Monday, 10 February 2020

The ABA goes down under

Last Thursday's seminar in Sydney run by the American Bar Association's antitrust section was the most successful overseas seminar they've ever run in terms of attendees. I'm not surprised: there were quite a few first-time attendees (including me) attracted by 'Competition Down Under: Platforms Regulation & Merger Litigation'.

One thing I especially liked was that the panel session chaired by Gilbert & Tobin's Luke Woodward on 'Riding the Wave of Digital Platform Regulation' included one of the Big Tech companies - Facebook, represented by Mia Garlick, director of policy for Australia and New Zealand - as well as the ACCC's Morag Bond (previously featured here), Ashurt's Peter Armitage, and Allens' Jacqueline Downes. It's easy for lawyers and economists to talk to (or past) each other in the abstract, but distinctly more helpful to have someone from the coalface (I'd felt the same about TradeMe's representation at the Commerce Commission's conference last year).

Mia said that the view of the big techs as being all-powerful was not at all how it felt inside the organisation. The industry felt highly dynamic, there'd been a large rise in competition for people's attention, and Facebook's engineers would be "flummoxed" by any suggestion that they enjoyed "superdominance".

The ACCC's Rod Sims had wondered, as part of his introductory Q&A session with Clayton Utz's Linda Evans, whether, if Adam Smith came back today and saw the relatively concentrated state of many markets, he'd think there was enough competition for his invisible hand to do its stuff: Sims guessed he wouldn't. In the tech space Mia described, though, I suspect if Schumpeter came back and saw the Googles and Amazons and Facebooks, he'd be quite relaxed. Indeed, given Schumpeter's ego, I'd expect him to be crowing "Told you so!" - temporary monopolies, each anxiously looking over its shoulder for the next disrupter. I'm also currently leaning towards the Schumpeterian view that, even if the current incumbents have their own market power, they've arguably done us all a favour by dealing to the (rather larger?) market power of the previous lot. How many people think we're worse off with Google ads than we were with the newspapers' classifieds?

Overall, the thoughts I took away from the discussion were that concerns about the tech titans represent a range of different issues (competition and market power, privacy, unfair trade practices, political influence, fake news) which are often unhelpfully conflated. And while it's hardly rocket science, one implication is that you need to reach for the right policy tool for the right issue. It's also clear that different countries are on very different policy trajectories. While it would normally make sense for relatively peripheral countries like Australia and New Zealand to wait for the big guys to do the heavy lifting on, say, privacy, there's little chance of a single settled global policy regime emerging anytime soon. So we're left with an unappealing alternative of doing our own limited and perhaps fragmentating thing in the meantime (as the Aussies have with their digital platform service inquiry and its recommendations).

Then we had an entertaining panel chaired by King & Wood Malleson's Caroline Coops on 'Litigating Merger Cases', with Ruth Higgins from Banco Chambers, Judge Amit Mehta from the US District Court for the District of Columbia, Washington DC, Richard Parker from Gibson Dunn and Crutcher also in Washington, and Wendy Peter, general counsel for the ACCC.

L-R: Messrs Peter, Parker, Mehta, Higgins

The topic I was most interested in was the role of economic experts. Richard Parker said that what you most want is a "teacher" - someone who can explain the underlying logic and make complex facts understandable. Judge Mehta strongly agreed. First and foremost what he valued was the ability to present ideas, which was far more important than the credentials of the expert: often he got dense expert opinions that didn't need to be. He also said that experts tend to think they're going to win or lose the case, but actually they're only part of the jigsaw, and their evidence needs to meld with the rest of the story being argued. Ruth Higgins echoed Parker's comments about the role of giving "a normative narrative" explaining what is going on, and also cautioned about expert hubris: the issues in competition cases aren't more exotic than others that judges are routinely dealing with, and counterfactual analysis has been in the law "for centuries". 

Wendy Peter gave a big thumbs up to "hot tubs", pre-trial conclaves of experts to exchange and debate views. They allow courts to see and explore the reasons why people have different takes on what is happening in a merger. Ruth Higgin added that the hot tub process leads to more intellectual honesty, in front of one's professional peers, than may get elicited in cross-examination.

Both panel sessions canvassed "killer acquisition" mergers that allegedly take out potential challengers before they get going. I think there's something to this line of argument, and I asked the panel whether merger jurisprudence was up to the challenge. Richard Parker felt that it was. He argued for example that one of the cases often raised, Facebook's US$1 billion purchase of Instagram in 2012, didn't stand up to much scrutiny: at acquisition the company had zero revenues, few employees, and was one of several companies doing the same sort of thing at the time. It was hard to see, in his view, that there was anything especially disruptive about its potential. He felt the existing law on nascent competition was working fine. We'll find out a bit more as some big US cases on alleged killer mergers progress: Fiona Schaeffer from Milbank in New York, who runs this global seminar series, pointed me to Sabre/Farelogix and Schick/Harry's.

Good seminar - let's have more of them down our neck of the woods.

Friday, 20 December 2019

Beneath the calm surface

The Productivity Commission's been working on 'Technological change and the future of work'. Last month it came out with the second report, 'Employment, labour markets and income', in what will be a five-part series (press release here, whole thing here). The big headline takeaway was that it might be well worth looking at systems like Denmark's 'flexicurity', where people's incomes are supported through employment volatility. The idea is that the labour market needs to be able to be flexible, and jobs will come and go, but people's incomes will be cushioned against the volatility through, for example, an employment insurance scheme. All very sensible.

Along the way Chapter 4 looks at the case for 'active' labour market policies, things like retraining to help people find new jobs. The Commission is somewhere between agnostic and outright sceptical about their value: "There is a large gap between good intent and robust evaluation of the effectiveness of labour-market programmes. Few programmes are subject to robust evaluation.  Of labour-market programmes, ALMPs ['active' ones] have received more evaluation effort. The results of those evaluations are not encouraging (p78) ... Overall, the Commission cannot say whether New Zealand’s labour-market programmes are effective or not" (p80).

The Commission may have missed the latest bit of evidence, which I wrote about in 'Let's get more active', and which was more upbeat about their potential. It found that two kinds of programme appeared to be effective (wage subsidies and helping people to go out on their own as self-employed), vocational training wasn't too bad an option, but brokering services (helping match job seekers and recruiters) were a waste of space. So if I were the Commission I think I'd be taking a modestly more constructive view of the potential to make the labour market work better, particularly as it's a vital economic issue.

For one thing, governments in many countries (though not Denmark, obvs) have been failing to live up to the social compact underpinning an open, flexible, market-based economy. The core bargain is that the national gains from openness will create enough income for the winners to be able to compensate the inevitable losers and still come out ahead. But the redistribution to the losers hasn't been happening, and the resulting resentment in the world's Rust Belts is feeding tear-up-the-old-rules populists everywhere.

For another, virtually nobody outside the economics trade (and not always inside it, either) realises just how vast the flows in and out of the labour market actually are. We learn from Stats, for example, that total employment went up by 16,000 in the June quarter, and by 6,000 in the September quarter. That doesn't look like a lot of movement.

But what is actually happening is that huge numbers of people change jobs, get fired, and get hired each quarter. The 6,000 in the September quarter is the small net effect of enormous gross flows in, out, and between.

In recent years, roughly 155,000 new jobs are created each quarter, which has happily been ahead of the 145,000 or so jobs that have gone bung in the quarter. The 10,000 or so increase in employment in each quarter is the outcome of very large gross flows indeed. The data, by the way, come from Stats' Linked Employer-Employee Dataset ('LEED'), which you can play with yourself for free on NZ.Stat. I've done rolling four-quarter averages to take out the pronounced seasonality.

And the big levels of job creation and job destruction are only part of the wider ferment in the labour market. People are moving around from one job to the next in very large numbers. A bit over 350,000 people each quarter change seats.

Are we out on a market-turmoil limb here? Not at all. In the States, for example, the increase in jobs in any given month is around 200,000: in December it was 266,000, which was thought of as quite a large increase at this late stage of the long U.S. expansion. But that is absolutely tiny compared to the gross flows. According to the U.S. JOLTS data, which show us the underlying gross flows, in the month of October alone (the latest to hand), 3.5 million people voluntarily quit their job in the month. Another 1.75 million were laid off or fired. Employers hired 5.75 million people. In one - one - month.

Bottom line. There are two reasons we ought to be helping people a lot more to cope. One is that moral compact: for both efficiency and equity reasons, we need to have a dynamic but not painful labour market. And the other - acknowledging that a fair amount of it is entirely voluntary, with people quitting (especially in good times) to do better for themselves in a new job - there's far more turnover in the labour market than you likely thought. Flexicurity, and 'active' labour market programmes, aren't just for the unlucky few in the meat processing factories: they're for all of us.

End-year bits and bobs

We're all winding down and people's appetites for competition and regulation stuff are likely waning, but as we all head for the beaches (Golden Bay in our case) here are some assorted bits and bobs that will tick over into 2020.

1 What's happened to Lodge? That's the case about real estate agents in Hamilton charged with anti-competitive collusive behaviour. The High Court said they didn't. The Court of Appeal said they did. The Supreme Court allowed an appeal last March and heard it in (from memory) August. Is four months the normal gestation period for a Supreme Court decision? Or is there some extended thinking going on about exactly what constitutes a meeting of minds as opposed to simultaneous but independent agreement on a course of action?

2 And if the Supreme Court does ping the Lodge real estate agents, what about the penalty? Other real estate companies hadn't fought the case, pleaded guilty, and got what I thought were fines on the high side of appropriate. I'm no fan of cartels: I was really pleased for example when the Aussie courts threw the book at the Japanese shipping lines (most recently here) and totally delighted when they nearly quintupled the fine on a brazen bang-to-rights Japanese cartellist who'd unwisely appealed the original A$9.5 million. But I'm not at all convinced that the book needs to get thrown in Lodge. Yes, of course, you don't want cartel fines becoming just another cost of doing business, and all that economics stuff about optimal deterrence needs to get an airing. But there also needs (in my view) to be a clearer distinction drawn between the less culpable and the most egregious.

3 Talking about appropriate penalties, when cartel criminalisation goes live in New Zealand in April 2021, is every cartel case going to be treated as a criminal matter? Or only the worse ones?

4 Still on cartels, I wonder how the ACCC's underwriting case is going to fare? Apart from the current skirmishing over whether the evidence trail has been contaminated - the case is definitely in criminal law process territory, as we will be too from 2021 - we're going to have another of those Lodge-style bunfights about whether everyone took the same view, given the force of the ambient circumstances, or went that step too far and collusively agreed to act together (in this case, allegedly, controlling how many unsold ANZ Bank shares would be dribbled out onto the market).

5 Does history repeat itself? You betcha. Seen the ACCC's first go under the new Australian 'effects' based formulation of abuse of market power (media release here, concise statement of claim here)? Let's see now, what does a port with its own pilot and towage business allegedly over-reacting to a competitor remind you of?

6 In the great scheme of things I'm more interested in competition and regulation than consumer protection. But I get it that consumer law has its place in making markets work well, and was persuaded a bit more in that direction at this year's RBB Economics conference. So I think we're on the right track with the new Fair Trading Amendment Bill, which aims to bring in a new 'unconscionable conduct' provision, and which you'd think would help address gross imbalances in market power between sellers and buyers. "Unconscionable" isn't defined in the Bill but the government's explanatory note (which presumably will come into play when there's the eventual statutory interpretation headbutting) says that "Unconscionable conduct is serious misconduct that goes far beyond being commercially necessary or appropriate". The good bit is that s7(3) and s8 try to give some guidance to the court, in order to avoid the Kobelt outcome we recently saw in Oz (good summary here, case itself here) where it went to penalty goals and a 4 -3 decision against finding the alleged unconscionability. But - and maybe it's a fool's search to go looking in the first place - I can't say that "serious misconduct that goes far beyond being commercially necessary or appropriate" rings my bells as a decisive guide.

7 Out of the blue, earlier this month I got an e-mail from the American Bar Association Antitrust Law Section about a seminar that will "be focused on platforms regulation and merger litigation. Rod Sims will deliver a keynote that follows-up on the ACCC’s Digital Platforms Inquiry and provides an update on the ACCC’s next steps, followed by an interactive panel discussing that report and other issues related to digital platform regulation. This will be followed by an all-star panel of judges and litigators from the United States and Australia discussing the unique features and challenges involved in the increasingly common practice of litigating merger cases". I looked it up: it sounds promising, and I'm going. It's free, and only half a day, in Sydney on February 6. While it's free, you need to register here.

Wednesday, 11 December 2019

Give that man a DB

Everybody from blind Freddy upwards has been telling this government, and previous ones, to get on with fixing New Zealand's gross infrastructural deficiencies.

"We should pull finger and get the hell on with it while the going is still pretty good", I wrote just over three years ago. "Roll out the infrastructure we need, and pull finger about it while you're at it", I said over two years ago. And apart from an unfortunate predilection for 'pulling finger', I was right, as was everyone else who has been banging on about it.

So all credit to Grant Robertson, who at today's Half Yearly Economic and Fiscal Update ('HYEFU') has done precisely that: an extra $12 billion into infrastructure. It was, from an economic perspective, completely correct: we need the choke points fixed, borrowing costs are at historical lows, and monetary policy has been driven into ever more grotesque distortions because fiscal policy wasn't carrying its share of the inflation-boosting load. Show me someone who disagrees with this boost, and I've a better than average chance of showing you a nutter.

To be clear, I'd say well done to whoever held the portfolio: I try to be non-partisan, and I'll give credit where it's due. In this case the economics said, go for it, and he did. Robertson also ran a bit of a political risk: "you can trust us with the public purse" was an electoral asset, and he's been prepared to face the "you promised a fiscal surplus and you blew it" flak (you'll have seen it's already flying) for the greater good. Good call.

There are practicalities that might intrude. With this spend-up, there is are risks that any old vanity project will get a green light. There are probably capacity constraints, meaning good intentions won't translate into diggers on sites, and hence and otherwise you'd want to see some thought given to (say) apprenticeships in the engineering and construction trades. There could be other constraints: it's a wild guess, and probably totally unrelated to whatever might be the Commerce Commission's next market study, but I wonder what are your chances of buying construction materials at a reasonable price, if  you were minded to buy a lot more of them? And the infrastructure spend-up is going to make overall expenditure control trickier: "you could find $12 billion for roads, but you can't find money for [insert allegedly deserving cause here]". For all that, it's still a good plan.

The other interesting thing from today's HYEFU was the update on whether fiscal policy is likely to boost or brake the economy. Yes, I know I go on about this, but for good reason. Most of the fiscal coverage is from a vested interest point of view - will my pretties get their share of the lollies - and the overall national interest doesn't get enough of a look in. But we all need to know whether on balance, overall, the government is on an austerity tack or whether it's adding to the national spend-up.

The answer to that question - and when I say 'answer', I have to confess it's the best we've got, rather than an outright humdinger of a clearcut answer - is given by Treasury's estimates of the 'fiscal impulse'. Here they are. Bars above the line say that fiscal policy is supportive, below the line it's contractionary. The blue bar is the best one to look at.

Treasury's commentary (p16 here) says that
Compared to Budget Update [last May], the fiscal impulse in 2019/20 and 2020/21 is now more positive (0.9% and 0.3% respectively, up from 0.0% and -0.2% previously). The change in the 2019/20 impulse largely reflects operating spending shifting from 2018/19 to 2019/20. The change in the 2020/21 impulse reflects increased capital spending.
I don't blame you if you're wondering what's being said here. Unpacked, there's good news and bad news.

The good news is that fiscal policy is going to be more helpful over the next year or two than originally planned, which, given that the current preponderance of risks in the global economy is tilted to the downside, is a good precautionary move, as well as taking the heat off the Reserve Bank and starting to chip at our infrastructural problems.

The bad news is that $12 billion of extra infrastructure spend, which you'd think would make quite an impact, will take forever to kick in. Here's the profile (from p13 here).

Some of this is inherent in the nature of infrastructure spending: you can't go out tomorrow and start hacking away at Transmission Gully or a second Auckland Harbour crossing. Some of it is down to unnecessarily complex and slow planning processes. Some of it is down to governments not being ready (from a cyclical management point of view) with the proverbial 'shovel ready' projects or (from a longer term investment perspective) not having a coherent portfolio of projects thought through well ahead of time.

But however you parse it, you can announce $12 billion today, but only $3.7 billion is actually going to be spent over the next three and a half years. So while Treasury talks about increased capital spending contributing to a fiscal boost in 2020/21, the effect is quite small because infrastructure is harder to get moving than a teenager with an attitude.

I'm not the first to say this, but there is a ever stronger case building for a non-partisan agreement on a core programme of infrastructure spending. We shouldn't be in a position where overdue investment happens only when cyclically opportune; we shouldn't be in a position where one government's 'holiday highway' is the next government's 'road of national significance'; we shouldn't be reacting, after the event, to stresses that have become evident because we haven't had the wit to preempt them. And on the supply side, we won't have the range of contractors we'd like to have to build the projects we need, unless they get the comfort of a pre-announced schedule of potential contracts. We risk being hostage to the big few who can ride out the dry years.

But enough of the quibbles. Did fiscal policy step up to the plate? Yes. Did we get more real about infrastructure? Yes. Does that man deserve a DB? Yes.

Monday, 9 December 2019

This doesn't help

The OECD came out the other day with its latest PISA results - "the Programme for International Student Assessment (PISA) examines what students know in reading, mathematics and science, and what they can do with what they know. It provides the most comprehensive and rigorous international assessment of student learning outcomes to date". Here's how New Zealand students have been doing over the history of the PISA tests. We used to be clearly better than the OECD average across reading, maths and science, but the results have been deteriorating in all three areas.

We're not alone in this. Here are Australia's PISA results. Almost exactly the same.

You could, I suppose, take some comfort from the fact that our performance levels (even if steadily declining) are still not that shabby by international standards. Here are the top 30 countries (I'm using countries loosely here to include for example the consolidated results from four regions in China producing quality-meeting PISA scores), when ranked by reading scores. We're still 12th, Australia's 16th. But self-evidently we'll get eaten if, for example, the rapidly developing economies of eastern Europe up their game and we continue to slide.

I'll leave the bunfight over the reasons for our (and Australia's) recent PISA declines to others. What bothers me about these trends is the contribution they may be making to our long-standing productivity problems, where for any given degree of effort and resources we seem to produce less than the higher-income OECD countries. Australia's also hit a productivity wall: its latest official estimates showed that "market sector multifactor productivity (MFP) fell 0.4% in 2018–19, the first decline since 2010–11 ... Labour productivity fell 0.2% in 2018–19, the first recorded negative for the sixteen industry market sector aggregate (since the beginning of the time series in 1994–95)".

A wee while back I wrote a column for the Australia and New Zealand accountants' magazine Acuity, documenting New Zealand's and Australia's productivity problems and canvassing some of the usual suspects ('Is there any scope for multifactor productivity growth?'). I didn't include falling skill levels for new entrants to the workforce - a fall of some 4.7% across all three areas since 2000 - but maybe I should have. Normally you'd expect each entrant cohort to the labour force to be bringing higher, not lower, levels of skills to the productivity party: it gets a lot harder to make progress when your starting point is going backwards. In the context of productivity growth, where small changes matter a lot over the longer term, a drop in entrant skills of approaching 5% in two decades is a big thing. This is a ball and chain we don't need.

Thursday, 5 December 2019

Our first market study

The petrol market study came out a short while ago, and if you haven't caught up with where it landed, the Commerce Commission has an infographic on its main findings, another one on its recommendations, the media presentation this morning, an executive summary, plus the whole report.

From a regulatory policy point of view I like where it has gone. There's been an almost unthinking reach for heavier-handed forms of sectoral regulation in recent years, and it's good to see a lighter-touch approach favoured for petrol. The two main recommendations are a terminal gate pricing wholesale market, and less restrictive contractual arrangements between petrol wholesalers and petrol retailers, both overseen by an industry code of conduct.

There is the threat of tougher regulation in the background if these arrangements don't do what they're meant to, which is fair enough, but the key element is a "more market" one, with a currently ineffective wholesale petrol market getting a kick start towards greater liquidity and relevance. And that's as it should be: the intervention required should be the minimum required to get a result, and if we can get an effective market-based solution satisfactorily supervised by the industry itself, we're done.

These are of course only recommendations to the government, and who knows how a three-headed cat will jump, but hopefully the proposals will get the tick. At least we know we will get a response, as the very excellent s51(e) of the Commerce Act requires that "The Minister must respond to the final competition report within a reasonable time after the report is made publicly available".

The thing I was most mulling about, in the interval between the draft report back in August (which I wrote about here) and this morning, was what had happened to all those arguments about the real problem being tacit retail price collusion, which had cropped up in (for example) the MBIE petrol market study and in the Commission's own Z / Chevron decision. The answer to that is in para 7.97 of today's report, where the Commission says coordination is still a risk, but one that will be made harder (and any effects would be less) if the proposed wholesale market gets up and running:
most of the market features that made retail markets vulnerable to tacit  coordination when we considered the Z/Chevron merger in 2015/16 remain today although some market features have changed to make the markets more vulnerable to tacit coordination and others less so. We consider that retail fuel markets are vulnerable to some level of tacit coordination. We welcome Z Energy removing the MPP from its website. However, we consider that tacit coordination has been and may remain at least a contributing factor to the margins that we observe. We consider that measures to improve competition at wholesale and retail levels of the fuel supply chain, opening up those markets to new suppliers, will reduce their vulnerability to accommodating behaviour as well the potential effect of any such behaviour that does occur.
Out of vanity I looked up what had happened to my own little submission on the draft: I'd said that a chart showing New Zealand with amongst the world's highest post-tax petrol prices should have been on a purchasing power parity basis, rather than at market exchange rates, since market rates at one point in time can wobble all over the place, and what looks expensive in New Zealand today might look cheap tomorrow. I'll call it a draw: at 3.88-89 the Commission agrees that a point-in-time comparison isn't the best, and they've included longer-term paths which show our petrol prices are indeed among the developed world's most expensive (possibly for good reason, eg transport costs to a small isolated country), but the Commission remains wedded to spot rates. Over longer periods the Commission says spot rates will average out the volatility.

The other thing to take away is that we've now seen the first final output from the new market studies powers. Self-evidently, despite the critics and sceptics, the sky has not fallen. It's been done at reasonable cost, in reasonable time, with a good degree of balance - in the media presentation, the chair Anna Rawlings pointed out a range of consumer-benefiting innovations in the petrol business, for example - and with sensible-looking recommendations tailored to the diagnosis. Good day's work all round.

Who'll be next, I wonder? The goss has been that the government in principle recognises that the Commission can initiate its own studies (s50 of the Act) but in practice will fund only one a year, and will be picking another one toot sweet to pre-empt which one it'll be. I've heard rumours, but let's not spoil anyone's Christmas.

Friday, 29 November 2019

The good old days. Not

Marilyn Waring's interesting memoir The Political Years is an eye-opener on New Zealand in the late 1970s and early 1980s. While she has a particular perspective to emphasise, there's no doubt that the casual sexism, racism and conservatism of the day that she recalls do not square with the "we've always been progressive since women got the vote in 1893" story we like to tell ourselves.

From an economic policy point of view, it's also a reminder to those who put 'Rogernomics' and 'Ruthanasia' in the 'awful neoliberalism experiment' basket that reform was needed. Even Waring, down the left end of the political spectrum, concludes (p46) that
Within just a few months [of first being elected in 1975], I was getting a picture of incredible inefficiencies. Tariff structures were a nightmare, and were still in hangover mode from the Second World War. Licensing was a mess: those who had import and transport licences ran small fiefdoms. Transportation regulations intended to protect the railways restricted truck movements without a special licence, adding significant costs. Vast amounts of primary production were subsidised. Far too much discretionary power rested in the hands of ministers. Certainly, that meant I might lobby for gains for my constituents, but the process needed a wholesale clean-out.
She gives examples (pp45-6) of the kind of lobbying involved: letters to ministers with "requests for relief of import duty on a sports cup for presentation at the local high school and for a licence to import woven woolen fabric for the Te Awamutu and District Pipe Band".

Mercifully most of that nonsense went overboard after trade liberalisations, but it's doubtful whether our chronic propensity for micromanagement is permanently buried at a crossroads with a stake through its heart. It's not that long ago that a government minister's approval was required for a Tourette's Syndrome sufferer to have access to a medical cannabis product. And in my own narrow neck of the woods, the Commerce Commission's "cease and desist" powers - designed to provide a timely interim stop to anti-competitive conduct until the substantive issues got litigated later - were so hedged about with preconditions and provisos that they were eventually abandoned as useless.

Another bad habit not fully kicked is unnecessary secrecy. In Waring's day, Robert Muldoon would not even share Treasury's analyses with his own MPs: on p256 she recounts how
Ruth Richardson, one of six new MPs in caucus [after the 1981 election], wasted no time in asking to see the Treasury reports on the state of the economy. Muldoon replied they were confidential, amd Hugh Templeton added that the secrecy gave Treasury the 'freedom to report'. The PM noted that the reports referred to high interest rates, devaluation, running down cash balances and internal liquidity under pressure. There was no cause for alarm, he said.
You can see why the Labour government of 1984-90 brought in the Public Finance Act to require a step change in transparency.

The same dubious "freedom to report" rationale was invoked to keep the proceedings of the Public Expenditure Committee secret. The Committee - which I'd guess was a forerunner of today's Finance and Expenditure Select Committee - was charged with "examining the Annual Reports and Accounts, and the Estimates of Expenditure, for every government ministry, department and agency" (p56), a highly important accountability role, especially given the limited other avenues at the time for scrutiny of the executive. Waring, appointed to the Committee and later its chair, questioned the secrecy and was told by the Clerk of the House (p56) that
Official papers prepared at the request of the Committee have always been regarded as confidential, and the assurance of confidentiality has been fundamental to the willingness of departments to supply frank and detailed examination.
We have, thankfully, largely moved on. But even today s9(2)(f)(iv) of our Official Information Act includes, as a valid reason for withholding information, "the withholding of the information is necessary to ... maintain the constitutional conventions for the time being which protect ... the confidentiality of advice tendered by Ministers of the Crown and officials" or under s9(2)(g)(i) to "maintain the effective conduct of public affairs through — (i) the free and frank expression of opinions by or between or to Ministers of the Crown or members of an organisation or officers and employees of any department or organisation in the course of their duty".

There may be genuine occasions when these confidentiality provisions need to apply, but a few minutes on Twitter will tell you that some entirely responsible and proper 'citizen journalists' will be wondering, after bumping heads with the OIA, exactly how far we've progressed from the Sir Humphrey Applebys of Waring's day.

Friday, 22 November 2019

RBB Economics draws a crowd

A record number of attendees braved the smoky air of Sydney yesterday to attend RBB Economics' ninth annual competition conference. If you're in the competition law trade and you haven't been, have a word with them: it's a good event. This year's was on the general theme, "What's next for competition law in Australia?"

We started off with the traditional opening keynote by Rod Sims, chair of the ACCC (his speech is here). As it happened two of his points - the potential role of consumer law in enhancing competition and productivity, and a potential need for strengthened merger laws - got developed in a lot more detail in later sessions. Like a lot of people in the competition game I've tended to relegate consumer law to poor cousin status, and (let's face it) largely on intellectual snobbery grounds: where's the challenge in reading an ad to see if it's misleading or deceptive, compared with the subtleties of economic theory? But Rod, and subsequent speakers, made a good fist of arguing that consumer law helps buttress the workings of workably competitive markets.

Jacqueline Downes, a partner at Allens, spoke in reply. The main points I took away were that the ACCC's concerns about merger laws not being effective in blocking anti-competitive mergers were not supported by the data: the few cases that go right through the courts and go against the ACCC are only a tiny unrepresentative fraction of mergers. The vast majority of potentially iffy ones get knocked back either by the firms' advisers, or in informal discussions with the ACCC. The system works. She also wondered about the number of market studies being undertaken (not that the ACCC has any choice about doing some of them) and their potential for politicised policy responses.

The next session was 'What would a new unfair trading prohibition look like?', led off by ACCC commissioner Sarah Court. She had recently changed her view and now thinks an 'unfair' trading prohibition would be a useful tool, in part because of recent difficulty in making the existing 'unconscionable conduct' offence stick: you'll find a good entry point to the Kobelt case that caused the grief here. In reply barrister Robert Yezerski also commented on the Aussie courts' struggle to get their heads around the statutory formulation of  'unconscionability' as opposed to the common law equitability jurisprudence they had learned at their elders' knees. In Robert's view, the key concept in the statutory formulation is, essentially, immorality - something that is so at odds with society's moral norms as to deserve condemnation.

Even if Kobelt fell over from a regulator's point of view (the financial regulator ASIC in that case, not the ACCC), it may have been one of those finely balanced facts-based cases that don't count for much in the longer-term. Which is just as well, as we in New Zealand will be looking to the Aussie jurisprudence when we adopt unconscionability, as we are now likely to do. As for bringing in 'unfair' in Australia, I could sympathise with Sarah's point that the wording would likely need to be linked to 'significant consumer harm', but I'm not sure (and I don't think the audience was either, going from the Q&A) that there is going to be any easy way of formulating a workably effective form of words.

After lunch we had 'Do we need to strengthen Australia's merger laws?'. Rod had felt that the courts were letting uncompetitive mergers through, partly because they were not properly taking into account how the post-merger commercial incentives changed  for the managers of the merged entity: he'd felt that the ACCC's submissions on changed incentives were being dismissed as speculative theorising. Jennifer Orr, principal economist in the ACCC's Economic Group, took a different line about arguably too-lax merger under-enforcement: she pointed to growing empirical evidence (in academic journals, mainly, and mostly US-focused) that industry concentration had been (wrongly) allowed to develop to the point that more powerful incumbents were anti-competitively enabled to raise price or give less. Had the prevailing 'Chicago School' approach to anti-trust missed something that older-fashioned analyses, which gave more weight to structural conditions like HHIs, had been more alert to?

In reply King & Wood Mallesons partner Lisa Huett and RBB Economics' own George Siolis pushed back. Lisa argued that "If it ain't broke, don't fix it", and provided the numbers to back Jacqueline Downes' earlier point about the vast majority of potentially problematic mergers getting flagged away. She wasn't enamoured either of the potential 'solutions' (like reversing the onus of proof, or introducing rebuttable presumptions of harm if say a proposed merger took an HHI over 2500). And she pointed out that in any event there had been a fair amount of other law reform (the 'effects' test for abuse of market power, 'concerted practices') to deal to any mischief a lax merger approval might have facilitated. George traversed the history of the evolution of anti-trust thinking which, for good reason, had arrived where it is today. He preferred that competition authorities should stay the course, use all the tools available to check for (say) potential post-merger coordination effects, and "get dirty", meaning immerse themselves fully in the facts of the case and the industry.

This session got the audience going. One chap bristled at the idea that merger parties should have to prove anything: the shoe should be on the other foot, and the ACCC should be positively required to prove harm, rather than hide behind a "not satisfied there wouldn't be" criterion. In general there was quite a bit of support for the idea that Type 2 errors (letting anti-competitive mergers through) aren't welcome, but equally (and for some in the audience, more importantly) Type 1 errors (blocking efficiency-improving mergers) weren't getting enough of a look-in.

Personally I was left in a bit of a quandary (maybe you are too), and said so in a question to the panel. On the one hand, I've been involved in mergers that went from 3 to 2: where, for example, the #2 and #3 players, merged, would make a more effective competitor to the #1 incumbent. I had no trouble sleeping at night afterwards, never mind what the post-merger HHI said. On the other hand you can't go around ignoring the evidence that Jennifer mentioned, either.

Even if you don't quite know what to think, though, one place you land is the need for post-merger reviews to see what is actually happening. In my notes I've written "ACCC not resourced, no powers" to do post-merger reviews: I can't remember whether one of the panellists said it, or someone mentioned it over coffee, or where it came from. But if so, it needs to be fixed, and the same applies to our own Commerce Commission (which in the past has had at least an indicative go at seeing how post-merger events played out). We need to know.

And so into the final session, 'How can the ACCC's competition concerns get more traction before Australian courts?'.

A Brit, a Scot and a Kiwi go into a bar ... aka Simon Bishop (RBB Economics), Dr Ruth Higgins SC, and Dr Mark Berry as they put the finishing touches to their thoughts on how to get traction in court on competition cases

One for the lawyers, but also some useful insights for those of us on the economics side of the house. Our own Mark Berry pointed to the value of the New Zealand 'hot tub' style of testing expert evidence and its ability to expose errors (on all sides of an argument). And he wondered if New Zealand and Australia were actually moving things along too quickly, by comparison with the times taken to rule on merger clearances or authorisation overseas: are we missing a chance to look deeper and harder at the issues involved? Ruth Higgins emphasised the primacy of the facts, quoting Thomas Huxley's "The great tragedy of science - the slaying of a beautiful hypothesis by an ugly fact", and argued that economic arguments are better when they integrate the apparently inconvenient facts. She also said that the big contribution from economists can come from establishing an overall framework within which the court can advance, rather than leaping to judgements themselves. And RBB's Simon Bishop said that the ACCC shouldn't necessarily be dismayed by the odd loss in court: it is not compelling evidence of wider underenforcement (they are always the marginal could-go-either-way cases), and echoed Ruth's points about economists showing restraint, focus, and a respect and care for the facts.

In panel discussion afterwards, there was also general agreement on what economists shouldn't do. There was short shrift given to the economists who can see no weaknesses in their arguments, and no sympathy for spinners of over-complex theories which they can't explain to decisionmakers in a persuasive way. But none of us are in those boxes, are we?