INTELLECTUAL ECONOMICS 2007, Number 1(1)Jens Hölscher, Johannes Stephan
EFFECTS OF EUROPEAN COMPETITION POLICY REFORM FOR CENTRAL EAST EUROPE – AN INSTITUTIONAL PERSPECTIVE
Mykolas Romeris University Publishing Centre. Vilnius. Lithuania 2007 Nr.1(1), p. 40-45
Firms in the new member states of the European Union (EU) in Central East Europe (CEE) have either emerged from a system of economic
planning (as privatised firms or part of such) or are newcomers. In any case, all firms today operate in a more or less
competitive environment within the space of the enlarged European market place. Alas, their performance is still weaker
than that of their competitors in Western Europe: levels of labour productivity are still much lower and only slowly
catching up in Europe’s East. Firms are only able to secure their competitiveness when calculating with much lower levels of
labour costs than in the West. A switch in technology paired with the necessary intensity of capital deepening would be necessary
to bring firms in CEE to the levels of competitiveness that allows for wages and earnings to catch up to western
levels. Moreover, a comparison of total factor productivity between firms in East and West shows that the productivity
gap is not only rooted in the strategic decision of firms to choose a labour-intensive production technology. Rather,
inefficiencies in the allocation of resources is still prevalent at the firm-level in the East. In an earlier
study, we found that enormous progress with the introduction and maintenance of the new
competitive order in the then accession countries was made, but also that quite a variety of national
differences prevailed (Hölscher/Stephan 2004).
From standard industrial organisation theory (the structure – conduct – performance concept) and grounded on the Schumpeterian paradigm, we can assume that intensity of competition and firm-performance are closely linked. Recent empirical literature involving firms in CEE convincingly show a positive the link between firm performance and product market competition or takes the shape of an inverted U-curve (see e.g. Carlin et al., 2003, for a literature review). Our own research indicates that next to human capital issues in general and managerial expertise in particular, the capital deepening issue accounts for a large share of the productivity gaps of firms in the East (Stephan, 2006).
The aims and objectives of this study are to answer the question whether the recent reforms in European competition policy are likely to help improving the effectiveness of competition policy in Europe to thereby increase the intensity of competition and hence competitiveness in the East. Following this introduction, we critically review the reforms in European competition policy. Part 3 discusses the likely effects of those reforms on policy effectiveness in CEE with particular emphasis placed on their local situation and regional particularities. The final part then concludes with some critical remarks about the recent reforms and discusses the future prospects of productivity catch-up in the current environment of competition policy.
Keywords: competition policy, anti-trust, Central East Europe.