Book excerpt: The potential impact of government on the operation of markets is significant. In addition to enacting laws, and developing and implementing government policy at various levels, a government may play a substantial role as market participant in its own right or by way of corporations or other entities which it owns, controls, or has the capacity to substantially influence. This affects the nature and workings of the markets in which these bodies are involved and impacts on private competitors who may otherwise be more effective market participants.The place of government within markets of individual countries depends upon a range of factors which include the history, size, political ideology and stage of development of the jurisdiction. Industrial policies adopted by governments on a large or small scale may also advantage government bodies as well as other market participants. In many countries the traditional role of government as a market player is accepted without question. Other nations now question this status quo and question the ability of government to deliver goods and services to markets in the most efficient and beneficial way. This is particularly where they seek to benefit from the efficiencies and innovations which a market economy can deliver to the economy and to consumers.Theories of competition assume that market participants compete from a level playing field in the sense that none are given advantages which would allow them to win market share from more effective private competitors. Governments and government ownership have the capacity to advantage their market participants in a number of ways. Anti-competitive behaviour can be the subject of competition laws, and the activities of government may be caught by competition laws to a greater or lesser extent depending upon the way that the competition laws are drafted. Competition laws, however, only attack prohibited anticompetitive behaviour, and many of the advantages of government bodies are outside their scope. Advantages may be significant and overt or subtle: as simple as no requirement to pay tax or comply with regulations, or easier access to finance because of government backing. In many cases the purposes of laws and regulations can be achieved in a number of ways which do not necessarily favour government businesses or lessen competition. While governments may take differing views on the way that they should be involved in markets, it is likely that unfettered involvement without thorough consideration will impact on market competition. Importantly, where governments have traditionally been entrenched in markets a continuing role may be assumed and the impact on competition may not even be the subject of any consideration. Policies designed to eliminate government advantages of this kind are termed Competitive Neutrality (CN) policies. The approach of an individual jurisdiction to CN policy will be affected by issues including its views on the appropriate level of government involvement in its markets, and the role that industrial policy plays. CN may not be appropriate in all circumstances, particularly where it impedes achievement of important social goals, but there should be recognition that a failure to implement CN has market impact and ultimately has the capacity to affect efficiency gains arising from competition. For this reason, giving preference to government in the market or unwittingly allowing it should be considered by governments and regulators. Claims of public interest should be assessed against predetermined principles to determine that the best outcomes are achieved either generally or as part of some specific CN policy.