Monday, 13 April 2015

Australia's got the competition gospel. Have we?

At the end of last month Australia's 'Harper Review', or more formally the Competition Policy Review, issued its final report (where there are links to the chapters, the full report, and, if life's too short, a series of cheat sheet infographics which will give you the guts of the thing). I'd loved its draft report when it came out last September: it was a breath of fresh air to find a review body that was systematically on the side of the benefits of competition and against the privileged interests created, for example, by restrictions on parallel imports. In particular I'd liked its proposed change to s46 of Australia's Competition and Consumer Act, which is the equivalent of s36 of our Commerce Act, the bit that deals with misuse of a substantial degree of market power, and I was very pleased with its forthright stance against creating "national champions" shielded from domestic competition.

And there was also a whole bunch of other worthwhile stuff dealing to impediments to competition, notably (I'm quoting from the relevant cheat sheet) removing regulations that inhibit competition in areas such as aviation, shipping and taxis, and dealing immediately to archaic anti-competitive arrangements by reforming retail trading hours, parallel importing, and pharmacies. Predictably the pharmacists have responded with the usual special pleading, but there was an excellent riposte by the University of Melbourne's Prof Philip Clarke which said among other things that "the lack of competition in the sector comes at a cost to the consumer, both in terms of the choice of where they can shop and in the prices that must be paid...a packet of aspirin, which may cost as little as $3 in [the] retail marketplace costs up to $12 when it is dispensed under the PBS [Australia's Pharmaceutical Benefits Scheme]".

The final report has a few changes from the draft version (the relevant cheat sheet is here), including a new and sensible recommendation (p51) that "Competition principles, particularly those promoting choice and a diversity of providers, should be incorporated into [government] procurement, commissioning, PPP [Public-Private Partnerships] and privatisation policies and practices" and the equally sensible recommendation that "Non-employment trading restrictions in awards and industrial agreements should be subject to competition laws".

On the misuse of market power, the Review was originally minded to allow a defence that
the prohibition would not apply if the conduct in question would be both:
• a rational business decision by a corporation that did not have a substantial degree of power in the market; and
• likely to have the effect of advancing the long-term interests of consumers
but as the Review notes (p342), "This proposed defence is generally not supported by submissions", including, incidentally, our own Commerce Commission's, and they dropped it. Their final position (Recommendation 30) is
The primary prohibition in section 46 of the CCA should be re-framed to prohibit a corporation that has a substantial degree of power in a market from engaging in conduct if the proposed conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market.
To mitigate concerns about inadvertently capturing pro-competitive conduct, the legislation should direct the court, when determining whether conduct has the purpose, effect or likely effect, of substantially lessening competition in a market, to have regard to:
• the extent to which the conduct has the purpose, effect or likely effect of increasing competition in the market, including by enhancing efficiency, innovation, product quality or price competitiveness; and
• the extent to which the conduct has the purpose, effect or likely effect of lessening competition in the market, including by preventing, restricting or deterring the potential for competitive conduct in the market or new entry into the market.
This for me is a good finishing point, and I'd like to see MBIE, who are looking at what to do about our s36, adopt it holus bolus and move smartly on.

I also liked the Review's recommendation that the net benefits of its proposals ought to be formally modelled (they suggest, by Australia's Productivity Commission). Yes, obviously, it's rather a heroic exercise, and you'll find a discussion of the issues involved in s30 of the report (from p492 onwards), but where we can, we should all be moving to policy that's based on at least some stab at reasonable numbers rather than on wishful thinking or ignorance. I'd suggest the net benefits of their overall package could be very large: the Review helpfully included (pp497-8) some existing estimates of specific reforms, and they're sizeable. Here are a couple of them:
In respect of parallel imports (see Recommendation 13), the PC [Productivity Commission] found that, in 2007-08, a selection of around 350 books sold in Australia were on average 35 per cent more expensive than like editions sold in the US. In many cases, the price difference was greater than 50 per cent.
In regard to planning and zoning (see Recommendation 9), in New South Wales, a recent study commissioned by the state government into the potential benefits of comprehensively reforming planning and zoning in that state showed net benefits ranging between $569 million and $1,482 million per annum, depending on the reform option considered.
So hats off to the Aussies. They haven't done the political hard yards to implement it yet, but at least they've come up with a terrific blueprint for advancing a more productive, more competitive economy and for dismantling the Olde Spanish Practices that have been rorting Australian consumers.

On the other hand I wish I could see a similar appetite for reform in New Zealand. As I've said before, when another Aussie review also came up with a hatful of competition and regulation reforms, you struggle to see the same issues being treated with the same degree of urgency here at home.


  1. Thanks! Most of the comments in the blogosphere tend to be pushbacks and criticism of one kind or another, so it's nice to get a 'like'.