From Fragmentation to Cooperation: Boosting Competition and Shared Prosperity

IMF News, December 6, 2021

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Published: December 6, 2021

Introduction and framing

Keynote Address by Managing Director Kristalina Georgieva at the OECD Global Forum on Competition (December 6, 2021).
Forum marking 20 years of promoting rules-based competition; competition linked to innovation, jobs, productivity growth, and living standards.
Competition has direct relevance for the IMF’s work because the state of competition affects macroeconomic and financial stability.
Concern: global trends are “dampening, not deepening, competition,” driven by rising market power and forces of fragmentation in trade and geopolitics.
Central question: how to move beyond growing fragmentation to a cooperative approach that boosts competition and shared prosperity.

Macroeconomic harms from excessive market power and policy levers

Findings

Over the past twenty years, rising market power has hurt investment and output and weakened labor shares.
The IMF estimates that rising market power accounts for at least 10 percent of the decline in the share of income going to workers in advanced economies.
Firms with excessive market power often hold huge cash piles, making them less responsive to market rates and fiscal stimulus, which can blunt monetary and fiscal policy effectiveness.
Crisis-related market concentration could lower capital investment and innovation and could reduce the level of GDP in advanced economies by 1 percent in the medium term.

Policy levers and examples

Strengthen merger control (examples: Germany and Austria reviewing acquisitions of small players based on deal price).
Conduct market investigations to identify and act on issues early (examples: Australia and the United Kingdom).
Make labor markets more competitive: prevent “no‑poaching” pacts and stop non‑compete clauses for lower‑skilled workers in sectors such as retail and fast‑food.
Improve data portability and interoperability rules to increase digital economy vibrancy (analogy: phone number portability in the E.U. and U.S. bolstered mobile carrier competition).
Legislative and regulatory attention: the proposed E.U. Digital Markets Act and the American Innovation and Choice Online Act are stimulating useful discussion.
Adequate budgets for enforcement are critical.
Note: addressing market power and its harms is a long-term endeavor requiring perseverance by competition policymakers.

Three global trends that threaten competition — risks and policy options

Trend 1 — Technological decoupling

Risk description:
- Growing “digital Berlin Wall” from import/export restrictions and reduced scientific cooperation.
- A split (e.g., a U.S., E.U., and China “decouple”) would make it harder for firms to compete, entrench dominant tech players, reduce incentives to innovate, and fracture global tech standards and interoperability.
- Low- and middle-income countries may be forced to “choose sides,” facing higher prices, worse service, and diminished development prospects.
Quantified scenario:
- Depending on the scenario, decoupling could see global GDP losses in the order of 3 to 6 percent over the next decade or so.
Policy options:
- Close collaboration among competition, trade, national security, and cybersecurity agencies; include intellectual property and data privacy policymakers.
- Use OECD and other multilateral fora to disseminate best practices and enhance cross-border coordination.
- Coordinate enforcement so that addressing anti-competitive behavior by a large domestic firm is not undermined by equally powerful foreign competitors remaining untouched.

Trend 2 — Trade restrictions

Findings:
- Reducing foreign competition through trade restrictions strains supply chains, raises consumer prices, reduces innovation, and diminishes growth potential.
- In 2019, the IMF estimated that tariffs either created or raised in the previous two years had reduced global GDP by 0.4 percent.
- Many pre-pandemic restrictions largely remain in place and continue to hold back global output.
Pandemic-era dynamics:
- While early crisis responses included problematic trade policies, the pandemic did not result in full-blown protectionism in food, drugs, and medical supplies.
- Restrictions contributed to massive vaccine inequity, making the global recovery more uneven and fragile and increasing exposure to new variants (e.g., Omicron).
Policy priorities:
- Ease pandemic-era restrictions and re-invigorate the broader trade agenda.
- Support WTO-led efforts on trade-distorting subsidies, industrial tariffs, tradable services, investment, and e-commerce.
- Build on recent progress such as the WTO Joint Initiative on Services Domestic Regulation.

Trend 3 — Climate policy fragmentation and competition effects

Risks:
- Asymmetric or uncoordinated climate policies (large variations in carbon prices) can distort competition and risk “carbon leakage” where production relocates to jurisdictions with weaker mitigation.
- Border carbon adjustments, if poorly designed or uncoordinated, could disrupt climate cooperation and provoke trade retaliation.
Policy proposal and principles:
- Design policies that send the right price signals on climate while not undermining competition, trade, and investment.
- Work on equivalency of different carbon pricing approaches with partners, including through OECD collaboration.
- The IMF has proposed an international carbon price floor among large emitters that is described as efficient, practical, and flexible: it would allow regulations as well as explicit pricing, and differentiation among countries based on level of development.
- Goals of the proposal: ensure adequate reductions in global emissions, promote fairness, and support more evenhanded competition across industries and countries.

Conclusion and call to action

Fairness and evenhanded competition matter at both global and domestic levels.
The IMF’s global and country-level perspective highlights how policies interact domestically and globally.
Stronger cooperation is needed—between the IMF and OECD, between countries, and between national competition agencies and macro policy officials—to overcome fragmentation and protect competition.
Closing call: “Together, let’s spread the message far and wide—if you care about innovation, jobs, and broadly-shared prosperity, you must care about better competition policies!”

From Fragmentation to Cooperation: Boosting Competition and Shared Prosperity — Keynote Address by Managing Director Kristalina Georgieva at the OECD Global Forum on Competition (December 6, 2021).