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MG Opinion – The Cartels among Us

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Over the past five years, antitrust regulation has come to take the centre stage in the world of business and policy. And behind that monumental shift is a woman – Margrethe Vestager, the Director General of European Competition – who can be personified as a superhero on a mission to beat the anti-competitive market forces.

But Vestager is up against a very dangerous beast: The Big Tech that’s grown too big even for the state and cumulatively represents over $7 trillion in market capitalisation. Even ignoring their worth, the dynamic and ever-evolving nature of technology makes it extremely difficult to regulate the sector. Yet she has, albeit with mixed success, managed to tame them and at least keep the likes of Tim Cook, Sundar Pichai etc. worried at night.

In comparison, the problem at home is much simpler and the troublemakers far smaller. Their methods are straight out of a cartel’s textbook, thus making it easier for the watchdog to act whenever there is something fishy – which is fairly often. The past week alone saw two raids, first against the sugar association followed by the cements, leaving the latter squeaking.

Here the offenders are some of the most basic industries and operating in a rather primitive style while the direct consumer nature of their businesses makes the consequences of market manipulation far worse. So much so that people that have actually died in stampedes after some hoarders create an artificial shortage for commodities.

For its part, the Competition Commission of Pakistan is a proactive watchdog, conducting raids and releasing inquiry reports, often giving a seal of approval to what everyone has known for ages: certain industries are operating as cartels.

Sugar is naturally the first to catch the eye for all the political clout it holds and the 253-pager inquiry report from March on the matter is a great place to begin with. The industry – under the banner of Pakistan Sugar Mills Association – is notorious for engineering shortages and pushing up prices. Leading the chart with 20% market share in production is none other than JDW Group of the current prime minister’s once close aide and benefactor, Jehangir Khan Tareen. Meanwhile the top six cumulatively hold slightly over 50% of the market share. As a routine matter, the industry delays crushing season and gets its way around export allowance.

The other two offenders these days – wheat and cement, with the latter lately under a series of raids by the competition watchdog at its offices across the country – also have the masses troubled with regular rate hikes. While the jury is still out and it’d be a little premature to call the current crisis cartelisation but if history is to serve as any indicator, both the cement and flour millers bodies have impressive cartelisation credentials up their sleeves.

While less covered, the cartelisation goes far beyond prices. Another aspect where the local corporates have quite excelled at is bidding by collusion. Case in point: Pakistan Electron Ltd which just came out of a 33-month debarment by the World Bank for collusive bidding. The electrical appliances maker was part of a trade association group that collaborated to ensure that each received a predetermined share of five World Bank-financed contracts. Little is still known about that body though. Even more recently, in June, the CCP smelled something funny about a group of 47-line hardware material suppliers to Distribution companies.

Of course, no write-up on the terrible state of competition in Pakistan can ever be complete without mentioning auto and its allied sectors. The industry over the past decades has upheld a routine commitment to jacking up prices every few months – often at the first sight of currency depreciation while making no changes when the reverse happens – while maintaining a steadfast resolution to keep the quality as outdated as humanly possible.

It’s honestly baffling how those corporate executives, who have been in their positions for decades and often had their fathers there before them, can even look into the eyes of counterparts from other countries at international conferences or meetings. Imagine being the CEO for the better part of the 21st century and doing next to nothing of worth in terms of your product’s accessibility, technology, quality or safety.

The industry groups are generally quick to blame the government for its ineffective policies, negligence and what not – and are certainly right about that – but yet have failed to introspect into their own rent-seeking behaviour. For example, textile associations have been warning of an impending doom in the sector for at least 20 years if a certain subsidy is not awarded, rebates not disbursed etc, yet their personal coffers continue to fill up. But alas, when the demands are met, the promised growth in proceeds fails to materialise. This is classic rent seeking.

Billions of rupees, extracted from a few million taxpayers, are doled out to award the industries with the best lobbying efforts while the consumer continues to be a perpetual loser. To change this status quo, the CCP can only go so far – despite yielding some important powers and boasting impressive leadership, often likened to Vestager even – though some data or indexing regarding market concentration would surely be welcome.

Ultimately, the issue, like every other, is actually about the country’s political economy: one where business and politics are in bed. And no government is even remotely interested in tackling that issue since that means the end of their careers. Till then, consumers will continue to pay exorbitant prices for substandard products.

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Posted on: 2020-11-30T09:46:00+05:00