Policy Paper To The European Commissioner - Essay Example

Policy paper to the European Commissioner, Head of Member which provides a critical discussion of Innovation, is the key to successful EU competition policy. Contents Contents 2 Introduction 3 Discussion 3 Aims and focuses 3 Policy position 4 Reasons for the position 4 Policy arguments 6 Conclusion 12 References 13 Introduction This policy paper is developed with the aim of presenting a policy argument for the inclusion of innovation as a key component in the exiting competition policy of the European Union. In the current dynamic economic environment, the need to continuously upgrade and innovate on the existing policies has become desirable for an economy in order to sustain itself as well as to compete effectively. Although, presently the competitive policy of the EU is one of the strongest and most robust competition policy in the world yet the existing competition policies of EU seems to be facing a number of challenges and obstacles which are may lead to failures of the economy in the long term scenario. Thus, the proposal for the inclusion of the factor of innovation in the arena of competition policy of the European Union is formulated in this policy paper. This paper is primarily aimed at identifying and analysing the importance of being innovative in the formulation of the competition policy as implemented by the European Commission. Discussion Aims and focuses Competition is a multi-dimensional and composite concept which should be evaluated from the global and national economic scenarios before developing a competition policy. The competition policy is a combination of different policies and principles on the basis of macroeconomic principles and institutional principles that are aimed at creating a condition and environment in which the organizations and sectors can thrive. The competition policies used by the European Union are aimed at regulating the competitive markets in the union so that the corporations functioning in the European Union do not create monopolies or cartels that would lead to the damage of the economic interests of the society in the union. There are four main areas of the competition policy of the European Union which are mentioned as follows: Cartels Market dominance State aid Mergers The need for innovation in all the above mentioned areas of the competition policy is imminent and necessary. Policy position The main aim of the competition policy of the European Union has been to ensure the functioning of the markets in the union while at the same time safeguarding the economic interests of the society. The competition policy of the EU currently functions in a dynamic manner by encompassing a wide range of areas like merger examination, cartels and antitrust, state aid, international cooperation and the liberalization of markets. Reasons for the position The competition policy has been employed in the industries of the European Union as a means of supporting and protecting competitive and efficient markets. The prohibitions of the government for the merger between NYSE Euro next and Deutsche Borse can be identified to be a key step taken by the European Commission as a way of protecting the competitive markets. This merger, if done, would have led to the creation of a quasi-monopolistic entity in the market which would have assumed a highly influential role in dictating the commercial conditions of the environment of the industry and as such would have limited the success and sustainability scopes of the thousands of businesses operating in the European capital and derivatives markets. This prohibition was employed as a part of the competition policy of the European Union so that the efficient players in the capital markets of the union were provided with the opportunity to survive and as a way of bringing in more transparency and innovation in the functioning of the financial markets of the country. Innovation factor should be integrated within the competition policy of the union so as to enhance and simulate innovative growth within various sectors of the company. The European Commission is already in the process of revising and reviewing the State aid guidelines of the competition policy specified for innovation and research and development with the view of taking up new rules and strategies in 2015. The investments in research and development form a crucial factor for driving competiveness of the economy and is thus, set as one of the main targets included in the 2020 Strategy Vision of the European Union. These kinds of changes, policy decisions and goal setting have already strengthened the usefulness of the competition policy. However, by evaluating the internal and external conditions of the economy of the European Union, it can be identified the need for boosting innovation in every aspect of the policy has become much critical in order to ensure sustainability and success through enhanced efficiency, productivity and growth of companies and industries across all sectors of the economy. The theories of economic growth suggests that the growth in an economy can be achieved by creating competiveness through different channels including the entry or exit channel, resource efficiency channel and the innovation channel (Figure 1). It can be pointed that the channels of entry and exit and the channel of resource efficiency are adequately present in the competition policy of the European Union. However, the channel of innovation has still not been added as a priority factor for growth and efficiency within the competition policy (Monti, 2007). Figure 1: The innovation channel for competiveness (Source: Chalmers, Davies and Monti, 2010) Policy arguments Undoubtedly, in the present scenario of functioning, the competition policy of the European Union is one of the strongest existing systems of competition policy in the globe. The factor of competition is found to be one of the most crucial contributors of the long term economic growth. As such, focus should be given on improving the effectiveness of the competition policy of the EU through the modifications made in the existing competition policy and also through the introduction of new components, features and dimensions in the current competition policy implemented by the EU. The need for including innovation aspects and factors has become a mandate for the creation of higher levels of competiveness and sustainability of organizations, industries and economies alike. Integrating the concept of innovation within the competition policy can be found to be mandatory in the current state of operations of the European Union because stagnation in the processes of innovation has been cited as the major cause for the failure and collapse of many economies across different periods of time (De Streel, 2003). For example, the collapse of the economy of Soviet Union in the year 1982 was found to have been driven by the excessive stagnation in innovation activities noted in the union for years. Though it is true that Soviet Union achieved enough technological development before the collapse, yet it can be pointed out that the regime of the country did not allow for the scope to use the customer demand levels and profit opportunities as the means of leveraging for the ultimate utilization of innovation and technological advancements. Soviet Union was a free market economy which was built on the idea that the free market economy facilitates the growth of innovation because the profit incentives often act as an instigator for the profit based businesses to identify the current level of demand and supply and forecasts the future demand and supply levels of various sectors within the economy. However, in reality, such was not the construct wherein, it has been established through years that a competitive market is a better facilitator of innovation because the incentives from innovation from the point of view of the monopolistic firms are restrained due to the availability of substitutes or replacement products while an actively competitive market results in enhanced incentives gained from innovation in products, services as well as strategies so as to negate competition from other players in the market (Ellig and Lin, 2001). In the current economic situation, promoting dynamic competition through the use of an effective and robust competition policy is a critical step that has to be taken up by economies to survive and sustain. Innovation is necessary for developing dynamic competition in place of static competition because static competition is no longer found to be sufficiently result bearing in the present economic conditions (Tilford, 2013). Thus, the European Commission should focus on developing contemporary strategies and policies that would help the economy to sustain it and compete on a global platform. A robust and effective competition policy is expected to stimulate growth and productivity in the economy across diverse segments and sectors of the economy. The level of competition in an economy leads to the most efficient use of the assets, resources and capabilities available within different sectors of the economy and as such remains a pre requisite for achieving growth. The policy argument can be supported through the analysis of the existing competition policy of EU by the measurement of the impacts of competition as driven by the policy. The impact of competition can be divided into three main categories which are productive efficiency, dynamic efficiency and allocative efficiency. Productive efficiency is enhanced by competition because the factor of competition and competiveness drive a corporation to use their available inputs in the most optimal and benefit reaping manner. This acts as an efficient way of supplying goods and services in an economy at the lowest possible prices and costs. As such, competition helps to enhance productivity through the development of a channel of resource efficiency. Secondly, resource efficiency results in the driving the inefficient corporations out of the market and creates scope for the beneficent corporations to enter into the market and gain a substantial amount of market share due to which any kind of inefficient production is replaced with efficient production through the development of proper entry and exit channels in the economy (Saebl and Zeitlin, 2010). The factor of dynamic efficiency is based in innovation and creativity. Competition drives dynamic efficiency through the creation of the continuous need for innovation and creation of new products, services and strategies. Hence, competition leads to the development in technological processes through the use of the innovation channel. On the other hand, innovation adds value to competitiveness of a corporation as well as an economy through the satisfaction of the creativity and new product, services and strategy development. In the case of the allocative efficiency component of competition, it can be seen that competition enables the firms to produce goods and services that experience higher demands from the target customer groups and suit the target customer profiles. In allocative efficiency, competition acts as a driver of the creation of only those products and services which have existing demand in the market. Effective allocation in this context refers to the fact that the consumers who place enough value for the products and services as evaluated against the true production cost of these products and services would be the actual group of consumers who would buy and use these products and services in the end (Cioini and Mcgowan, 2008). While productive efficiency and dynamic efficiency in the EU competition policy are high, the dynamic efficiency impact is low which can be improved by implementing innovative strategies to build up dynamism. The innovation factor in other developed countries like the United States of America has already been playing a crucial role in enhancing the competiveness of the economy on a global scale. Apart from this, the innovative economic policies in such countries also act as important a regulatory factor which help to negate the problems of suppression of innovation and thus adds to the wealth and competiveness of the economy in the long term. Figure 2: The growth drivers included in the competition policy of the European Union. (Source: Jones and Brenda, 2007) The European Commission also uses a number of competition instruments within its competition policy like antitrust, state aid, merger control, liberalization, and other customized measures employed for specific sectors of the economy (Figure 2). These competition instruments act in a highly valuable manner by enabling the European Union to tap in the opportunities and scopes in the external environment conditions and the economy. Nevertheless, the innovation of these growth drivers would help to build up a competition policy that would equip the economy to sustain through critical and adverse situations. As such, innovation should be mandatorily embedded into the basic functioning and implementation of the competition policy of the EU. Innovation should particularly be integrated into the specific measures of the competition policy as a growth driver and can be adequately supported by the State aids given in these sectors to enable the entities functioning in these sectors to extract the maximum benefits from the growth driver of innovation (Whish, 2008). Since, the level of investments in research and development in the arena of the industries of European countries remain constrained by failures of the markets, therefore, the revised competition guidelines and policies are likely to translate the measures provided by State aid into higher levels of innovation, research and development. In particular, emphasizing on the factors of activities which are close to the market such as research infrastructure, technological and non-technological innovations, experimental development like demonstrations and pilot testing designs would help to bring in more flexibility and help to improve the level of competiveness of the different sectors of the economy of the European Union (Colino, 2009). For the purpose of tapping in the potentials of the competition policy as a main driver of growth and innovation, the European Commission can implement changes in the policy areas related to financial services, telecom sector and energy sector. The factor of innovation is also directly linked to the intellectual property rights which form a critical part of the new age digital economy. The European Union can focus on developing standard strategies for developing the economy in a smart, sustainable and inclusive manner (Krugman, 2013). Some of these strategies which employ innovation as a key driver for growth have already been formulated and included in the Europe Vision 2020 (Almunia, 2014). Further, the European Commission can take up new policies that encourage the initiatives for research, innovation and development, digital economy, green growth, youth opportunities, fight against poverty, climate changes, conservation of energy sources and other areas that would enhance the functionalities and effectiveness of the competition policy of the union. The role of innovation can be found to be extremely significant in the area of the digital economy which seems to be the future of the economies of all developed and developing nations across the world. Innovation can be built up by mobilising and allocating the available resources in the economy, and boosting creativity by forecasting and responding to the demands in the most value reaping and competitive manner (Mitschke, 2008). As such, the inclusion of the innovation factor in the aspects of all the growth drivers of the competition policy would help to enhance the effectiveness of the policies in the contemporary economic situations. Conclusion Thus, it can be summarised from the above discussion that the innovations and modifications in the policies of the European Union, especially in the competition policies can act as critical drivers for the success of the economy in the contemporary environment. The factor of innovation can lead to added efficiency and impacts of the existing competition policy of the Union and as such, distinct changes should be made in the competition policy as a way of delivering better results and negating the economic risks like market failures, redundancies in the economic constructs and competition distortions in the economy. However, the European Commission should make sure that the competition policies are formulated in a manner such that the aids can be provided to the entities functioning in the economy in a transparent, unbiased and non-discriminatory manner and all the strategies and policies should be in full compliance and accordance with the rules formulated for the state aids under the competition policy of the Union. References Almunia, J., 2014. EU competition policy and innovation. [Online]. Available at http://europa.eu/rapid/press-release_SPEECH-12-249_en.htm. [Accessed on 6 April 2015]. Chalmers, D., Davies, G. & Monti, G., 2010. European Union Law, 2nd ed. London: Cambridge University Press. Cioini, M. & Mcgowan, L., 2008. Competition Policy in the European Union. Melbourne: Palgrave McMillan. Colino, S. M. 2009. Vertical Agreements and Competition Law: A Comparative Study of the EU and US regimes. Oxford: Hart Publishing. De Streel, A., 2003. The Integration of Competition Law Principles in the New European Regulatory Framework for Electronic Communications. World Competition, 26(1), 489-514. Ellig, J. & Lin, D., 2001. Dynamic Competition and Public Policy: Technology, Innovation, and Antitrust Issues. New York: Cambridge University Press. Jones, A. & Brenda, S., 2007. EC Competition Law: Text, Cases and Material, 3rd Ed.  Oxford: Oxford University Press. Krugman, P., 2013. Economics, finance, business & management. Melbourne: Palgrave McMillan Mitschke, A., 2008. The Influence of National Competition Policy on the International Competitiveness of Nations A Contribution to the Debate on International Competition Rules. Netherlands: Springer. Monti, G., 2007. EC Competition Law. London: Cambridge University Press. Saebl, C. F. & Zeitlin, J., 2010. Experimentalist Governance in the European Union towards a New Architecture. Oxford: OUP. Tilford, S., 2013. Is EU competition policy an obstacle to innovation and growth? [Pdf]. Available at http://www.cer.org.uk/sites/default/files/publications/attachments/pdf/2011/essay_competition_st_20nov08-1359.pdf. [Accessed on 6 April 2015]. Whish, R., 2008. Competition Law, 6th Ed. Oxford: Oxford University Press. Read More