The Coalition gives in to vested interests competition policy

Australia’s single greatest economic challenge is to lift its rate of productivity growth. The most assured way of doing that is to inject more competition into the economy. What superb timing, then, for the federal government to be considering the landmark report of the competition policy review chaired by Professor Ian Harper. Both sides of politics have welcomed the report, shadow treasurer Chris Bowen describing its underlying philosophy and broad thrust as sound. Yet judging from the public statements of small business minister Bruce Billson, the government intends to consider the report’s recommendations in batches rather than all at once. The first cab off the rank is the one recommendation likely to have anti-competitive, protectionist effects – amendments to section 46 of the competition and consumer act relating to the misuse of market power.

Nobody should be surprised, really: the Coalition has a poor track record on competition policy, wanting to protecting favoured constituencies from competition. One of the last acts of the Fraser government was to renew an agreement to protect the two domestic airlines from competition. The Howard government introduced the absurd Birdsville Amendment to protect small businesses from competition from companies with a substantial market share – not market power, but market share.

In opposition, the Coalition voted against the Labor government’s attempts to repeal this ridiculous law. Then the Coalition tried to thwart Labor’s wheat marketing deregulation bill. The new Abbott government blocked a takeover of Graincorp that would have introduced more competition and new capital to improve the productivity of eastern Australia’s grain distribution system.

Now the Coalition is displaying its anti-competitive instincts again: ditching or shelving Harper’s pro-competitive recommendations while pushing ahead with an anti-competitive effects test.

In proposing his effects test, Harper was not motivated by protectionist sentiments.. He no doubt hoped the government would implement his dozens of pro-competitive recommendations as a quid pro quo.

Harper will argue his recommendation is pro-competitive. Yet his report explicitly acknowledges that it could have anti-competitive effects. The proposed amendment would require company management, in making its day-to-day decisions, to weigh pro-competitive effects of its conduct against any anti-competitive effects or likely effects. If, in later reviewing those decisions, the ACCC comes to the view that management got the weightings wrong, or that what was intended to be pro-competitive turned out to have anti-competitive effects, the ACCC or a third party would be able to pursue the company for breaking the law.

To illustrate, the two major supermarkets have voluntarily adopted a policy of statewide uniform pricing. This happened to be the aim of the so-called Blacktown Amendment sponsored by Senators Nick Xenophon and Barnaby Joyce in 2009, which Labor rejected, but which would have required uniform pricing within a radius of 35 kilometres – the distance from Blacktown to Sydney’s CBD.

Astonishingly, the government is now considering amendments that could expose the supermarkets’ uniform pricing policies to legal challenge on the basis that the cross-subsidy from city to regional stores might substantially lessen competition from small businesses unable to match the low country prices. If the government adopts the Harper recommendation it will be fascinating to see how Coalition MPs in marginal regional seats explain to their constituents that they voted to increase local grocery prices.

Harper and the ACCC will dismiss this scenario as scaremongering. Maybe under the present ACCC leadership no action would be taken against uniform pricing or other conduct that is in the interests of consumers and productivity growth. But ACCC chairs and guidelines do not last forever and a successor appointee of a Coalition government with a grudge against big business could have a different view.

That such a recommendation with potentially profound impacts on businesses seeking to compete aggressively has been subject to no independent cost-benefit analysis before being considered by Cabinet shows how determined the government is to reward protectionists at the expense of productivity and consumers.

Craig Emerson, a former Labor government competition policy minister, is managing director of Craig Emerson Economics and is adjunct professor at Victoria University’s College of Business. He has consulted to several large companies but the views expressed here are his own.