public interest, the constitution and the healthcare inquiry

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Public interest, the Constitution and the Healthcare Inquiry: preventing patients

from becoming the victims of market failure

Timothy Fish Hodgson*†

29 August 2014

Competition Commission of South Africa: Eighth Annual Conference on Competition

Law, Economics & Policy

The public interest provisions of the Competition Act (“Act”) have been the subject of

scrutiny and debate since their enactment. This debate has focused almost exclusively on

particular provisions in the Act which specify public interest requirements. These include

section 12A, which regulates merger approval1 and Part C, which governs exemptions from

the application of the Act to practices or agreements which may otherwise be considered

“prohibited practices”.2 It is regrettable that the scope of the debate has not accounted for

the relevance of public interest throughout competition law, and that the perspective of

human rights lawyers has been conspicuously absent from this discussion.

This paper argues that elementary principles of constitutional statutory interpretation

require a more nuanced and broader understanding of the significance of the development-‐

focused public interest provisions of the Act. These provisions emanate strongly from the

Act’s preamble3 and purpose provision.4 The paper uses the Competition Commission’s

(“Commission”) inquiry into the private health care sector (“health inquiry”) as an instance

in which a constitutionally-‐informed, purposive interpretation of the Act ought to have an

explicit impact on a public interest motivated application of the Act. The upshot is that the

right to healthcare should be an ever-‐present consideration throughout the health inquiry

process.

*I am indebted to Meghan Finn, Trudi Makhaya, Shan Ramburuth, Shaista Goga, Umunyana Rugege, Sher-‐Muhammad Khan, Janneke Saltner, Sasha Stevenson and Michael Mbikiwa for their helpful thoughts and thought-‐provoking discussions on topic of this paper. I am also thankful to Justice Zak Yacoob, Lucia Villaran and Conor O’Hanlon for inspiring and piquing my interest in competition law as nearby as Chambers at the Constitutional Court of South Africa and as far away as icy Ann Arbor, Michigan.

† Legal Researcher at SECTION 27, B Bus Sci Law Hons UCT (2008), LLB UCT (2010), LLM.University of Michigan (2013). 1 Competition Act 89 of 1998, s 12A. 2 Id, Part C. 3 Id, Preamble. 4 Id, s 2.

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Part I argues that the Act’s entrenchment of a variety of development-‐focused public

interest goals must be interpreted consistently with the Constitution’s commitment to

“achieving equality”, economic transformation and the realisation of socio-‐economic rights.

Part II argues that the scope for application of these development-‐oriented public interest

goals is context-‐sensitive. It concludes that public interest purposes are most pertinent, and

can be applied mostly broadly, in the context of Commission initiated market inquiries.

Part III applies this analysis to the health inquiry.

I WHAT DIFFERENCE DOES THE CONSTITUTION MAKE TO THE INTERPRETATION OF

THE COMPETITION ACT?

Constitutional interpretation

The Constitution is the supreme law of South Africa. All law and conduct inconsistent with it

is invalid.5 The Constitution grants courts, as the ultimate guardians of the Constitution, the

power to determine whether laws and policy comply with constitutional standards. The

Constitutional Court has been emphatic that “[t]here is only one system of law. It is shaped

by the Constitution which is the supreme law, and all law … derives its force from the

Constitution and is subject to constitutional control.”6 The Act must therefore be “shaped by

the Constitution”.

Perhaps conscious of the discomfort that colonially-‐inspired legal culture, lawyers and legal

institutions would have developing, interpreting and reinterpreting all laws and policies in

light of the Bill of Rights and founding provisions, the Constitution explicitly guides the

process 7 To ensure the consistency of all law with the Constitution, the Constitution

expressly requires that “when interpreting any legislation … every court, tribunal or forum

must promote the spirit purport and objects of the Bill of Rights”.8 Therefore, though the

Constitution is not always determinative in legal interpretation, the Constitutional Court has

indicated, for example, “all statutes must be interpreted through the prism of the Bill of

5 S 2 of the Constitution. 6 Pharmaceutical Manufacturers Association of South Africa and Another: In re Ex Parte President of the Republic of South Africa and Others [2000] ZACC 1; 2000 (2) SA 674 at 44-‐5. 7 See, for example, K Klare ‘Legal Culture and Transformative Constitutionalism’ (1998) 14 SAJHR. 8 S 39 (2) of the Constitution.

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Rights”.9 This requires not only the consideration of the rights the particular statute aims to

protect and realise, but also the founding values of the Constitution including “human

dignity, the achievement of equality and the advancement of human rights and freedoms”.10

Indeed, the Constitutional Court has gone even further insisting that “the spirit of transition

and transformation which characterises the constitutional enterprise as a whole” and “the

Constitution’s goal of a society based on democratic values, social justice and fundamental

human rights” must be considered in the interpretive exercise.11 The Court has therefore

adopted a purposive, contextual and historically-‐sensitive approach to constitutional

interpretation.12 In sum, the Constitution, its aims, its project of transformation, its context

and its provisions – and most particularly the Bill of Rights – are central to the exercise of

interpreting any legislation, including the Act.

The Constitution and Economic Transformation

The right to equality and economic transformation

The Constitution rightly does not commit the state to any single economic system. It does,

however, require certain visions and actions on the part of the state that will necessarily

guide whichever constitutionally permissible economic system the state chooses. This is

informed by the broad, overarching goal of substantive equality; the Constitution, read a

whole, requires not only the establishment of formal legal and political equality but also

substantive economic and social equality.13 As the late Chief Justice Langa observed, the

transformation it envisages requires nothing short of “a social and an economic

revolution”.14 This is no easy task and may well require radical and proactive redistributive

measures which are not deemed necessary or desirable in other societies15 with differing

historical contexts and less transformative constitutions.

The Constitution captures the need for economic transformation in various provisions. The

second line of the Constitution “recognise[s] the injustices of the past”. The preamble then 9 Investigating Directorate: Serious Economic Offences and Others v Hyundai Motor Distributors (Pty) Ltd and Others In re: Hyundai Motor Distributors (Pty) Ltd and Others v Smit NO and Others [2000] ZACC 12; 2001 (1) SA 545 (CC) [Hyundai] at 21-‐6. 10 Id. 11 Id. 12 L du Plessis ‘Interpretation’ in S Woolman et al (eds) Constitutional Law of South Africa 2ed Vol 2 at 32-‐167-‐32-‐169). 13 See for example, National Coalition for Gay and Lesbian Equality and Another v Minister of Justice and Others (CCT11/98) [1998] ZACC 15; 1999 (1) SA 6 [National Coalition] at para 60. 14 P Langa ‘Transformative Constitutionalism’ Stell LR (2006) 3 351. 15 E Fox ‘Equality, Discrimination and Competition Law: Lessons from and for South Africa and Indonesia’, Vol 41 (2) Harv. Int’l.L.J 579 2000.

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continues to commit to “improve the quality of life of all citizens and free the potential of

each person”. The first section of the Constitution entrenches as a founding value not

merely equality, but the “achievement of equality”.16 The first right in the Bill of Rights,

provides for both the right to equal protection of the law, but also the right to “the full and

equal enjoyment of all rights and freedoms”.17

The Constitutional Court has been emphatic on the importance of equality, finding that “like

justice equality delayed is equality denied” 18 and that “it may well be that other

considerations may have to yield in favour of achieving the goal [of the achievement of

equality] we fashioned for ourselves in the Constitution.”19 Although the Constitution does

not demand the impossible it, at very least, requires the government to attempt to set out a

development agenda and economic policy capable of drastically reducing inequality.

Socio-‐economic rights and economic transformation

While Constitution does not prescribe how all or any particular market(s) must be regulated,

it does not allow for the treatment of all “markets” for goods and services as equal or

indistinguishable. Instead, it prioritises the provision of certain public goods, listed as a

comprehensive set of socio-‐economic rights, considered necessary for a dignified existence.

These rights include the right to have access to adequate housing,20 healthcare, food, water,

social security21 and education.22

These justiciable rights were not included in the Bill of Rights unthinkingly or mistakenly. In

the words of Nelson Mandela, arguing for the inclusion of justiciable socio-‐economic rights

in our Constitution as early as 1991: “we do not want freedom without bread, nor do we

want bread without freedom … A simple vote without food, shelter and health care is to use

first generation rights as a smokescreen to obscure the deep underlying forces which

dehumanize people. It is to create an appearance of equality and justice, while by

16 Constitution, s 1 (a). Emphasis added. 17 Id at s 9(2). Emphasis added. Contrast with the 14th Amendment of the US Constitution. 18 National Coalition at para 60. 19 Bato Star Fishing (Pty) Ltd v Minister of Environmental Affairs and Tourism and Others (CCT 27/03) [2004] ZACC 15; 2004 (4) SA 490 (CC) at para 76. 20 Constitution, s 26. 21 Id at s 27. 22 Id at s 29.

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implication socio-‐economic inequality is entrenched”.23 Our Constitution acknowledges that

socio-‐economic rights are as important as civil and political rights.

The Constitutional Court has acknowledged that the realisation of these rights is at the core

of the constitutional project, echoing Mandela’s words in its seminal Grootboom judgment:

“There can be no doubt that human dignity, freedom and equality, the foundational

values of our society, are denied those who have no food, clothing or shelter.”24

With the exception of basic education, which is “immediately realisable”25 and therefore

places more onerous obligations on the government, all of these rights require the state –

and all state institutions – continuously to take reasonable legislative and other measures to

realise progressively access to and enjoyment of socio-‐economic “goods” and “services”

within its available resources. This is an obligation to take proactive measures to ensure that

these rights are made “more accessible not only to a larger number of people but to a wider

range of people as time progresses”.26 It must do so “diligently and without delay”.27 The

positive duties applicable to all rights in terms of section 7(2) of the Constitution, which has

its genesis in international law,28 require the state to not only provide access to rights and

prevent the loss of existing access but also to “protect” the right by regulating how access

can be obtained through markets for rights.29 This can include the regulation of markets to

improve access to socio-‐economic rights through ensuring that they are more affordable.30

23 Mandela, N, On the Occasion of the ANC’s Bill of Rights Conference, 1991, in “A Bill of Rights for a Democratic South Africa” at 12. 24 Government of the Republic of South Africa and Others v Grootboom and Others (CCT11/00) [2000] ZACC 19; 2001 (1) SA 46 [Grootboom] at 23. See also the haunting words of Chaskalson CJ in Soobramoney:

“We live in a society in which there are great disparities in wealth. Millions of people are living in deplorable conditions and in great poverty. There is a high level of unemployment, inadequate social security, and many do not have access to clean water or to adequate health services. These conditions already existed when the Constitution was adopted and a commitment to address them, and to transform our society into one in which there will be human dignity, freedom and equality, lies at the heart of our new constitutional order. For as long as these conditions continue to exist that aspiration will have a hollow ring.”

25 Governing Body of the Juma Musjid Primary School & Others v Essay N.O. and Others (CCT 29/10) [2011] ZACC 13; 2011 (8) BCLR 761 (CC) at para 37. 26 Grootboom at para 45. 27 Constitution, s 237. 28 H Shue Basic Rights 2ed (1996) 52. 29 Minister of Health and Another v New Clicks South Africa (Pty) Ltd and Others (CCT 59/2004) [2005] ZACC 14 at para 32. Committee on Economic, Social and Cultural Right, General Comment No.14. ‘The right to the highest attainable standard of health’ [General Comment 14] at 51. 30 New Clicks at para 32.

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In addition, socio-‐economic rights may well place negative and positive constitutional

obligations directly on private parties who choose to participate in “markets” in which the

products and services traded are also entrenched rights.31

The net effect of the primacy of socio-‐economic rights within the Constitution on

competition law is thus clear. The Constitution requires, at very least, that socio-‐economic

rights, and their importance for respecting human dignity and achieving equality is

considered when interpreting the Act. When a market, subject to scrutiny in terms of the

Act, involves a product or service which instantiates a right entrenched in the Bill of Rights,

the competition authorities must take into account the Constitution’s stated entitlement

that the product or service is made progressively more accessible, affordable and equitable

to “everyone”.32 As a matter of constitutional interpretation, this is true whether in the

context of abuse of dominance, a merger approval, an exemption process, a market inquiry

or even a prohibited practice. Though the implications of this argument are far-‐reaching

they are a consequence of our constitutional dispensation. Competition authorities cannot,

therefore, shy away from these implications in fear of the increasing complexity that they

introduce.

History and aim of the Competition Act in the context of the Constitution

Though South Africa did have competition policy and regulations during apartheid and

before the passing of the Act, both the content of competition law and its enforcement left

much to be desired. The enforcer of competition law, the Competition Board, saw itself as a

distant “division” of the Department of Trade and Industry and operated in secrecy, with

little real independence from the influence of government and large, often state-‐supported,

corporate entities. The overall impact of weak and unconsolidated competition law and

policy and a largely ineffective enforcer appears to be a failure to “[inculcate] a culture of

respect for, and understanding of competition law” in South Africa.33

31 Constitution, s 8(2); Governing Body of the Juma Musjid Primary School & Others v Essay N.O. and Others [2011] ZACC 13; 2011 (8) BCLR 761 (CC) at para 54-‐65; See also Rugege U & Saltner J et al, ‘SECTION27 Submission On The Draft Statement Of Issues For The Market Inquiry Into The Private Health Care Sector’ (2014) available at http://www.compcom.co.za/assets/Uploads/AttachedFiles/MyDocuments/SECTION27-‐SUBMISSION-‐DRAFT-‐STATEMENT-‐OF-‐ISSUES-‐30-‐JUNE-‐2014.pdf. 32 The explicit wording of the Constitution allocates these socio-‐economic rights to “everyone”. 33 D Lewis, ‘Thieves at the Dinner Table: Enforcing the Competition Act’ (2012) [Lewis] at 22.

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It is little surprise, then, that in 1992 the African National Congress in its Policy Guidelines for

Democratic South Africa, argued for the need for strong competition policy. The Guidelines

note “the concentration of economic power in the hands of a few conglomerates has been

detrimental to the balanced economic development of South Africa.”34 This concentration

was so severe that as few as “six extremely large conglomerate groupings, most controlled

by their founding family, dominated the economy”.35 The wealth acquired by these white

families was as a result of deeply unjust apartheid laws and policies. Studies concluded that

many South African industries “exist only because of [the apartheid government’s]

protection and subsidies.”36 It is no surprise that this lack of competitiveness spilled over

into our democratic dispensation; between 1994 and the end of 1997, South Africa was

ranked as among the “three or four least competitive of the major trading nations”.37 This

explains the attitude of those who came to power in 1994 towards the corporate economy

and is essential to an understanding of the multifarious purposes of the Act, enacted in

1998.38

Shortly before the Act’s promulgation, the Department of Trade and Industry produced

“Proposed Guidelines for Competition Policy” (“Proposed Policy”). This document, subtitled

“A Framework for Competition, Competitiveness and Development”, clearly carried with it

the tension between the ANC’s support for a competitive, efficient economy and the need

for a broader developmental approach to competition law.

Already consciously contemplating the presence of public interest provisions in the Act, the

first chapter of the Policy states that “the overriding goal is to achieve a more effective

economy in South Africa and this in turn requires us to better define what is meant by the

public interest with respect to South Africa’s corporate structure and firm behavior.” It then

goes on to explain that the public interest expands beyond sectional and constituency-‐based

interests.39 Instead, core to the document’s understanding of public interest for a “uniquely

34 Department of Trade and Industry, ‘Proposed Guidelines for Competition Policy: A Framework for Competition, Competitiveness and Development’ (1997) [Proposed Guidelines] at p 3 available at http://www.compcom.co.za/assets/Files/ProposedGuidelinesforCompetitionPolicy.htm. 35 G Makhaya & S Roberts ‘Expectations and outcomes: considering competitition and corporate power in South Africa under democracy’ Review of African Political Economy (2013) Vol 40 (138) 556 [Makhaya & Roberts] at 557. 36 Proposed Guidelines at p 18. 37 Id. 38 Lewis at 7. 39 Proposed Guidelines at 3.

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South African competition policy” was to be “the combination of competitiveness and

development”.40

Development in turn, the policy document explains, is preoccupied with “a redistribution of

income and opportunities to favour the poor; a society in which health, education and other

services are available to all”.41 The document then explicitly concludes that, to extend access

to economic activity to those who have been previously excluded and to achieve

redistributive goals, competitive markets must be supplemented.42

The drafters of the Act clearly envisaged legislation that did not only perform the traditional

function of policing markets to ensure their efficiency. Instead, the Act was crafted to ensure

the creation of competition authorities and a competition regime that would contribute

towards the process of radically restructuring of the South African economy. This economic

transformation extends to ownership patterns and barriers to accessing basic resources that

plague post-‐apartheid South Africa.43

Constitutional interpretation and the Competition Act

It is not, however, only the discussions leading up to its promulgation which warrant this

understanding of the Act. Instead, the purposes of economic transformation and the

achievement of substantive equality are explicitly internalised throughout the Act. Its

preamble articulates broad and far reaching aims. The Act begins with an acknowledgment

that current economic systems and patterns of “excessive concentrations of ownership and

control” were as a result of “discriminatory laws and practices”.44 The Act therefore clearly

acknowledges that in addition achieving a “more efficient and effective economy”, it is

premised on regulating “the transfer of economic ownership in keeping with the public

interest.”45

40 Id at 4. 41 Id at 7. 42 Id at pp 5, 3 and 12. 43Makhaya & Roberts; Hodge et al ‘Public-‐interest provisions in the South African Competition Act: A critical review’ in K Moodaliyar and S Roberts eds The Development of Competition Law and Economics in South Africa (2012) [Hodge et al]; T Sekgobela ‘Can socio-‐economic justice be adequately addressed through the competition law system: A look at efficacy of structural remedies in abuse of dominance matters in light of the structure of South Africa’s economy’ (4 October 2011), Fifth Annual Competition Law, Economics & Policy Conference [Sekgobela]. 44 Preamble to the Competition Act. 45 Id.

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To ensure that the institutions tasked with these aims take them seriously, the Act contains

an explicit purpose provision which gives specific detail and content to these broad goals. In

addition to the “traditional” competition law aim of promoting economic efficiency,46 the

Act also aims at promoting a greater spread of ownership,47 ensuring the participation of

small and medium sized enterprises,48 promoting employment, and advancing the “social

and economic welfare of all South Africans”.49 These purposes have been affirmed by the

Constitutional Court in emphasising the importance of the Competition Commission and

Tribunals’s roles and powers.50 Regardless of whether these “non-‐economic” objectives are

described as “developmental”, “distributional”, or “equity-‐based”, what is apparent that the

Act “deliberately sets out both equity and efficiency-‐based goals” to ensure that

competition law and markets truly exist for the “benefit of all South Africans.”51

Leaving no doubt that the interpretive approach adopted by the Constitutional Court applies

to the Act, section 1(2) explicitly requires an interpretation consistent with both the

purposes provision of the Act and the Constitution.52 This approach must not be treated

suspiciously, and followed grudgingly, by befuddled lawyers and economists to the

detriment of society. Rather, given the vagueness and value-‐oriented nature of the

economic analysis, it is a perfectly understandable – and indeed desirable -‐ approach. In

their analysis and exercise of guided discretion, it is therefore crucial that competition

authorities keep in mind “the history, and social political and economic context of the Act”.53

This is irrespective of which provision of the Act or process or procedure of a competition

authority is being subjected to interpretive scrutiny.

Does the Act rank the purposes of competition law?

46 Id, s 2(a). 47 Id, s 2 (f). 48 Id, s 2(e). 49 Id, s 2(c). 50 Competition Commission v Yara South Africa (Pty) Ltd and Others [2012] ZACC 14; 2012 (9) BCLR 923 (CC) [Yara] at 49; Competition Commission of South Africa v Senwes Ltd [2012] ZACC 6; 2012 (7) BCLR 667 (CC) [Senwes] at 69. 51 Senwes at 69. 52 Competition Act, s 1 (2). 53 P Sutherland & K Kemp ‘Competition Law of South Africa’ (2013) Service Issue 17 [Competition Law of South Africa] at 4-‐11-‐4-‐12.

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Leading texts on South African competition law assume that “non-‐economic”,

“developmental” or “equity-‐focused” public interest purposes and criteria in competition

law are:

a) Supplementary or secondary to promoting competition, which is implicitly assumed

to require an isolated analysis of market efficiency (“supplementarity argument”);54

and

b) Mostly of application in the field of merger approval and exemptions (“restrictive

application argument”).55

Supplementarity argument

The argument that the developmental public interest goals are supplementary -‐ mere non-‐

economic icing on the efficiency cake -‐ has both ideological and textual roots. The

ideological argument – that competition law would do better to consider only narrow

economic interests – is easily rebutted by both the Act’s preamble and the clear and well-‐

documented negotiating and drafting processes which lead to its enactment, detailed above.

As Lewis notes, given the “character of South Africa’s new political regime it is clear that “no

major piece of socio-‐economic legislation would have passed muster” without clear public

interest provisos.56

Despite this, Brassey et al conclude “the principal goal of competition law is to ensure that

the trade remains free and markets are kept open”.57 Competition Law of South Africa goes

further, even contemplating the Act’s approach, which privileges goals other than only

efficiency, as “a mistake of a bygone era”.58 It then cites approvingly an argument that

anything but the narrowest interpretation of the purposes section of the Competition Act

would “transform it from an antitrust statute, albeit with a public interest aspect, into an

unchecked vehicle for redistribution”.59

But as Sekgobela correctly notes, “the legislature’s inclusion of [broad developmental public

interest purposes] cannot be relegated to some oversight on its part or even undisciplined

54 Hodge et al at 10. 55 Id. 56 Lewis 40-‐41, 118. 57 Brassey et al ‘Competition Law’ 1ed (2002) at pp 2, 20. 58 Competition Law of South Africa at 1-‐53-‐1-‐54. 59 Id at 1-‐56.

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enthusiasm”.60 Unlike academics, economists and lawyers, competition authorities are not

at liberty to engage in speculation, questioning whether the Constitution’s proactive and

expansive approach to development, which is internalised and expressed in the Act, will

“plunge competition law into chaos”.61 Although tasked with interpreting, implementing and

adjudicating the Act, their discretion must be exercised within the Act’s ideological

parameters.

The authors of Competition Law of South Africa interpret section 2 of the Act to incorporate

a singular purpose: “the purpose” to “promote competition… in order to achieve” the goals

listed in subsections (a)-‐(f).62 This is an untenable interpretation, given the Act’s extensive

list of “mutually supporting” purposes, which cannot be assumed to have been redundantly

included in the Act for a number of reasons.

First, this section, along with the rest of the Act, must be interpreted generously,

purposively, contextually and consistently with the Constitution. 63 Any reasonable

interpretation consistent with the Constitution is to be preferred.64 Relegating the so-‐called

“non-‐economic” purposes of the Act to secondary status cannot be seen to advance the

constitutional project of transformation, nor can it be ideologically reconciled with the

Constitution’s emphatic commitment to the realisation of socio-‐economic rights and the

redistribution of wealth, which the Act echoes. The “supplementarity argument” implies

that competitiveness leads to development, making the latter additional or supplementary

instead of a “mutually supporting” complementary objective as envisaged by the Act’s

drafters.65 But this distinction conceals a subtle yet significant shift in the ideology, which

the Act does not allow.

Second, the plain language of the Act does not require this interpretation. The introduction

to the purpose section of the Act indicates that the purpose of the Act is to “promote and

maintain” competition. While it is arguable, depending on one’s ideological vantage point,

that the promotion of competition necessitates a singular economic focus, this approach

becomes significantly less plausible given the purpose to both promote and maintain

60 Sekgobela at 5. 61 Competition Law of South Africa 1-‐58-‐1-‐59. 62 Id 1-‐56. 63 S 39(2) of the Constitution; Hyundai. 64 Hyundai. 65 Hodge et al at 2.

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competition. Maintaining competition may well require a more holistic and long-‐term

approach which understands that the security, stability and efficiency of markets are

dependent on a stable socio-‐economic environment. Fox argues that competition law in

developing countries should be seen in a “larger context”. This perspective regards “free-‐

market rhetoric” and the exclusive efficiency-‐focus of competition law in developed

countries as inappropriate for “disproportionately advantage[s] the already advantaged in

every game played”.66 Acemoglu and Robinson argue convincingly that shortsighted focus on

economic efficiency and the prevention of market failures, to the exclusion of an

appreciation of politics and the political economy, often results in future market failures:67

“Economic reforms implemented without an understanding of their political

consequences, rather than promoting economic efficiency, can significantly reduce

it.”

This is particularly pertinent in the context of a post-‐apartheid South Africa, where there is

increasing unrest about the need for economic transformation, particularly given increases

on “world-‐beating” levels of inequality over the first twenty years of constitutional

democracy.68. Future “market failures” and humanitarian disasters caused by a failure

properly to confront the immediate harms of continued poverty and inequality in the South

Africa may well be caused by a blinkered focus on market inefficiency in classical economic

sense today. Of course, as Acemoglu and Robinson note, these future market failures are

potentially enormous and far-‐reaching, and often manifest in the form of widespread civil

unrest, revolt and violent or non-‐violent revolutions which seek to overthrow, rather than

adapt and reform, markets. 69 This approach is consistent with the integrated, holistic

approach of the Act, which departs from a traditional approach to competition analysis, as

“competition is somewhat unique in the world of economic analysis by remaining narrowly

focused on a single market”70 at a particular point in time.

66 E Fox ‘Economic Development, Povery and Antitrust: The Other Path’ South Western Journal of Law and Trade in the Americas (2007) Vol 13 101 at 104-‐5. See also Sekgobela at 8. 67 D Acemoglu & J Robinson ‘Economics versus Politics: Pitfalls of Policy Advice’ NBER Working Paper No. 18921 (2013) available at http://economics.mit.edu/files/8741. 68 N Coleman ‘Why the NDP must be redrafted’ (2013) http://www.politicsweb.co.za/politicsweb/view/politicsweb/en/page71639?oid=367649&sn=Detail&pid=71639. 69 Id. 70 Hodge et al at 13; Proposed Guidelines throughout; and see also the preamble, purpose section, merger and exemption provisions of the Act and the mention of industrial and labour policy throughout.

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Restrictive application argument

The restrictive application argument asserts that public interest factors only come into play

for merger analyses and exemption decisions, because these sections of the Act have

specified – and limited – public interest requirements.71 As shown above, this is plainly

incorrect as a matter of constitutional and statutory interpretation.

What is more plausible in the context of mergers and exemptions is that the legislature

sought to ensure that specific factors such as employment, protection of small businesses,

protection of firms owned by historically disadvantaged persons, and the ability of national

industries to compete internationally “must” be considered, for example, “when

determining whether a merger can or cannot be justified on competition grounds” in

determinations by the competition authorities.72 The plain wording of the Act does not limit

competition authorities and other interpreters of the Act to only or exclusively consider

these factors. It seeks to ensure that these factors are always considered as relevant to

merger and exemption analysis. This means that, as with the rest of the Act, the broad

public interest purposes detailed in the purposes provision, as informed and supplemented

by the Constitution, may well be considered where appropriate. This is so even in cases

where the Act enumerates specific public interest conditions to be considered.

Interpreted correctly therefore, the legislature’s choice to emphasise public interest criteria

in the performance of certain functions of the competition authorities simply cannot be

interpreted to limit the application of the non-‐economic purposes to only those provisions.

If anything, the determination to explicitly (but non-‐exhaustively) require the consideration

of certain public interest criteria with regard to the merger and exemption provisions only

serves to highlight the importance and centrality of non-‐economic public interest

considerations to the Act as a whole, and the legislature’s preoccupation with ensuring that

they are not disregarded.

II WHAT DIFFERENCE DOES A CONSTITUTIONAL AND PUBLIC INTEREST

INTERPRETATION OF THE ACT HAVE ON COMPETITION AUTHORITIES’ FUNCTIONS?

71 See section 12A and Part C of the Competition Act. 72 Id.

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The Competition Commission is the primary enforcer of the Act. It bears a large and varying

range of statutory duties and functions.73 The Constitutional Court has acknowledged the

Commission’s centrality to the enforcement of the Act, describing it as “the lifeblood of the

Act”.74 If the Commission is the “lifeblood of the Act”, then the Tribunal is its heart monitor,

ensuring that not only market players but the Commission itself are kept in check and

operate fairly, effectively and in keeping with the purposes of the Act. It may adjudicate on a

broad range of issues, including appeals or review of decisions of the Competition

Commission.75 In words of the Constitutional Court, the Tribunal “plays a vital role in

creating an open economic environment in which all South Africans can have equal

opportunities to participate in the national economy”.76

As the core competition authorities, the Commission and Tribunal are largely responsible for

ensuring both the effective implementation and adjudication of the Act, and safeguarding

the execution of its broad purposes through the process of its implementation and

adjudication. Indeed, the powers of the Commission and Tribunal are to be interpreted

broadly in keeping with the purposes of the Act.77

Though the relevance of public interest requirements to the implementation and

adjudication of the Act is pervasive, the exact degree to and manner in which public interest

applies may well vary depending on the function being performed by the Commission or

Tribunal. The Tribunal itself has acknowledged that the functions that it performs are

distinct “both procedurally in terms of the Act and rules, and in terms of the interests that

may be advanced.”78 This “functional heterogeneity” of both Tribunal and the Commission

requires not only “procedural variation” but also interpretive variation.79

While it is difficult to predict or determine in the abstract which functions require what

interpretation, it is clear that the Commission when, exercising its powers to initiate market

inquiries, is executing a function which is central to the developmental purposes of the Act.

73 Competition Act, s 21. 74 Yara at para 49. 75 Competition Act, s 27. 76 Senwes at 19, 57. 77 Id at 65. 78 Nutri-‐Flo CC / Nutri-‐Fertilizer CC and Sasol Limited / Sasol Chemical Industries (Pty) Ltd / Kynoch (Pty) Ltd / Nitrochem (Pty) Ltd / Competition Commission (61/IR/Nov2003) [2004] ZACT 23 (31 March 2004) at 62-‐4 79 Id.

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And many of the objections to and risks associated with a broad application of

developmental public interest purposes to prohibited practices or merger proceedings are of

less weight in the context of market inquiries. There are a variety of reasons for this.

First, market inquiries are directly purposed at broad investigation of entire sectors in order

to provide the Commission with information about the structure of the various markets

within that sector. Market inquiries are, by definition, truth-‐seeking exercises aimed at

creating understanding of complicated, intertwined markets. These markets must be

investigated, analysed, assessed and evaluated by the Commission, economic policy makers

in the executive, members of parliament and the public at large.80 The proceedings of a

market inquiry are non-‐adversarial. No particular firm’s interests are directly affected and,

unless the Commission decides to use the information acquired to initiate a complaint, there

is no reason to resist policy analysis in the form of public interest consideration out of

concern for the rights of particular firms. Firms ultimately consent to operate in markets

subject to the rules which govern and regulate them. The purpose of a market inquiry is to

evaluate the consistency of these rules with competition law and its purposes, rather than to

prosecute or interrogate the behavior of a particular firm.

Although merger evaluation proceedings and exemption proceedings necessarily and

definitionally also involve analysis of pre-‐ and post-‐merger market structures, neither the

Commission nor the Tribunal is empowered to make any changes to the existing pre-‐merger

market structure, however unjust and inequitable it may be. Merger evaluations are

necessarily reactive to one or more of the relevant entities’ attempts to merge, and can at

best prevent a deepening of structural problems. Market inquiries, on the other hand, can

and should be proactive and are the appropriate forum to rethink and re-‐examine existing

structures.

Second, in the South African context the initiation of market inquiries to assess overly

concentrated market structures, many of which are a legacy of apartheid, is long overdue.

The introduction of competition law was initially planned to be accompanied by a 80 Rugege, U & Hodgson TF ‘SECTION27 submission on the draft guidelines for participation in the market inquiry into the private health care sector’ (2014) available at http://www.compcom.co.za/assets/Uploads/AttachedFiles/MyDocuments/SECTION27-‐SUBMISSION-‐DRAFT-‐GUIDELINES-‐FOR-‐PARTICIPATION-‐30-‐JUNE-‐2014-‐.pdf; Myburgh, A ‘Development, politics, competition and bread: Lessons from South Africa’ (2013) http://blogs.worldbank.org/psd/development-‐politics-‐competition-‐andbread-‐lessons-‐from-‐south-‐africa.

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Commission investigating the structure of the South African economy for precisely this

purpose.81 That Commission never saw the light of day. Business has largely proceeded as

usual in the context of the deeply unjust and inequitable history described above. Though

the new competition regime under the guidance of the competition authorities has

attempted to regulate mergers and put a halt to prohibited practices and abuse of

dominance in South Africa, very little has been done to address the highly concentrated

nature of key South African markets or to unwind unfair advantages accrued as a result of

apartheid.

Third, perhaps frustrated at the failure of the new competition regime to get to the core of

the structural problems in South African markets, the power to initiate market inquiries was

introduced by the legislature in 2009 through an amendment to the Competition Act.82 To

ensure the effectiveness of these powers, the legislature took great care to word them

broadly and link the initiation of inquiries to the core purposes of the Act. This is presumably

because of the need to empower the Commission to fulfill its envisioned role in the process

of economic transformation and market restructuring, given restrictions placed by courts on

the breadth of the Commission’s investigatory powers in the form of the complaint initiation

and referral process. The Supreme Court of Appeal warned that the Commission could not

go on “fishing expeditions” in overly-‐zealous attempts to accomplish its mandate.83 The

narrow interpretation of these powers has significantly kneecapped the Commission’s ability

to perform its mandate through the complaint initiation and referral process and has led to

mountain of litigation.84

With this in mind, the Amendment Act allows the Commission to initiate inquiries either on

its own initiative or at the request of the Minister of Economic Development.85 Importantly,

it may do so either because it has reason to believe that features of a market distort or

restrict competition or to achieve the “purposes” of the Act. 86 This is a crucial

81 White Paper on Reconstruction and Development (1994), Notice No. 1954 of 1994, Government Gazette Vol 353 No. 16085 at 25 s 3.8. “The Government will establish a commission to review the structure of control and competition in the economy, and develop efficient and democratic solutions.” 82 Competition Amendment Act 1 of 2009 [Amendment Act]. 83 Woodlands Dairy (Pty) Ltd and Another v Competition Commission (2010 (6) SA 108 (SCA); [2011] 3 All SA 192 (SCA)) [2010] ZASCA 104 at para 20. 84 See South African Breweries and Others v Competition Commision (134/CR/DEC07) [2011] ZACT 73 (16 September 2011) at PART B. 85 Amendment Act at s 43(B)(1). 86 Id.

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acknowledgment that the multifarious purposes of the Act, including those which are

development-‐oriented, alone, are sufficiently important aims of the Act to warrant a

thorough investigation of markets in the form of a market inquiry. This is confirmation, a

decade and half after the Act’s adoption, of the continued importance of the Act’s broad

purposes. It also lends further support to the interpretation of the Act espoused above: why

would it be necessary to empower the Commission to initiate market inquiries for the

traditional competition-‐promoting, market efficiency-‐based reasons in section 43(B)(1) or to

achieve the purposes of the Act, if the Act’s sole purpose is to achieve traditional

competition promoting purposes? Furthermore, the Amendment Act acknowledges the

importance of market inquiries, by ensuring that the Commission is provided with the

procedural flexibility required to conduct them effectively. The Amendment Act only

requires some of the standard rules in terms of the Act to apply, subject to “changes

required by the context”. It also generally allows the Commission wide berth to conduct a

market inquiry in “any manner”.87

Fourth, this flexibility allows the Commission to piece together teams or panels of experts to

conduct inquiries with particular expertise in the relevant sector. This specified expertise

alleviates concerns about wide-‐ranging, far-‐reaching policy analysis, paying particular

attention to developmental public interest concerns germane to the market or sector under

scrutiny. Furthermore, unlike the Commission and Tribunal panels whose resources and

varied commitments make a detailed understanding of particular markets more challenging,

an inquiry panel is better placed to perform far-‐reaching policy analysis. Inquiries panels are

likely to be equipped with existing expertise relevant to the market in question and are able

to commit their undivided attention over a lengthy period of time to further study of the

nuances of the entire market or sector.88 A panel of this nature also has the benefit of access

to submissions from a wide range of stakeholders from the industry, civil society,

government and state institutions. This is not likely to be available in the same degree

87 Id, s 43(B)(3). In particular see 43(B)(3)(a), (c), (d) and 43(C)(2). 88 Terms of Reference for market inquiry into the private healthcare sector, Notice 1166 of 2013, Government Gazette Vol 581 No. 37062 [Terms of Reference]. The Terms of Reference for the health inquiry were gazette on 29 November 2013. Though delayed, he health inquiry was set to commence on 6 January 2014 with the final report set to be produced by 30 November 2015, two years after the publication of the Terms of Reference.

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during the time-‐constrained adjudicative proceedings involved in the performance of other

functions in terms of the Act.89

It is therefore clear that the nature of market inquiry proceedings as proactive non-‐

adversarial, truth-‐seeking exercises is perfectly suited to detailed policy analysis required for

developmental public interest considerations to be accounted for. Market inquiries are at

the core of the ability of competition law to contribute to the constitutional project of

economic transformation.

III THE COMPETITION COMMISSION’S INQUIRY IN THE PRIVATE HEALTH CARE

MARKET

The private health care sector involves many markets and a variety of different regulators

governed by a complicated and detailed regulatory framework. 17% of all South Africans –

nearly 9 million people – access their right to healthcare services through this sector.90

The Commission has initiated a market inquiry into the private healthcare sector in terms of

Chapter 4A of the Competition Act to investigate the causes of high and increasing “cost,

prices and expenditure” in the sector.91 Importantly, in initiating inquiry, the Commission

acknowledged that it did so in keeping with the “purpose and function of the Commission

set out in section 2 and section 21 of the Act”.92 While there may be several rights that are

relevant to this inquiry process,93 the most directly implicated right is the right to have

access to health care services. In a recent judgment, the South Gauteng High Court

concluded that the healthcare inquiry itself is a “constitutional measure” taken by a state

institution in the fulfillment of the state’s constitutional obligations in terms of the right to

access to healthcare services.94

The right to access health care services places a duty on the state to regulate the private

health care sector so as to ensure that it is affordable and accessible. The Constitutional

89 Over 25 public submissions were made on the Panel’s Draft Statement of Issues and Draft Administrative Guidelines and 39 submissions were made on the Competition Commission’s Draft Terms of Reference for the Inquiry. 90 Terms of Reference at s 2.1. 91 Id at s 3, p 80-‐1. 92 Id at s 1, p74-‐5. 93 Rugege U & Saltner J et al above n 31. 94 Netcare Hospitals (Pty) Ltd v KPMG Services (Pty) Ltd and Another (47505/2013) [2014] ZAGPJHC 186 [Netcare] at para 28.

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Court held in New Clicks that “[g]overnment is entitled to adopt, as part of its policy to

provide access to health care, measures designed to make medicines more affordable than

they presently are”.95 This comment is clearly of more general application to the entire array

of healthcare services that comprise the right. Furthermore, this entitlement appropriately

to regulate healthcare markets is part of the state’s duty to take reasonable and other

measures to progressively realise the right to health. This interpretation of the right to

healthcare is bolstered by the duty to protect this right in terms of section 7(2) of the

Constitution read with General Comment 14 on “The right to highest attainable standard of

health”.96

In its Terms of Reference for the inquiry, the Competition Commission, encouraged by

submissions of civil society stakeholders,97 acknowledged the relevance of the right to

access to healthcare services. The Terms of Reference describe as a “rationale for a market

inquiry” that, “private health care provision takes place within the context of this

constitutional commitment to the provision of universal healthcare services to all people in

South Africa”.98 It is crucial that the Panel and Commission bear in mind not only the

constitutional obligations of state institutions but also market participants in the private

healthcare sector. When individuals and private companies select to trade in a “market” for

healthcare, they take on significant responsibility for the health and livelihood of the millions

of people who use this market to access their constitutional rights. Market participants in

the private healthcare sector therefore take on not only moral obligations, but also

significant direct constitutional obligations in terms of the right to access to healthcare

services.

The Commission has appointed a “panel of experts”, headed by former Chief Justice Sandile

Ngcobo, to facilitate the inquiry process. The Panel, has, through a consultative process

involving an opportunity for public comment produced a “statement of issues" to be “read

in conjunction with the Terms of Reference”.99 Informed by the submissions of civil society

stakeholders,100 the National Department of Health101 and COSATU,102 the statement of

95 New Clicks at para 32. 96 General Comment 14 at 30-‐37, 51. 97 SECTION27 submissions on the Draft Terms of Reference. 98 Terms of Reference at p 80. 99 Final Statement of Issues (2014) available at http://www.compcom.co.za/assets/Healthcare-‐Inquiry/2-‐FinalStatement-‐of-‐Issues31072014.pdf. 100 SECTION27 Submissions on the draft Statement of Issues.

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issues further specifies the relevance of the right to healthcare by emphasising it “also

informs the exercise of the competition assessment that it must undertake”.103 The Panel

also acknowledges that “various features” set the “distinctive” healthcare market apart from

“conventional commodity markets” although unfortunately does not explicitly state that the

fact that healthcare is a right is one of the distinguishing features of this market.104

Recent “consolidation” of major markets within the sector, through “creeping mergers”105 –

which individually are too small to receive competition scrutiny in terms of the Act but

cumulatively increase concentration of markets significantly – has resulted in several key

markets being very highly concentrated.106 This means that one of the Act’s major defensive

mechanisms – merger control – seems to have been ineffective in controlling the swelling

market power. Indeed one of the objectives of the inquiry is to investigate the impact of

these and other “interventions” of the Commission on the sector.107 The failure of the other

mechanisms of the Act effectively to curb the cost of private healthcare to patients from

spiralling, is an additional reason for a patient-‐focused, right to healthcare informed, public

interest motivated approach to the health inquiry.

It is crucial that throughout its processes the Panel, and, ultimately the Commission (in

making recommendations to regulators, the legislature and the executive on amendments

to policy and legislation108 and submitting its report to the Minister and tabling it in

Parliament) remain constantly and acutely aware of both the import of the right to

healthcare and the broad developmental public interest purposes of the Act.

101 National Department of Health Submissions on draft Statement of Issues available at http://www.compcom.co.za/assets/Uploads/AttachedFiles/MyDocuments/NDoHResponse-‐to-‐Draft-‐Statement-‐of-‐Issues20140630.pdf. 102 COSATU submissions on the draft Statement of issues available at http://www.compcom.co.za/assets/Uploads/AttachedFiles/MyDocuments/U-‐Draft-‐Submission-‐on-‐Statement-‐of-‐Issues-‐and-‐Guidelines-‐for-‐Participation-‐in-‐Competition-‐Commission-‐Health-‐Inquiry-‐2014.pdf. 103 Statement of Issues (2014) at 7. 104 Id. 105 See, for example, G Robb, ‘Creeping mergers – should we be concerned? A case study of hospital mergers in South Africa’ available at http://www.compcom.co.za/assets/Uploads/events/Seventh-‐Annual-‐Conference-‐on-‐Competition-‐Law-‐Economics-‐Policy/Paralles-‐1B/Creeping-‐mergers-‐conference-‐paper-‐Final.pdf. 106 Terms of Reference at 85. 107 Id. 108 Amendment Act, s 43 (C).

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At very least, a constitutional and purposive approach to the interpretation of the Act is

relevant to the Panel and Commission’s exercise of its functions in the following respects:

1. In understanding the state’s obligation to regulate the private health care

sector;

2. In understanding the obligations of participants in the private health care sector;

3. In interpreting the Competition Act, the Terms of Reference of the Inquiry and

other guidelines and statements it produces. In particular in interpreting the

public interest and equity-‐based aims of the Act; and

4. In ensuring that its understanding of the importance of competition in the

health care market is informed by the fact that in this market, competition

analysis should be focused at producing better health outcomes; and

5. In making recommendations to the legislature, the executive and regulatory

authorities and in producing, submitting and tabling its final reports.

IV CONCLUSION

The peculiar nature of private healthcare sectors worldwide means that market mechanisms

are often inadequate to ensure efficient and equitable functioning.109 Moreover, in South

Africa, healthcare is a constitutionally entrenched right, which legitimately informs

competition analysis and assessment. It is therefore also a constitutional imperative and a

competition law requirement that the equitability, affordability and accessibility of the

private healthcare sector are considered in determining how markets within the sector

ought to be structured and operate. These considerations will be relevant throughout the

entire health inquiry process, which itself forms a crucial part of a broader project of

economic transformation.

The outcome of the inquiry will depend on the buy-‐in of different stakeholders in the private

healthcare sector including patients, medical professionals, firms, unions, regulators,

government departments and civil society organisations. For the health inquiry to be

effective, it is necessary for all of these stakeholders to accept the Panel’s invitation to

openly engage with its investigations by making submissions and providing the Panel with

easy access to information which it requests. An inquiry shrouded in secrecy and

overburdened by an avalanche of unnecessary confidentiality claims will serve only to

109 Final Statement of Issues at 7.

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further confuse the public about the workings of the private healthcare system.110 It is an

ominous sign that High Court judge has already felt compelled to conclude that Netcare, the

biggest hospital group in South Africa “will keep secret and withhold from the Commission

relevant documentation … instead of voluntarily disclosing the information” to avoid the

truth “leak[ing] out”, despite its legal obligation to “disclose any information that is relevant

to the market inquiry voluntarily and in a candid manner”.111

The Commission should energetically and proactively exercise its advocacy powers to ensure

that public awareness of both the inquiries’ processes and proceedings, and the functioning

of the private healthcare sector more generally, are brought into the spotlight. It should do

so because market inquiries should serve as both truth-‐seeking and truth-‐disseminating

processes: perhaps of all the Commission’s functions, market inquiries most lend themselves

to lengthy and detailed awareness campaigns. Moreover, as a state institution, the

Commission has a duty to “promote” the rights in the Bill of Rights.112 This heightens its

advocacy responsibilities in the context of the performance of functions which will have a

direct impact on the accessibility of the constitutional rights of 17% of the country.

Finally, a rights-‐focused approach may, particularly given the unique features of private

healthcare markets, require state intervention in markets through appropriate regulation.

The importance of a rights conscious approach to healthcare markets, has already proven its

value in South Africa. As Chief Justice Ngcobo, the health inquiry panel’s chair has

acknowledged in the context of the Treatment Action Campaign’s fight for access to

antiretrovirals:

“As we know, the drugs used to treat HIV are manufactured by private companies

and sold at prices far in excess of the purchasing power of those who need them

most. Where the law places obligations on the state to promote treatment and

prevent transmission, the law is operating to help prevent millions of people

infected with HIV from becoming victims of – to use an economics term – ‘market

failure’.”113

110 SECTION27 submissions on administrative guidelines. 111 Netcare at 110. 112 S 7(2) of the Constitution. 113 Chief Justice Sandile Ngcobo, Address by the Chief Justice, at the fifth South Africa HIV and Aids conference, Durban (07/06/2011) available at http://www.polity.org.za/article/sa-‐ngcobo-‐address-‐by-‐

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The success of the Treatment Action Campaign relied on a well-‐informed civil society with

knowledge of their rights, an understanding of the science of HIV and a detailed

comprehension of the intricacies of the pharmaceutical manufacturing industry. It is up to

the Commission to help ensure that the health inquiry process assists in the development of

equally competent, equipped civil society and individual members of society who will be

able to monitor and pressure government institutions to ensure that the Commission’s

recommendations come to fruition. A coordinated public awareness campaign and a

transparent, accessible, rights-‐focused inquiry would go a long way to completing this task

and ensuring that the Commission fulfils its development mandate and assists in

transforming the private healthcare sector into one which realises the right to access to

healthcare services. In this way, by placing rights at the centre of its processes, the

Commission can help protect users of the private healthcare sector from remaining the

“victims of market failure”.

the-‐chief-‐justice-‐at-‐the-‐fifth-‐south-‐africa-‐hiv-‐and-‐aids-‐conference-‐durban-‐07062011-‐2011-‐06-‐07, accessed on 30 June 2014.