Untapped Potential of Cheaply Increasing State Capacity

Untapped Potential of Cheaply Increasing State Capacity

The FINANCIAL -- In recent years, a tendency on the part of different authorities to consolidate has been noted worldwide. Competition agencies are merging with consumer protection agencies and/or regulators in order to establish more effective and less expensive public systems.

Accordingly, since the first roundtable meeting on the optimal design of a competition agency, held in February 2003, OECD has organized two more roundtables concerning changes in institutional design of competition authorities in less than one year – one in December 2014, and one in June 2015. 

At these roundtable meetings, the recent case of a large merger in the Netherlands received a lot of attention. In April 2013, the Netherlands Authority for Consumers and Markets (ACM) was created, merging the Netherlands Competition Authority (NMA) with the Dutch Consumer Authority (CA) and the Netherlands Independent Post and Telecommunications Authority (OPTA). At the OECD roundtable, the Dutch representatives explained that the creation of ACM was part of the ‘Compact Government’ program; the merger was designed to contribute to an effective and less expensive Dutch public service system. The Cabinet also felt there were efficiencies and synergies to be gained by combining the authorities into a stronger and more effective ACM. 

Although this kind of merger is not a common practice yet, discussing it in the context of Georgia might be reasonable. Specific models of the authorities that fit each country do not currently exist, but depending on the country’s specifications, space for improvement can definitely be found. 

The need for optimizing and reducing government costs has been an intensively debated topic in Georgia since the pre-election period. Several officials are discussing possible structural changes in the Georgian public sector. After carefully analyzing the functions and purposes of the ministries and agencies, the government intends to reduce administrative costs by abolishing or merging some of them. Nothing has been said about the Competition Agency yet, but the Netherlands’ newly- established authority might be a good example to consider and follow.

The Potential for Bringing Consumer Protection Under the Competition Agency

The aim of the Competition Agency of Georgia, which was established after the amendment of the law on Free Trade and Competition in April 2014, is to promote market liberalization, free trade and competition. So far, the agency has completed several investigations, and has detected only four cases of competition law violations. Three of these violations concerned the Restriction of Competition by the State Authority, and one was the Competition Restricting Agreement regarding the car fuel market in Georgia, which has been a long-debated topic for years (2015 Annual Report of LEPL Competition Agency of Georgia). Looking at its size and functions, the newly established agency seems to have the potential to become multifunctional.

Relying on the best practices of OECD countries, multifunctional authorities may benefit by saving costs, sharing information or using expert knowledge from the merging agency. Some regulatory competition scholars believe that mergers will increase the incentives of the institutions to improve performance (Jacob E. Gersen, “Overlapping and Underlapping Jurisdiction in Administrative Law,” 2006).

Since only nongovernmental organizations try to defend consumer interests in Georgia nowadays, the results of the Georgian Consumer Attitude survey (conducted by the CSRDG [Centre for Strategic Research and Development of Georgia] within an EU-funded project in 2015) were not surprising. The reported numbers of consumer right violations,  and dissatisfaction with the level of service in Georgia, tend to indicate the inevitable necessity of consumer right protection by the government.

A draft law on protection of consumers’ rights was prepared at the end of 2013, and was initiated in July 2015. The draft law foresees not only regulation of the relations between consumers and businesses, but also establishment of Consumers’ Ombudsman Institute. Additional financing is needed to establish the Ombudsman Institute, and this is one of the important reasons why the law has not yet been adopted. Meanwhile, while the draft law is still being considered by Parliament, Georgian consumers are left totally unprotected. 

Taking into account the financial difficulties consumer protection is facing in Georgia, it might be helpful to bring it under the roof of the Competition Agency. Although there are differences in the matters handled by the Competition Authority and Consumer Protection, consumer welfare is a common objective they share. Supporters of this kind of merger argue that “an integrated authority may benefit from a stronger, more unified voice and greater external visibility among the public” (OECD roundtable about the changes in institutional design of competition authorities, 2015). The increased efficiencies that could be found by merging with the Competition Agency could be translated into healthier competition that would be beneficial for Georgian consumers as well.

Should regulation authorities also be merged with the Competition Agency, along with consumer protection? Both of the regulation authorities (the Georgian National Energy and Water Supply Regulatory Commission [GNERC] and the Georgian National Communications Commission [GNCC]) have more than 15 years of experience in regulating monopolistic power and protecting consumer rights. Sharing this kind of experience would definitely be beneficial for a consolidated agency. Economies of scale would be even more attractive in this case. As a starting point, due to the definite need for stronger consumer protection in Georgia, the government should probably consider subordinating consumer protection to the Competition Agency. In addition, considering the merger of other regulation authorities, based on best practices, would be useful as well.