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EXECUTIVE SUMMARY

Post-Soviet era economic liberalisation has hit a roadblock in the form of anti-competitive market distortions (ACMDs). Popular discontent with free-market capitalism, including the common sentiments of feeling “left behind” in a “rigged game”, is actually a reflection of these pernicious distortions. Local-content requirements, onerous and scientifically unnecessary technical standards, and the favouring of state-owned enterprises are just three examples of the sorts of barriers to entry and  competition-dampening policies which produce distortions. Distorted economies promote crony capitalism by enabling a few privileged gatekeepers to collect the gains from trade before they can be distributed to the public. The complexity and breadth of this issue have made it an especially difficult one for policy-makers to tackle.

Traditional multilateral trade negotiations have effectively reduced tariff barriers at the border, but wholly failed to address these behind-the-border barriers which directly affect competition. Some bilateral and plurilateral negotiations have enjoyed greater success in reducing distortions, but a recent political swing towards populism and protectionism across developed countries has ushered in a bleak immediate future for the “usual” forms of negotiation. Thus, we advocate concentrated liberalisation in specific zones and deep-integration trade agreements (including provisions on labour) between like-minded countries.

The failure to address competition policy can be witnessed across the global economy, from the oligarchs of the former Soviet Union to the cronies of Latin America who have dominated entire industries in their respective domestic markets. Especially in these developing economies, it is difficult, if not impossible, for governments to provide a remedy once a monopoly or monopsony power is in place. Distortion breeds corruption, which also creates an incentive for government officials to ignore consumer welfare and
promote anti-competitive regulations and policies. Maximising consumer welfare should be the singular goal of every trade agreement.

In this paper, we explain the methodology of our Distortions Index (DI), the first-ever attempt to quantify these distortions on a global scale across the areas of property rights, international competition, and domestic competition.

About the Economics of Prosperity

The Economics of Prosperity programme looks at how policy-makers can develop legal, economic and governance environments that deliver increased economic activity, generate jobs and lift their peoples out of poverty. Led by Shanker Singham, the programme produces papers, panels and seminars, including country studies that identify the constraints to economic growth and wealth creation.