Thursday, 2 October 2014

No national champions, please

In earlier posts (main one here, follow-up here) I've commended the wonderful work done by Australia's Competition Policy Review. They've systematically taken a pro-consumer, pro-competitive approach without wandering off piste into anti-business populism.

They didn't get stampeded, for example, into "doing something" about the concentrated Aussie grocery business, noting that "While concentration is relevant, it is not determinative of the level of competition in a market...competition between supermarkets in Australia appears to have intensified in recent years... consequently, few concerns have been raised about prices charged to consumers by supermarkets" (p181). If there are issues of the big supermarkets strongarming their suppliers ("unconscionable conduct" in Aussie competition-speak), well they are before the courts, "where they are best considered" (p182). And if the arrival of the big chains tended to deal to the traditional mom-and-pop high street shops, "Undoubtedly these changes can damage individual businesses. However, consumer preferences and choice should be the ultimate determinant of which businesses succeed and prosper" (p183), and "While the Panel is sensitive to these concerns, they do not of themselves raise competition policy or law issues" (p184).

Along the way I wrote about some of the ridiculous anti-competition regimes that the Policy Review uncovered - notably Western Australia's bizarre potato regulations and New South Wales' monopoly organisation of the rice market, and I had some reader feedback that perhaps here in New Zealand we weren't much better, given the way we've allowed the creation of Fonterra.

As it happens, the Aussies looked at the "national champion" issue, too, and again took the pro-competition road. They had a bit (Box 15.1 on p196) specifically about Fonterra, and said that it wasn't in fact the kind of "national champion" monopolist that some Aussies were promoting. "The [Fonterra establishment] legislation included provisions and obligations on Fonterra designed to provide for domestic competition and prevent harm to consumers and farmers as a result of the merger. Concerns were raised that the farm-gate price would be depressed due to Fonterra's dominance as a buyer. These were addressed through a combination of regulation and incentives...To achieve domestic competition in the sale of milk products Fonterra had to divest several brands to competitors and is obligated to supply them on competitive terms". And they quoted Bill English as saying, "Sometimes they think in Australia that we've got a monopoly and it works, but we don't and having one doesn't".

Then they turned to the general issue of whether creating "national champions" is a good idea, as there's always someone lurking with a cunning plan along those lines (our meatworks industry is a plausible candidate for the next one). As far as I'm concerned, these next couple of paragraphs (from p195) ought to be carved in stone and erected outside any government departments or agencies thinking about going along with a bit of "national champion" industrial planning. The added emphasis is mine.
From time to time there are calls for competition policy to be changed to allow the formation of ‘national champions’ — national firms that are large enough to compete globally. While the pursuit of scale efficiencies is a desirable economic objective, it is less clear whether, and in what circumstances, suspending competition laws to allow the creation of national champions is desirable from either an economic or consumer perspective.
Porter and others have noted that the best preparation for overseas competition is not insulation from domestic competition but exposure to intense domestic competition. Further, the purpose of the competition laws is to enhance consumer welfare through ensuring that Australian consumers can access competitively priced goods and services. Allowing mergers to create a national champion may benefit the shareholders of the merged businesses but could diminish the welfare of Australian consumers.

1 comment:

  1. Nice one Donal. I fully agree and would add, if its not too soon after the election for a rugby analogy, that y'man Richie didn't get where he is today by being sheltered.


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