Competition Laws, National Interests and International Relations

Ko Unoki

• Publisher: Routledge
• Year: 2019
• Print ISBN: 9780367346119
• eBook ISBN: 9781000759891
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: International Law
• Index: Politics & International Relations

Most of the competition laws currently enforced by states aim to protect consumer welfare and promote fair competition by regulating against anticompetitive behavior. Yet despite the shared objectives the global community does not have a common global competition law. In exploring the reasons for this, this book takes a unique interdisciplinary approach by using international relations theories to illustrate the relationship between the enforcement of competition laws and international relations through an analysis of competition cases relating to cartels, extraterritoriality, and corporate mergers and acquisitions.

Through an examination of this relationship, this book will consider why the views held by state leaders on the condition of international relations may at times lead them to either arbitrarily over-enforce or disregard their competition laws to the detriment of fair competition and consumer welfare. This book also provides suggestions for global business investors who face competition law issues on how they may accommodate such views.

1 Introduction

What is competition?

In the opening section of his epic motion picture 2001: A Space Odyssey, titled The Dawn of Man, producer and director Stanley Kubrick takes us to the Paleolithic Era where we see a group of proto-humans eke out a precarious hand-to-mouth existence in an African savanna. They live in a hostile, drought-stricken environment where they feed on shrubs, berries, and lice. They have no weapons to defend themselves against more powerful carnivorous predators. In this bleak setting, two tribes of proto-humans fight over a muddy water hole. Instead of sharing, one tribe and its leader are defending the monopoly they already have over this precious source of water against another intruding tribe that is attempting to gain access to it. The proto-humans scream at each other, make threatening faces, thump their chests, and flail their arms, but they do not engage in any acts of physical violence. One day, the leader of the tribe that has control over the water hole has (with some help from a presumably extraterrestrial intelligence) an epiphany and discovers that a hand-held bone could be used as a tool and weapon. To the strain of the exhilarating opening fanfare of composer Richard Strauss’ tone poem, Thus Spoke Zarathustra, the leader begins shattering the bones of dead animals scattered about on the drought-hardened ground, smashes the head of an unsuspecting tapir with a bone, and realizes the joy of eating fresh meat. The proto-human later uses this newly found weapon to pummel to death the alpha member of the rival tribe and triumphantly throws the bone into the air. The first proto-human tribe’s monopoly over the water hole is now undisputed and the first evolutionary steps towards becoming modern humans has been taken.

Although the above sequences of events in the movie sprang from the imagination of Kubrick and the science fiction writer Arthur C. Clarke, sociologists and anthropologists believe that certain basic traits of behavior of the proto-humans depicted in Kubrick’s film, such as cooperating with each other and organizing into groups, forming hierarchies, and exhibiting hostility towards people who are viewed as being different from themselves,¹ have been hardwired within the genus Homo Sapiens over the course of several million years of evolution from a common hominid ancestor shared with chimpanzees and bonobos.² The activity of competing against one another, or competition, whether it be over a muddy water hole, food, territory, or a mate, has also been a phenomenon that has arguably been ever present within the context of the social, political, and economic development of modern humans ever since they first appeared in Africa around 200,000 years ago. Indeed, some scholars have argued that “competitiveness” is a biological trait associated with natural selection that evolved along with the basic need for human survival.³ In certain societies children compete for better grades or for being accepted into a good school from an early age. University graduates compete with one another in finding a job or getting into graduate school. Company employees compete over getting a promotion or a salary raise. Businesses and entrepreneurs compete for customers, market share, and profits. Although for many people competitive activity entails the need of coping with a certain amount of physical and mental stress, as the ancient Greek Olympic Games and the prevalence today of sporting events such as soccer matches all over the world attest, humans have, however, also long derived fulfillment or a sense of self-actualization in organizing and participating in activities that promote competition. As noted by sociologist Sander van der Linden, most people have at one point or another enjoyed being part of a competitive event or a situation which tends to be more fun and satisfying if you or your side win.⁴

On what the nature of competition is or on what it means to compete, the British economist John Vickers noted that the concept of competition had “taken on a number of interpretations and meanings, many of them vague.”⁵ While it was in 2010 that the United Nations Conference on Trade and Development (UNCTAD) had defined competition as being simply “rivalry among firms in the marketplace” that also “extends to envisaged or potential rivalry,”⁶ over the centuries several prominent thinkers have attempted to define, or at least describe, what competition is.

In the 17th century English philosopher Thomas Hobbes in his political treatise Leviathan made the bleak assessment based on his analysis of human nature that competition, along with diffidence and the pursuit of glory, was one of the principal causes of quarrels among individuals. According to Hobbes, competition induced people to use violent means for the purposes of gain and for making them “masters of other men’s persons, wives, children, and cattle.”⁷ Later on in the 18th century the Scottish economist Adam Smith viewed competition primarily as an activity or process that is undertaken by multiple businesses and laborers.⁸ In his An Inquiry Into the Nature and Causes of The Wealth of Nations, Smith states that because of “free competition,” those involved in the banking business are obliged, due to the “multiplication” of banking companies in the United Kingdom, “to be more liberal in their dealings with their customers, lest their rivals should carry them away” and that the more freer and more general competition is in “any branch of trade, or any division of labor,” the more advantageous it is to the public.⁹ That is, it is competition that determines the level of economic activity and its impact on the public. The more competition there is, the more advantages there will be for customers since those who are competing for their hearts and minds will race to produce better and more products and services.

As to why a banker or people of various trades compete, Adam Smith offers an abstract explanation that people compete for promoting their self-interest. As he put it, “it is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”¹⁰ People, in short, compete not to benefit others but to create more advantages for themselves, a sentiment that comes from self-love. What prevents the pursuit of self-interest to the extreme leading to abusive behavior in the marketplace such as price gouging, however, is none other than competition from other butchers, bakers, or brewers. In short, competition, as inferred by Adam Smith, is also a regulator of economic activity that restrains the ability of anyone to take advantage of others.

In the 19th century Karl Marx stated that “conceptually competition is nothing other than the inner nature of capital, its essential character, appearing in and realized as the reciprocal interaction of many capitals,”¹¹ a process which would result in larger capitals beating smaller, weaker capitals. For Marx, competition is what drives competing capitalists in their struggle to survive in a commodity world where the buying and selling of labor and products is the basis of competition among capitals. Indeed, in the latter half of the 19th century it was perceived in the industrialized nations of Europe that competition in the economic sphere implied what the scientist Charles Darwin declared as a biological law of nature: the survival of the stronger at the expense of the weaker. Thus, it was considered natural that the large-scale producer or trader would terminate the existence of the weaker competitor through competition, and that this was to the benefit of the progress and welfare of the community. As the French economist Frederic Bastiat put it in his work Les Harmonies Économiques, competition was the “humanitarian force” that “continuously wrests progress from the hands of the individual to make it the common heritage of the great human family.”¹²

In Japan in the second half of the 19th century, the Japanese Meiji era scholar Fukuzawa Yukichi (1835–1901) mentioned in his autobiography that, while translating the text of W. and R. Chambers on political economy, he realized the need to invent a corresponding Japanese term for the English word “competition” for which there was no equivalent in the Japanese language at the time. Accordingly, Fukuzawa chose two Chinese written characters, kyo-so, which literally meant “race-fight.” When questioned about the meaning of this newly created compound term by a government official, Fukuzawa elaborated that this was nothing new, that “all merchants ‘race and fight’ and that is the way values are fixed.”¹³ As an example, Fukuzawa mentioned that if one merchant began to sell a product cheaply, his neighbor would try to sell a similar product at an even cheaper price.¹⁴

Moving into the 20th century, one of the most famous views of competition was provided by the Moravian-born American economist and sociologist Joseph Schumpeter who viewed competition as a “perennial gale of creative destruction” that resulted in the incessant opening up of new markets and “industrial mutation” leading to the constant reinvigoration of the economic structure of capitalism.¹⁵ For Schumpeter, competition, in the context of a capitalist economic structure, is essentially an endless process of innovation that leads to the displacement of older technologies by newer ones and the replacement of incumbent companies in the market by newer and more innovative players. So long as this competitive process of “creative destruction” is maintained in perpetuity, the “capitalist engine” is kept in motion and economic growth continues.¹⁶

While space does not allow this book to give more than just a short sample of the various interpretations of what competition is that have been provided by scholars over several centuries, the above various views from Hobbes, Smith, Marx, Bastiat, Fukuzawa, up to Schumpeter, seem to suggest that competition is essentially an activity among rival parties, whether it be entrepreneurs, businesses, marathon runners, etc., that often leads to a winner or someone coming out on top and a loser or someone coming in second. That is, it seems that a by-product of a competitive event or situation is the creation of a hierarchy.

The role of competition

As for the role of competition, the United States (US) Supreme Court had stated its views in several cases brought before it. In Northern Pacific Railway Co. v. United States (1958) the court viewed competition as essential not only in ensuring the optimum allocation of economic resources, the lowest prices for consumers, and “the greatest material progress,” but also for providing an environment “conductive to the preservation of…democratic political and social institutions.”¹⁷ In National Society of Professional Engineers v. United States (1978), the court observed that competition is “the best method of allocating resources in a free market,” and “that all elements of a bargain – quality, service, safety, and durability…are favorably affected by the free opportunity to select among alternative offers.”¹⁸ The views of the Supreme Court stated in these cases on the role and importance of competition may have been influenced by the thinking of the so-called “Harvard School,” legal scholars at Harvard University such as Donald F. Turner and Phillip Areeda who argued that, as companies were more likely to engage in anticompetitive conduct when markets were concentrated, and as they saw political and economic freedom being threatened by market concentration, it was therefore vital to oppose any movement th...

Table of contents

• Cover
• Half Title
• Series Page
• Title Page
• Copyright Page
• Table of Contents
• Preface
• Acknowledgements
• 1. Introduction
• 2. The development of competition laws and a hypothesis
• 3. Overview of International Relations theories
• 4. Cartels: illegal and/or in the national interest?
• 5. The extraterritorial application of competition laws
• 6. Mergers and acquisitions and national interests
• 7. Conclusion
• Suggested further reading
• Index