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Coming Together . . . for What?

9:30 AM, Feb 16, 2013 • By IRWIN M. STELZER
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Then there are cases that require a mixture of cooperation and competition, among them competition policy itself. It is important for enforcement authorities to keep each other informed of studies of various markets, to share data when they can, and generally to cooperate in developing an understanding of how complex markets work. But it is equally important for them to compete with each other in developing ideas as to what constitutes market dominance and anti-competitive behavior. Thus, when antitrust enforcement lacked vigor during the reign of the elder George Bush, the European Commission continued its pursuit of anticompetitive acts, to the consternation of many U.S. politicians and the benefit of consumers. Competition among competition enforcers proved to be a good thing for the consumer.

So, too, when it comes to trade. Cooperation is required to set the rules of the game, but competition is required if consumers are to benefit from the efficiencies that flow from having the nation with the best, most competitively priced products win the game. Thus, it might be a good idea for nations to cooperate in setting health standards to govern trade in foodstuffs, or safety standards for automobiles. But it would be a bad idea for them to cooperate in determining which country will be allowed to sell which food and which auto products, in what amounts and at what prices.

Which brings us back to currency wars. Nations try to lower the exchange rate when they think that by devaluing their currency they make their goods cheaper in foreign markets. That, they reason, will encourage exports, spur economic and job growth. And they are right. Until their trading partners retaliate, or until their cheaper currency drives up the cost of imports, hitting consumers in their pocketbooks. As one prominent British merchant told me a few days ago, if the cheap pound means he can sell more to foreigners, he won’t complain if it also means paying more for imported cheese and wine. The teacher who has nothing to sell, but likes a bit of imported cheese and wine, might see devaluation a bit differently.

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