Friday, 26 September 2014

What a terrific report

Australia's Competition Policy Review came out with its draft report (pdf) earlier this week, and it was an absolute humdinger. The terms of reference (pdf) gave it broad scope to roam across competition, regulation, legislation, and institutions, and it went for it.

I was frankly delighted with where it got to. It's not often you find yourself agreeing with almost everything in a long report (the main bit runs to 299 pages) but for me this was one of those times. There's a good case for lifting the report holus bolus and plonking it down  here at home, too, where applicable (we're ahead of the Aussies in some places, and behind them in others).

There's so much in it that's worthwhile that I'll stick to some of the highlights this time round, and come back to some individual topics later.

Most importantly, there was a clear statement of the value of competition. In a lot of well-meaning circles, you get "competition, but...". You'll hear "competition, but also allow companies to bulk up to be internationally competitive", or "competition, but not at the expense of cooperation", or "competition, but not where it might have socially inequitable outcomes", or "competition, but not in this unique sector where it can't work". Rather, the Review called it like it should:
Competition policy sits well with the values Australians express in their everyday interactions. We expect markets to be fair and we want prices to be as low as they can reasonably be. We also value choice and responsiveness in market transactions — we want markets to offer us variety and novel, innovative products as well as quality, service and reliability.
Access and choice are particularly relevant to vulnerable Australians or those on low incomes, whose day-to-day existence can mean regular interactions with government. They too should enjoy the benefits of choice, where this can reasonably be exercised, and service providers that respond to their needs and preferences. These aspects of competition can be sought even in ‘markets’ where no private sector supplier is present.
Maximising opportunity for choice and diversity, keeping prices competitive, and securing necessary standards of quality, service, access and equity — these are the things Australians expect from properly governed markets. A well-calibrated competition policy aims to secure these outcomes in commercial transactions and, where appropriate, also in the provision of government services (p15)
That point about "Access and choice are particularly relevant to vulnerable Australian or those on low incomes" is an important one that is often overlooked. The rich kids can get into the best schools in the state system because their parents can buy into the school zone with the expensive houses: it's the poor kids who are stuck with the sole dysfunctional choice on offer. Increased choice, through more suppliers, public and private, competing for their custom, is especially important for the poorer and more marginalised, as they're the groups with the least choice currently.

More markets, competition and choice in the provision of what the Review calls 'human services' (education, health, social services) could be one of those occasions where we can have it all - more efficiency and more equity:
Designing markets for government services may be a necessary first step as governments contract out or commission new forms of service delivery, drawing on public funds. Over time a broader, more diverse range of providers may emerge, including private for-profit, not-for-profit and government business enterprises, as well as co-operatives and mutuals.
If managed well, moving towards greater diversity, choice and responsiveness in the delivery of government services can both empower consumers and improve productivity at the same time (p17)
The Review has backed the idea of a specialised agency to advocate for competition - quite right, and we should have one too. The likes of an ACCC or Commerce Commission can sort of do it, but it may not be the right place - "Too often this has fallen by default to the ACCC, which can be an uneasy role for a regulator to fulfil" (p57) - and multitasking agencies like MBIE may not run with it strongly enough (my view, by the way, not the Review's). It's also picked up on the idea of 'market studies', which our Productivity Commission has also been looking at:
Australia needs an institution whose remit encompasses advocating for competition policy reform and overseeing its implementation...
This new body would be an advocate and educator in competition policy. It would have the power to undertake market studies at the request of any government, and could consider requests from market participants, making recommendations to relevant governments on changes to anti-competitive regulations or to the ACCC for investigation of breaches of the law (p6)
Although Australia, like us, has made a pretty good job of liberalising markets over the past couple of decades, the Review also did a fine job of exposing some residual absurdities. Some of my favourites:
A pharmacist must obtain approval from the Commonwealth to open a new pharmacy or to move or expand an existing pharmacy. A pharmacy may not open within a certain distance of an existing community pharmacy...A pharmacy must also not be located within, or directly accessible from, a supermarket (pp109-10)
In Western Australia, licences to grow table potatoes, as well as the price, quantity and varieties grown, are all regulated by the Potato Marketing Corporation...The Potato Marketing Corporation, not consumers and producers, determines the quantities, kinds and qualities of potatoes offered to consumers in Western Australia. In fact, it is illegal to sell fresh potatoes grown in Western Australia for human consumption without a licence from the Potato Marketing Corporation (p114)
...the taxi industry is virtually unique among customer service industries in having absolute limits on the number of service providers...The scarcity of taxi licences has seen prices paid for licences reach over $400,000 in Victoria and NSW, which indicates significant rents in owning a licence and is at odds with the claim that licence numbers are balanced given market conditions (pp137-8)
The NSW Rice Marketing Board retains powers to vest, process and market all rice produced in NSW, which is around 99 per cent of Australian rice. A party wanting to participate in the domestic rice market must apply to the Board to become an Authorised Buyer. The NSW Rice Marketing Board has appointed Ricegrowers Limited (trading as SunRice) as the sole and exclusive export licence holder.
Sensibly, the Review suggests knocking all of these on the head, and dealing to a bunch of other recidivist issues while you're at it (such as parallel imports, retail trading hours, the shipping lines).
The thing's an absolute compendium of pro-market ideas - the need to deal with the potential for planning and zoning legislation to overprotect incumbents, for example, or with unnecessary restrictions on entry into professional services - and I can't recommend it highly enough.

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