State and competition

Gillian Wise, Study for 'Looped Net Suspended in Pictorial Space', 1974


SOEs are an essential part of creating markets and competitors

Markets are not mere spaces in which logical decisions are taken by rational agents, and such interactions between demand and supply can be translated into graphs, as the caricature of neoclassical economics and its variations routinely instill in public debate. Markets are social institutions, determined by rooted and variable culture, distinct holdings of power and by specific and dynamic legal discipline. The perception that “the market is a legal institution” or that “capitalism is a legal mode of production” are much closer to reality than the caricature of rational agents seeking their advantages in the fantastic world. other things being equal.

Therefore, the choice of how to organize state-owned companies in an economy like ours, in which it has always been evident (i) the lack of appetite of national and foreign private capital for assuming the great technological risk and, (ii) on the contrary, its great predilection for low-risk, high-yield investment expressed by public services covered by a protective legal regime, is strategic. This choice ends up impacting, simultaneously, the incentive (i) to increase the scale and scope of investments in technology and (ii) the democratization of basic utilities, directly linked to human dignity and the objectives of the Republic inscribed in art. 3rd. of the Federal Constitution.


State-owned companies as “enemies of competition”: the OECD discourse

on the 17th Global Forum on Competition of the OECD, held in 2018, the think tanks exporter of institutional solutions pointed out that the behavior of state-owned companies should be subject to the legal discipline of competition based on the incidence of the “competitive neutrality” regime1, according to which no company should benefit from advantages arising from its nationality or its ownership regime.2

Apparently echoing such a view, the Treaty on the Functioning of the European Union, in its art. 107, 1, states that "(…) are incompatible with the internal market, in so far as they affect trade between Member States, aid granted by States or from State resources, whatever form it takes, which distort or threaten to distort competition, favoring certain companies or certain productions”. The European Union Merger Regulation (No. 139/2004) determines that the merger control regime “must respect (…) the principle of equal treatment between the public and private sectors” (item 22). It also provides that, in the case of the public sector, “to calculate the turnover of a company participating in the concentration, it is necessary to take into account the companies that make up an economic group with autonomous decision-making power, regardless of who owns the respective capital or the rules of administrative supervision that apply to it".

In this perspective, state-owned companies would be “enemies of competition” and apparently there would be, in the OECD recommendations in part positive by Europe, the perception that their state-owned companies should be limited, including in their profit rate regimes, so that distorted signals do not come to light. be sent to the market. However, this image is more ideological and static than real and dynamic, for some reasons, among which (i) the various cooperative arrangements between European state-owned companies in sectors of high technological risk (such as defence), which explicitly seek to deviate of such prescriptions, (ii) the “turtle operations” that the National States carry out to internalize such guidelines in their legal systems, as pointed out by the OECD itself in relation to the two main economies of Europe, Germany and France (in which it is perceived the absence of institutionality to achieve the adequacy of the rates of return of state-owned companies to those experienced by the private sector, one of the pillars of the OECD's proclaimed “competitive neutrality”3); and (iii) the recent perception that, in the most dynamic pole of the world economy, China, state-owned companies are not against competition: state-owned companies are the competitors that the chinese prepare to take the world markets


State-owned companies as the creation of competitors to win the world market: the case of China

Chinese state-owned companies operate as true instruments for creating Chinese economic power, with no room for “competitive neutrality” or anything similar to the ideological discourse of the OECD.

State-owned companies are subject to the State-Owned Assets Supervision and Administration Commission of the State Council (SASAC), a body linked to the Council of State, which also has local branches to supervise subnational state-owned companies. During the 13th Five Year Plan (2016-2020), one of the responsibilities of the SASAC was to control the conglomeration process of state-owned4, this stage of Chinese planning being very clear as to the intention of strengthening them as an instrument of Chinese competitiveness: “We will remain firmly committed to ensuring that state-owned enterprises (SOEs) grow stronger, better, and bigger and work to see that a number of such enterprises develop their capacity for innovation and become internationally competitive, thereby injecting greater life into the state-owned sector, helping it exercise a greater level of influence and control over the economy, increasing its resilience against risk, and enabling it to contribute more effectively to achieving national strategic objectives".5

Decree No. 378 of May 27, 2003, which regulates the supervision and management of state-owned assets of companies in China, provides that one of the main obligations of the supervisory authority and management of such assets is to maintain and improve control powers and the competitiveness of the state economy in areas considered essential for the national economy and for the security of the State, in addition to improving the quality of the state economy (art. 14, 2). The “Foreign Investment Law”, in force since 2020, in its art. 4th., structures a more restrictive legal treatment to foreign companies that appear in the dreaded “Negative List”, issued by the Council of State. Investments that do not respect the sectorial limitations arising from the List will be subject to the due legal sanctions (art. 36). Thus, given this structural and explicit unequal regime in favor of Chinese state-owned companies, seeking to make them international competitors, they completely distance themselves from the ideological package of the OECD: instead of the State, as a shareholder of state-owned companies, claiming rates of return " equivalent” to those provided by “private investments”, the financial losses of their companies tripled between 2008 and 2017 and two-fifths of all Chinese state-owned companies in recent years have not been able to recoup the cost of invested capital.6 That is, state-owned companies were expressly authorized to experience losses. At the other end, there are 50 Chinese state-owned companies among the 500 largest companies in the world.

The paradox is only apparent: there is no “competitive neutrality” in the management of Chinese state-owned companies, but rather the simultaneous objectives of increasing economic complexity and conglomeration, on the one hand, and offering essential services to the population, on the other, both passing through, on the other hand, inside, the functioning of the state conglomerates, which, thus, are instruments of the policy of the Chinese State, of the PCC and of the national aggrandizement. The OECD and its institutional export models do not find echo in the most dynamic economy on the planet.


The State creating markets and competition: the Plano de Metas and state-owned companies

In the great experience of Brazilian development led by Juscelino Kubitschek from the Plan of Goals, several markets were, as Antônio Barros de Castro points out, created: “the markets themselves were, to a greater or lesser extent, formatted and dimensioned through policies”.7 This creation often ex nihilo of internal markets was carried out by a complex of Economic Law composed, among other elements, of a functional legal discipline (i) to the attraction of productive capital, (ii) to induction e coordination of the behavior of such capital and (iii) to the state control on decisions and strategic sectors.

attraction of productive capital was shaped by a series of diplomas, such as Decree 34.893 of 05/01/1954, enacted during the Vargas government, by which several sectors (in addition to energy, transport and communications) were qualified to receive “exchange treatment differentiated”, which later, during the short Café Filho government, was expanded by SUMOC Instruction 113/55, which included numerous industrial sectors in the list. With the very strong depreciation of international coffee prices, an economy with low productive diversity, little capacity to carry out large investments and a political crisis constantly threatening democratic institutions, the JK government enacted Law 3.244/57, whose objective was, operating the “ exchange rate”, accelerate the replacement of capital goods by domestic production.

As a complement to this functional legal framework for attracting productive capital, there was another set of Economic Law aimed at induction e coordination of attracted productive capital, which can be exemplified with (i) the laws that organize credit for the BNDE, the main unifying and emanating entity of global decisions to invest (Law 2.973/56, which extends the additional IR for ten years, “at the expense of the BNDE”; Law 2975/56, which provides for 16% of the Tax on Fuels and Lubricants for the BNDE and RFFSA; Law 3.381/58, which creates the Merchant Marine Fund; and Law 3421/58, which creates the National Port Fund)8; (ii) the legal-administrative discipline of “Nationalization Indexes”, which sought to encourage attracted capital to produce in national territory in conjunction with national capital, based on contractual commitments assumed with the BNDE (the “Target 27 of the Target Plan”, for example, determined the production of 100.000 motor vehicles in 1960, with 95% of the so-called “nationalization by weight”); on the due date , the target had been surpassed by more than 30%, given that 133.041 vehicles were produced, with a “nationalization index” of 87% “in value” and 93% “in weight”); and (iii) Law 3470/58 and Ordinance MF nº 436/58, which established maximum percentage coefficients for the deduction of Royalties for the exploitation of trademarks and patents, technical, scientific, administrative or similar assistance, according to the “degree of essentiality ”, seeking to limit the remittance of profit abroad, making the money stay in Brazil and directed to reinvestment in productive activity, encouraging partnerships with national capital.

The third element of this creation of markets were state-owned companies, responsible for creating economic capacities, providing goods and adjusting prices in linked sectors in which (i) national private capital was very fragile, (ii) foreign capital was unattractive or harmful and ( iii) state capital the key political variable, given its scale and possibility of juridical-normative expression of collective value choices. Therefore, there is a functional legal discipline to the state control over strategic sectors in the Plan of Goals, which can be exemplified by (i) the maintenance of Petrobras and Law 2004/53, contrary to the strong US pressure for the extinction or sabotage of the company and its legal regime, in favor of US oil companies American companies, (ii) the set of Law 2975/56 and Law 3115/57, which creates the state-owned Rede Ferroviária Federal Sociedade Anônima – RFFSA and guarantees its financing with part of the 16% Tax on Fuels and Lubricants (the automobile industry financing the railway transport, under state planning); and (iii) the National Nuclear Energy Policy, issued on August 31, 1956 by the National Security Council.

In this model, which has experienced enormous success and even inspired reach experiences such as those in East Asia itself, state-owned companies are an essential part of creating markets and competitors. State-owned companies are not enemies and are not subject to “competitive neutrality”. They are part of the competitive markets solution, because there are markets in the peripheral economy where competition is systemically anti-competitive, detrimental to the performance of the economy as a whole.

The discourse that currently seeks to crush our state-owned companies, based on the uncritical acceptance of the OECD's image, is not only contrary to the express terms of our Constitutional Economic Order. It is also obscurantist regarding the choices of the most dynamic economy in the world today, China, and the most dynamic in the world at the time of the Plano de Metas, that of Brazil. In a single stroke, it obscures positive law and the past and present of institutional alternatives. In order to organize an adequate antitrust policy, it is not good to be in such unhealthy company.

* Alessandro Octaviani Professor of Economic Law at the USP Law School and former member of CADE's Tribunal. Author, among other books, of Studies, opinions and votes on economic law (ed. Singular).

Originally published on the website of Counsel.


1 Executive Summary of the 17pm Global Forum on Competition discussions available at:

2 Institutional model exporters’ definition of “competitive neutrality” can be found at:

3 The data are from the OECD, surveyed in 2014. Available at:

4 OCTAVIANI, Alessandro; NOHARA, Irene. State-owned: state-owned companies in the world; history in Brazil; legal regime; bids; governance; species; strategic sectors; state functions. São Paulo: Thomson Reuters Brasil, 2019, p. 26.

5 The Thirteenth Five-Year Plan of the People's Republic of China can be found at:

6 LARDY, Nicholas. Achieving Competitive Neutrality in China. In: KAI, G.; SCHIPKE, A. (eds). Opening Up and Competitive Neutrality: The International Experience and Insights for China. People's Bank of China and International Monetary Fund Seventh Joint Conference, 2019.

7 CASTRO. Antonio Barros de. From renegade development to the Sino-centric challenge. Rio de Janeiro: Campos, 2012, p. 118.

8 Cf., for all: VIDIGAL, Lea. BNDES: a study of Economic Law. Sao Paulo: Liberars, 2019.




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