The Visible Hand: Government Hand-Outs and Hand-ups

• Pages: 145-173

145

CHAPTER VII

THE VISIBLE HAND: GOVERNMENT HAND-OUTS

AND HAND-UPS

Andrew Renshaw



A. The Issue: How Do Courts and Competition Authorities

Regulate Government Intervention?

As any casual observer of economic and business media will note,

there is a perception that capitalism, as we know it, is under attack and

that the decisions of governments around the world to intervene heavily

in markets will diminish entrepreneurship, stifle innovation and,

ultimately, reduce consumer welfare. Nevertheless, it is also reasonable

to observe that our free market economies have not produced perfect

outcomes in recent months. Government intervention is required to

stabilize the economic system and to avoid the unacceptable social

consequences which would likely occur if market forces were left to

operate freely.

That being said, the general view remains that competitive markets,

on the whole, do deliver better outcomes than monopolistic ones.

Indeed, until the beginning of the financial crisis that began in 2008,

there was probably a greater global consensus on the desirability of

competition and free markets than at any time in the history of human

economic behavior. This is why competition policy has been so widely

embraced around the globe in recent years.

However, by and large, the competition law r egimes that have been

introduced in many of the world‘s jurisdictions typically regulate

business, and not state, behaviors. Laws designed to protect the process

of competition typically have four attributes. The first is rules to prevent

firms from entering into agreements that have the effect of restricting

competition, either between the firms or between them and t hird parties,

 Freshfields Bruckhaus Deringer, Brussels, Belgium. This paper contains

a concise and simplified overview of EU State aid law and is not intended

to provide legal advice.

146 Competition as Public Policy

and which do not have any beneficial features. Second, competition laws

are typically designed to control attempts by monopolists or firms with

substantial market power from abusing their position and preventing new

competition from emerging. Third, most systems of competition law

attempt to ensure that workable competition is maintained in

oligopolistic industries. Finally, the system will typically monitor

mergers between independent companies that may concentrate the

market and diminish the competitive pressures within it. But there are

very few competition law regimes that attempt to regulate government

intervention in the market and that have rules and principles allowing

courts and competition authorities to establish whether such intervention

is necessary, helpful, or harmful to consumer welfare.

B. The EU Compared with Other International Organizations

Although there are a number of international organizations that

purport to regulate government intervention, they do so only partially. In

the political world, the United Nations has such a role—but is deeply

constrained by its political nature. In the area of economics and

business, the World Trade Organization (WTO), the Organization for

Economic Cooperation and Development, the International Monetary

Fund, and others all have their part to play. But none of these

organizations has developed a uniform and detailed body of laws that is

systematically monitored and enforced by an independent competition

authority or court, and that also permits individual persons who suffer

damage as a result of a breach of those rules to obtain redress before

national courts.

Perhaps the most far-reaching and successful organization in

controlling and regulating the economic behavior of states and their

governments is the European Union (EU). Under EU law, the 27 EU

Member States are subject to more far-reaching supervision than is

generally the case under international law. The jurisdiction of the

European Court of Justice is compulsory and its judgments are binding

throughout the EU.1 In contrast, within the international legal order, the

International Court of Justice adjudicates only if there is voluntary

1. The specific competences of the Court of Justice are set out in the Treaty

Establishing the European Community, Nov. 10, 1997, 1997 O.J. (C 340)

3 [hereinafter EC Treaty], Part V, Title I, Chapter 1, Section 4, and, in

particular, EC Treaty art. 228, which obliges Member States to comply

with judgments of the Community Courts.