By Paul Hannon


Overhauls that make markets more competitive and open have largely stalled over the last half-decade, while a new focus on industrial policy makes it more important to tame the activities of lobbyists, the Organization for Economic Cooperation and Development said Wednesday.

The Paris-based policy advisory body reviews the regulatory framework of its 38 members and nine other economies including China every five years. While many efforts to boost competition and openness were made in the early years of this century, the enthusiasm of governments has waned over the last decade.

The OECD said that has contributed to a period of weak productivity growth, and is also in tune with a turn toward the use of subsidies and trade barriers to boost particular activities, known as industrial policy.

"Going back to reducing barriers to innovation and competition is key to offsetting and turning around the lower productivity growth we've seen over the past years," said Alvaro Pereira, the OECD's chief economist.

The OECD's review found that market regulations in China, South Africa and Turkey were most restrictive of competition, while Lithuania, Sweden and Ireland were least restrictive. The U.S. was more restrictive than the average of OECD members, but there are other factors that drive innovation and productivity growth, including access to finance and skills.

While some countries--including Brazil, Indonesia and Peru--have eased the restrictiveness of their rules over the five years since 2018, overall progress has been limited. Barriers to new entrants remain widespread, weakening competition. The OECD noted that most countries still don't have a single website that provides all the information needed to open a business, and only a few countries offer a one-stop shop where all procedures can be completed.

The OECD fears that a shift toward industrial policy might make further progress even more difficult, particularly if large, incumbent businesses are allowed to influence the political process.

Lobbyists are active in the U.S., but the OECD said it "has made significant efforts to impose disclosure obligations on policymakers and lobbyists to ensure transparency in these interactions." In many countries, no such disclosure is required.

"In other countries, ministers meet certain companies and nobody knows," said Pereira. "This protects incumbents. They are very powerful in many countries."

The OECD said "this regulatory void" enables those large incumbents with deep pockets to shape rules in their favor at the expense of smaller businesses and new entrants.

Against that worrying overall picture, the OECD identified France, Ireland, and Chile as having made "considerable efforts to regulate the interactions between policymakers and interest groups."

The OECD warned that some digital activities--including search engines, online marketplaces, cloud computing, and app stores--are particularly likely to suffer from barriers to entry and an absence of competition, preventing the diffusion of new technologies and raising productivity.

"Digital markets can easily teeter toward quasi-monopolies because, once a firm builds a substantial user base, the barriers to entry become quickly so high that they discourage rivals, no matter how innovative or efficient, from challenging incumbents," it said.

The regulatory effort to counter those tendencies is in its early stages, and the OECD noted that only the European Union, the United Kingdom, Turkey, and China have introduced laws to address them.

"The United States has put effort into assessing the competition challenges raised by the development of these markets," the OECD said. "Discussions are ongoing on how to address them, but no concrete steps have been taken so far."

The OECD also called for an easing of the many restrictions that govern the provision of services--such as legal advice and medications--but noted that the professions in particular have been able to marshal effective opposition to change.

"They are strong interest groups," said Pereira. "These are usually highly organized professions that have a strong interest in not opening up to competition."


Write to Paul Hannon at paul.hannon@wsj.com


(END) Dow Jones Newswires

07-10-24 0814ET