes’ it was place 105th; ‘Diversion of public funds’ earned it 102nd place; in ‘Efficiency of legal framework in settling disputes’ it made110th place.

The PCC came into being in July 2015 following the introduction of the Philippine Competition Act – legislation that’s supposed to ensure a fair environment for competing businesses by penalising any entity which engages in anti-competitive practices such as monopolisation, exclusive dealing, conscious parallelism, predatory pricing and product bundling/tying, as well as mergers and acquisitions that restrict, limit or prevent competition.

So far, however, it’s been a bumpy start for the PCC; its efforts to review the sale of the telecom assets of San Miguel Corp. (SMC) – in revenue terms, the country’s largest corporation – were blocked last year when the Supreme Court imposed an injunction against the Commission and, following an appeal, upheld it. The assets under scrutiny are those of SMC’s Vega Telecom which the company sold to the country’s virtual telecom duopoly, Philippine Long Distance Telephone  and Globe Telecom, for PHP70 billion.

The public has long tired of the control the two telecom giants hold – a situation that’s been allowed to exist as the National Telecommunications Commission, an agency under the Department of Information and Communications Technology, in the past has paid little more than lip service to its vow to maintain effective competition in the industry.

Over the years, the World Bank, the International Monetary Fund and other global bodies, along with economists and academics have cautioned the Philippines about the dangers of not addressing a culture of anti-competitiveness that’s not just been allowed to grow but has actually been fostered by members of successive governments.

Today, it ranks as one of the country’s biggest economic problems. Monopolies, oligopolies, cartels and the like aren’t minor ailments of an economy; they’re cancerous. Left unchecked they’ll eat away at a country’s wealth and resources until there’s nothing left.

The problem is that the powerful corporations and the families that run them see the PCC as a threat. They view it as an intrusion into what largely up until now has been their private domain; they fear that if competition is opened up their dominance of the sectors in which they operate will be challenged and weakened. They’ll no longer to be able to price fix; they’ll have to fight for market share.

The impasse which the Commission has hit in pursuing its investigations into the telecoms’ industry – the Supreme Court has left it in limbo – illustrates the difficulty it’s likely to have in pursuing anti-competitive practitioners in other industries.  “We’re hoping that businesses will recognise and render respect to the competition authority by complying with the law instead of challenging our acts,” PCC Chairman, Arsenio Balisacan said recently. “They should recognise that it’s in the interest of everyone”.

The whistle-blowing scheme, however, strongly suggests that cooperation from the corporations might not be too forthcoming. Thus, under the scheme’s provisions, individuals who spill the beans on companies engaging in anti-competitive practices will be given immunity from fines and prosecution – though this will depend on the quality of data and the timeliness of the reporting. For example, someone alerting the PCC to a new case of such malpractice will receive a greater reprieve from prosecution than someone disclosing information during an ongoing enquiry.

We haven’t seen the details of this initiative but for it to work effectively, whistle-blowers will need guarantees of anonymity. In March, the European Union (EU) through its executive, the European Commission, rolled out a “new tool” with which to combat anti-competition across its member states – a specially designed encrypted messaging system which affords whistle-blowers 100% protection from being identified.

This is a sophisticate system that provides two-way communication allowing clarification of the information received without releasing any metadata about who’s making the call.

Emphasising the importance of the new tool, Margrethe Vestager, the EU Commissioner in charge of competition policy, said at the launch that “inside knowledge can be a powerful tool to help the Commission uncover cartels [and] can contribute to the success of our investigations quickly”.

In June last year, the Philippines’ Governance Commission for Government Owned or Controlled Corporations launched a similar tool in its crackdown against public-sector corruption. Providing full anonymity, then Senate president pro-tempore, Franklin Drilon, the Senate’s current Minority Floor Leader, said: “By having concerned individuals who are not afraid to expose or disclose wrongdoing, our fight against corruption will have a better chance of succeeding”.

The PCC hopes the same applies to its initiative to defeat anti-competitive practices within the country’s private sector.

But even with that facility now at its disposal the Commission is unlikely to underestimate the clout which Philippine big business commands at all levels of government – not least in the legislative chambers and the judiciary.

The fact is that the election and re-election campaigns of Congressmen and women are largely funded by private-sector donations; it’s always been the way – and what’s also always been the way is that those donations don’t come free; often at some point the markers are called in; there’s a payback. It’s understood.

There’s no doubt that the PCC is determined to rid the Philippine corporate world of these debilitating “old Spanish practices”. Its resolve is virtually beyond question. But given how deeply they’re entrenched, given the long history of their acceptance, given the near-unassailable power – political and financial – of the practitioners, the odds of success remain long odds.

For until that corporate/political nexus is broken, the oligarchs will continue to collude with each other to price fix, bid fix and baulk market entry of new competition.  And they will continue to prosper while those outside their club – the ordinary folk – will struggle for jobs or scrimp a living to pay for the inflation that these practices continue to cause. And in the meantime, the informants whose information in normal circumstances would make a difference, will be doing little more than whistling in the wind.

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