Here’s a novel idea: Australia needs more competition, not less – Sydney Morning Herald

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Business has many tired ideas for reforming the economy and improving productivity, most of which boil down to: cut my tax and give me more power to keep my wage bill low. But a veteran econocrat has proposed a new and frightening reform: make our businesses compete harder for our custom, thus making it harder for them to raise their prices.
Treasurer Josh Frydenberg has asked the Productivity Commission to undertake a five-yearly review of our (dismal) productivity performance. And this week Rod Sims, who’s departing after 11 years heading the Australian Competition and Consumer Commission, offered a few helpful hints in a speech to the National Press Club.
Companies should have to work harder to earn our hard-earned dollars.Credit:Chris Hopkins
Sims says “the Australian economy suffers from high levels of market concentration [markets dominated by a few big firms] to the detriment of consumers, small business and productivity”.
He argues that the pandemic-related supply shortages and logistics problems we’re facing are worsened by market concentration in so many areas and by our infrastructure bottlenecks.
“We need to address this through competition law, to prevent anti-competitive abuses of market power, and through general infrastructure reform,” he says. He’s referring mainly to road, rail, air and sea transport facilities, and also to utilities – electricity, gas and water.
Australia’s infrastructure is generally high cost, he says, compared with other countries. “Why do we keep privatising assets and claiming success when huge amounts are paid for the asset?”
My answer: when state Treasuries are run by bankers rather than econocrats, that’s what they think they’re supposed to be doing.
Sims says that often, “these huge prices are the result of closing off competition, or because a monopoly was deliberately sold without any regulation of the prices that can be set for users who have no alternative but to use the monopoly asset”.
“Such behaviour can dramatically affect existing users and could be considered a continuing tax on the community,” he says.
Governments need to sign up to a checklist before infrastructure assets are sold to avoid provisions which restrict competition and to ensure there is appropriate regulation where monopoly or significant market power will exist after the sale to private interests, he says.
“Let’s acknowledge this issue and fix it so that Australia can avoid even higher priced infrastructure in future.”
Credit:Illustration: Matt Davidson
Another infrastructure challenge is ensuring the regulatory arrangements for the National Broadband Network are appropriate.
“After [the federal government] spending $50 billion on the NBN, the objective must not be a commercial return on the [$50 billion] sunk investment. It must be making the best use of this great asset.
“The prices that allow the NBN to get a commercial return on all its outlays, and the prices that make best use of this expensive asset, are very likely quite different,” he says.
We all saw the benefit of having the NBN completed in time for the pandemic lockdowns. That’s just a taste of the benefits if we get the NBN’s pricing right. Prices must allow the NBN to keep investing as needed, but must also see optimum use made of the network.
That is, the goal should be maximising the network’s benefit to the whole economy, not creating a new business that can exploit the pricing power that usually goes with a monopoly network, then selling it off to the highest bidder (or continuing to own it while overcharging customers).
Another area where we’re not getting enough competition, are paying prices that are too high (often in ways that aren’t visible) and are crimping productivity improvement is “digital platforms”.
Sims says we have an internet dominated by a few gatekeeper companies: Google has 95 per cent of searching activity, Facebook dominates social media, and Google and Apple dominate the app market, particularly on mobile devices.
Funny how it’s never occurred to the Business Council and other business lobby groups wringing their hands over weak productivity that an obvious solution to the problem is to make firms compete harder for their profits.
“I am proud that the ACCC is at the forefront of world efforts to identify the harms from digital platforms and potential solutions to them,” he says.
While it’s true that these giants innovated their way to success – bringing many benefits to ordinary internet users – it’s equally true they also acquired a huge array of companies that could have been competitors, which has extended their reach and cemented their power.
They also engage in many activities, from “product bundling” (where to get the ones you want, you have to pay for stuff you don’t want) to “self-preferencing” (where they put their own products at the top of a list, and rival firms’ products at the bottom). Over time, this has lessened competition in various important digital markets.
The digital giants also have access to, and control, a massive amount of data, which has seen harms ranging from that seen with Cambridge Analytica, to profiling people so as to maximise sales by exploiting consumers’ vulnerabilities.
Then there’s the many examples of inadequate competition in banking. Sims quotes just three. First, the price of the most important financial product, a home mortgage, is unknowable without huge effort and cost, which benefits banks and harms borrowers.
The still-being-rolled-out “consumer data right” (that is, it’s your data so you should be able to have it forwarded to a rival business) should help this a lot. And Sims wants consumers to be continually informed by a “prompt” of what typical borrowers are paying, so they know when to start shopping around.
Second, to reduce “debanking” – where banks find excuses to refuse to move money that has been arranged through the new “fintechs” and money remitters – the government should set up a scheme these digital non-banks can use to prove their controls are adequate to detect money laundering.
Third, now the digital giants are getting into the now largely cashless world, outfits such as Apple Pay must be stopped from preventing other providers of digital wallets making use of its “near field technology”.
Funny how it’s never occurred to the Business Council and other business lobby groups wringing their hands over weak productivity that an obvious solution to the problem is to make firms compete harder for their profits.
Ross Gittins is the economics editor
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