Moreover, it is the Finnish Competition and Comsumer Authority’s task to follow the preparation of rules and regulation concerning the economy and to make initiatives to promote competition (so-called advocacy) or to dismantle restrictive regulations.
The objective of this work is not the dismantling of regulation as such but smart regulation, which refers to regulation that is genuinely necessary, correctly dimensioned and measurable and which has benefits that genuinely exceed the drawbacks. Practical advocacy measures include initiatives, opinions, stake holder cooperation and participation in competition-related working groups.
Background and legal basis
It is the main objective of competition policy to safeguard effective economic competition. In the light of historical experience, only competition and well-functioning markets ultimately lead to more inexpensive prices, more efficient use of resources, and increase of economic benefit for the consumers. Additionally, the competitive process creates strong incentives to develop new technical innovations, improve the quality of products and boost production processes. All in all, competition and well-functioning markets have turned out to be a superior instrument for steering the use of economic resources, compared to centralised planning and regulation.
Well-functioning markets have traditionally been safeguarded by means of competition control. An increasingly important part of the work of the competition authorities today is competition advocacy. It encompasses all the measures of the competition authorities which seek to secure effective competition and markets but which are not based on the supervision and application of actual competition legislation.
The control and application of competition legislation focus on business undertakings and associations of business undertakings, whereas advocacy focuses on public organisations responsible for regulation, and manifests itself above all in the form of written and oral communications and interaction, without the possibility to use legal force.
The FCCA’s advocacy task has been provided for in the Act and Decree on the Finnish Competition and Consumer Authority. Under Section 2 of the Act on the Finnish Competition and Consumer Authority (661/2012), the FCCA shall investigate the competitive conditions; examine competition restrictions; take measures to eliminate harmful effects of competition restraints; and take initiatives to promote competition and to dismantle any restrictive regulations and orders, and tend to any other tasks prescribed or ordained to it.
The Decree on the Finnish Competition and Consumer Authority (728/2012) specifies for example that the FCCA shall monitor and investigate competitive conditions; follow the preparation of economic legislation and give statements about questions related to its field; and take initiatives to promote competition and to dismantle restrictive rules and regulations.
The Regional State Administrative Agencies act as regional competition authorities and hence participate in advocacy.
Underlying the advocacy task set on the FCCA and the Regional State Administrative Agencies is the general finding that in addition to cartels and abuse of dominant position by business undertakings, the functioning of markets may also be significantly limited or distorted by public regulation and the measures taken by public authorities more generally. Paying attention to competitive and market impacts is one of the objectives of better regulation, and it has received much attention both nationally and internationally.
Better regulation has been the target of attention in Finland, too, for a long time now. According to the OECD Review of Better Regulation: Finland (2010), in recent years, a better idea of the link between better regulation and the functioning of the markets has been made.
Main target legislative steering
Regulation is often spoken of as if it were a clearly identifiable and separate administrative function, although a very complex set of issues is involved. According to the traditional definition, regulation is enduring and centralised control applied by public authorities in the functions deemed politically important.
The more narrow definition of regulation is that it is a compilation of special rules and regulations, the supervision of which has often been appointed to a special body. The wider definition of regulation is that it covers all other measures by public authorities such as pubic aid, taxes, public procurements, ownership steering, zoning and public service provision. Regulation may hence be direct or indirect by nature.
One the one hand, the regulation of economic activity covers structural regulation, which regulates the structure of the market such as entry and exit barriers. On the other hand, it also covers behavioural regulation, which regulates on market conduct such as marketing. Both these types can be implemented by many different methods.
The best known method is legislative steering, which is based on the law or supplementary lower-level regulations and which is direct and imperative. Regulation may be supplemented by many other social steering methods, however, such as incentive-based regulation, process regulation, and self-regulation or information steering.
More versatile methods of social steering have been used in the 2000s with a shift from pure norm and resource-based steering to a more and more customer and market-based steering. In practice, the use of the other methods has hardly ever led to the annulment of administrative steering. On the contrary, for many reasons, the amount of administrative steering has increased. Legislative steering has retained its central position as a method of social steering, which is why a major part of advocacy work is directed at legislative steering and those who decide about it.
This emphasis has strong grounds: badly contemplated legislative steering may at its worst lead to governmental competition restraints, which may be longer-lasting from the viewpoint of well-functioning markets, and usually more harmful, than competition restraints caused by individual business undertakings. As a rule, when once formed, a governmental competition restraint is extremely difficult to remove.
From the point of view of the competition authority, it is a special challenge that it does not have similar powers to intervene with governmental competition restraints or public regulations in general as it does with competition restraints caused by business undertakings – unless it is a question of business conducted by public entities falling under the sphere of the Competition Act. The prevention of governmental competition restraints therefore basically deals with communications and compelling argumentation.
Methods and objectives
It is the FCCA's task to promote competition by offering expert services to decision-makers and other stakeholders of the office. The practical methods include initiatives, opinion, working group work, and other forms of communication.
The FCCA may make initiatives to dismantle rules and regulations restricting competition. The FCCA also issues opinions on regulatory and other lower-level reforms, and is represented in the working groups preparing them when the reforms have apparent impacts on competition and the markets. The FCCA promotes competition by communicating to business undertakings, consumers and those who decide about regulation on competition rules and the meaning of well-functioning markets with the purpose of preventing the creation of potential problems in advance.
In fact, the point of departure in modern advocacy is not the dismantling of regulation as such but smart regulation which refers to regulation that is quantitatively appropriate and qualitatively accurate and of a high level; its results can also be measured and it has genuine impacts. Smart regulation is genuinely necessary and its benefits outweigh its drawbacks.
One of the points of departure in modern advocacy is also that advocacy and the control of competition rules support and reinforce each other. The supervision of competition rules can in many instances be reinforced by advocacy, and advocacy lacks credibility unless it is connected to the powers pertinent to the monitoring of competition rules and the information received in the context of this work on the real problems relating to the functioning of the markets.
The resource limitations which inevitably relate to advocacy heighten the need to direct resources to larger entities instead of individual regulatory problems that are relatively small and consecutive. In practice, this endeavour concerns the de facto application of the principles expressed in both national and international programmes of better regulation in legislative work and regulation. Better regulation serves in itself the goal of safeguarding the proper functioning of the markets.
Better regulation and competition
The topic has been examined more widely in the publication Smart regulation – well-functioning markets (2011). In a manner better explained in the publication, four issues may be raised to a key position when assessing the objectives of better regulation from a competition law viewpoint.
- How has regulation been justified and how well do the arguments correspond to the justification provided for legislative steering in economics for example?
- What kind of standards has the appropriateness of regulation been built on?
- To what extent have the different regulatory options to solve the problem been investigated and how has the supremacy of these options been compared?
- Have the impacts of the chosen option been investigated in the first place and has the impact assessment been made appropriately?
In practice, underlying the questions mentioned is the thought that as a rule, regulation should be based on a clearly identifiable deficit in market operations, which is sought to be prevented through regulation.
Secondly, it should be determined what the standards of successful regulation are; in other words, to what extent the recognised problem can be influenced effectively so that the social benefits of regulation clearly exceed its drawbacks and costs.
Thirdly, it should be considered whether legislative steering is the most appropriate way to seek to influence the recognised problem in the first place or whether social-policy goals could be reached via other steering methods replacing or supplementing legislative steering.
Fourthly, the de facto impacts of the chosen regulatory or steering option should be assessed in practice using the appropriate methods for each situation.
There are no ready-made answers which would work in all situations. The functionality or appropriateness of regulation is ultimately an empirical question, which depends on the details of execution of the specific regulation and the circumstances prevailing in each case. In practice, legislation and regulation unravel into a group of detailed accounts of the various options, and the details of regulation frequently decide how successful a specific regulation can be deemed. Similarly, the applicability to the prevailing circumstances is often decisive for the practical functioning and appropriateness of regulation.
These viewpoints have been further explored in the publication Smart regulation – well-functioning markets, in which a group of individual industry examples has been examined from the perspective of safeguarding well-functional markets and the challenge of creating better regulation. The industry-specific examination is limited to sectors in which regulation is in one way or another a main element of the economic environment and which involves topical issues from the point of view of political decision-making.
Eleven industries have been chosen for a more detailed scrutiny, and they have been loosely classified into four subject matters which are networks, environment, public enterprises and others. In the order of presentation, the sectors are the following: 1) post, 2) broadband market, 3) banks, 4) employee pension scheme, 5) construction, 6) trade, 7) waste management, 8) municipal enterprises, 9) public broadcasting business, 10) taxi traffic 11) district heating.
The purpose of the sectoral examination presented in the publication has above all been to describe the regulatory problems in individual sectors as they have appeared from the point of view of safeguarding effective markets by the FCCA. The purpose of the sectoral examination has also been to pay attention to aspects in sectoral regulation which have apparent significance for the general discussion on better regulation.
Safeguarding competition neutrality
All advocacy work is not directly related to legislative steering. A good example of different kind of advocacy concerns competition neutrality, which is commonly related to the role of public authorities in the market. Generally, competition neutrality means safeguarding fair operating conditions for all market actors. However, a particularly meaningful question regarding competition neutrality is in the interface of private and public production.
Historically, the government has been a major actor in the Finnish economy. State-owned enterprises and public utilities have been a significant force in many markets. The municipalities have been responsible for arranging welfare services for their citizens. Because of recent developments, the line between public and private production has become obscured, however. Fields of public production have been opened up for competition. In some cases, public production has expanded into fields in which only private companies have previously operated.
As regards state-owned enterprises, the FCA had sought to ensure that they do not use their monopoly position or tax funding for the public-service tasks in a manner distorting the competed markets. The problem has been the still continuing partial protection enjoyed by public production, which affords both possibilities and incentives to artificial limitation of competition.
In recent times, the focus of the FCCA's advocacy function has shifted from the examination of state-owned business to municipal production activities. Even if the municipalities have the opportunity to decide how to produce the services, most municipalities produce the services themselves in their own organization. E.g. the economic difficulties of the municipalities and the ageing of the population add pressure to invent new solutions.
In this situation, the new marketised operating models may offer at least supplementary solutions to the traditional models in the challenges faced by the public economy. At the same time, these models may create competition neutrality problems in the interface of municipal and private production. The possibility to prevent these problems has been widely discussed in the working group report Local government operations in a competitive market environment and corporatization of operations (2010), in the drafting of which the FCA had participated.
Efficient competition control and advocacy implemented by the FCCA promote the transfer of the business operations of public actors to a more competition neutral direction and also provide tools in the work against the grey economy.
Read more about competition neutrality