Chief economist tells EU how to cope with ‘supercommissioner’

Date: 17/06/04

By Peter Chapman

CRITICS of the dismal science may dispute it, but there are two types of economist.

Nerds who like to hide behind complex theories and systems of simultaneous equations. They usually keep themselves to themselves. The other kind of economists are the ones that lift their heads above the parapet.

These are self-confident types that people listen to. They often win prizes. Lars-Hendrik Röller, DG Competition's chief economist, is certainly one of the latter.

Take industrial policy and state aid. Both have grown in political importance in the wake of French attempts to save national champions Alstom and France Telecom from the chill wind of competition.

Röller is unabashed when it comes to entering the fray. He joked to a gathering of competition lawyers this week that he hopes state aid policy “will stay at DG Comp in the future”, despite the prospect of a Franco-German inspired supercommissioner to promote EU industrial power-houses.

But as the Union's leaders gathered to discuss the shape of the new Commission, Röller insisted that a supercommissioner would not necessarily clash with the work of DG Competition's battle against harmful mega- mergers or market-distorting state aid.

“On the issue of the supercommissioner I have to be very careful,” he admitted to European Voice.

“But there are two things that I can say. Generally, coordinating economic activities is in principle a good thing.

“I also believe that our competition policy rules are flexible enough ... to create large European firms that are competitive.”

In evaluating mergers, economies of scale are one obvious factor that will be taken into account. But his hypothesis is most apt, he says, when it comes to the potential impact of efficiencies - though proving they exist could be difficult.

The EU's new merger rules take explicit account of efficiencies that lower the price paid by consumers or promise greater choice.

On a technical level, Röller explains that DG Comp will take more account of efficiencies that will feed through to consumers in the short run, through lower variable costs, rather than the more common scenario of efficiencies that result, in the long-run, in lower fixed costs.

The latter will be cited more often by company bosses and their lawyers, but he insists they are less likely to be passed on to consumers. “I always say that an efficiencies argument is not a difficult one to make if efficiencies are there,” Röller says.

Finally, he says the Commission is not blind to the fact that innovation in some industries, such as pharmaceuticals, is subject to size.

State aid is perhaps even more vital in the industrial policy debate. Here, Röller admits to a wish for “greater clarity” in the policy objectives so that competition watchdogs and economists can take a more active role.

“The area of state aid is an area where in the future there could be changes and important contributions from economics.”

For example, there needs to be more scope for applying economic “rigour” to examine whether state aid is needed or not to correct so-called market failures.

“This is incredibly difficult to understand, though it is very easy to make the point.” Consumer issues ought to be taken more into consideration, too, he adds.

“If you want to save a large enterprise, the same sort of rigorous analysis should be performed [as in mergers] which ultimately ensures the success of the national champion. To the extent that that is not being compromised, I see no problems with coordination. But the general principles should be there.

“Ultimately that is what assures competitiveness and economic welfare for Europe. Anything else is counterproductive.

“There is another argument there and it is sometimes misused. That is the 'national champion' argument - a bit like the strategic trade policy argument.

“It is a bit of a race that ultimately doesn't help anyone. So clearly we don't want to end up in these sorts of situations. Again, sound economic analysis is necessary. Clearly, the political process is a different one.”

Will competition policy backed, of course, by sound economics survive the challenge?

“Certainly,” says Röller. “It is in the best interests of the European economy.”

Interview with Lars-Hendrik Röller, Chief Competition Economist in the European Commission's Directorate-General for Competition, in which he discusses the Franco-German idea of a supercommissioner to promote European Union industrial power-houses.