Product market competition and economic performance in Finland

Abstract:

Following the deep recession in the early 1990s growth has been strong in Finland, but the scope for economic catch up remains considerable and cross country empirical evidence suggests that enhancing competition is an important means of achieving this. Structural reforms to strengthen competition in the early 1990s did boost growth and were also ahead of similar developments in the EU. However, indicators suggest that relatively weak competition remains in a number of sectors. Moreover, potential competition is reduced by a sparse population and relative long distances to large markets, which together with the prevalence of local monopolies and public ownership in many network industries, point to the need for greater vigilance to sustain and promote competition. Further reforms to promote product market competition should focus on fundamental changes in the regulatory approach as well as more incremental measures to intensify competition. The competition authority should concentrate resources on problems of horizontal collusion and the effectiveness of the new leniency programme should be improved. In addition, the role of the sector regulators should be enhanced to strengthen ex ante regulation of network industries, particularly to counter the market power of local monopolies and secure effective non discriminatory third party access. This should be combined with a more rigorous and transparent evaluation and competition neutral financing of universal service obligations. Further measures, aimed at levelling the playing field between public and private business, should include a broad based privatisation programme as well as the introduction of clear and transparent rules for public participation in market activities in addition to the establishment of an administrative public procurement authority to improve the functioning of this market.