Monday, 30 April 2018

Focus on the worst

I've been reading Auckland University lecturer Ed Willis's excellent submission on the Commerce (Criminalisation of Cartels) Amendment Bill, which he's put up on his 'Great Government' blog. I don't know what other submitters have put in - at time of writing the submissions, which were due on April 9, haven't yet been put up on the Economic Development, Science and Innovation Select Committee web page about the Bill - but I'm completely on board with what Ed has to say.

His big argument is that we should keep criminalisation for the worst 'hard core' cartel cases, and he's right, for the various reasons he lists. I agree, but when you read the Bill you find that there's nothing in it about confining criminalisation to the worst cases. Here's the relevant clause:
82B Offence relating to cartel prohibition
(1) A person commits an offence if—
(a) the person,—
(i) in contravention of section 30(1)(a), enters into a contract or arrangement, or arrives at an understanding, that contains a cartel provision; and
(ii) intends, at that time, to engage in price fixing, restricting output, or market allocating
Other than the reference to intention, there's nothing there about "deception" or "dishonesty" or any other word for the "seriously bad stuff" that criminalisation would normally be appropriate for. And even intention may have been well-meant rather than predatory, for example as an ancillary provision that collaborators thought was necessary to make a go of some joint venture. There is an out in the legislation for people in that position (it's section 31(1) of the Commerce Act), but what if a court decides, after the fact, that the cartel provision wasn't, in its view, "reasonably necessary" for the joint venture? S31(1) is a pretty slim protection against accidental criminal overreach.

There needs to be a better corralling of cartel criminalisation than currently proposed. We already have a lamentably high rate of incarceration by international standards; we have been too ready to create new ‘strict liability’ offences which penalise people who had no ill intent; we maintain as criminal offences activities which many in society would no longer regard as sanctionable (‘assisted suicide’, recreational use of cannabis); some politicians, partly following overseas examples, have seen electoral advantage in being ‘tough on crime’; and in general, across many issues from commercial failure through to drug use we reach for punitive approaches which fill the prisons, instead of for rehabilitation or prevention approaches which are cheaper, more effective, and more humane.

But all that said, there's still a decent case for criminalising the worst cartels. These are cartels where the intent to cartelise is clear and deliberate; where the behaviour is covert because the cartelists recognise that it needs to be concealed both from customers and local competition authorities; where it is systematic and prolonged rather than an isolated or brief episode; where there are agreed mechanisms for reporting on the cartel’s effects, the distribution of the illicit gains, and disciplining any deviation from the cartel agreement; and where it involves senior members of the cartel companies rather than rogue junior employees possibly not acting at the behest of the company. These are seriously harmful conspiracies, and deserve their own sanction. The first criminalisation case in Australia (see 'The Shipping News') ticked all the boxes.

And quite apart from their conspiracy and deceit aspects, let's not forget the significant economic impacts, including on other (and more honest) businesses who are often the prime victims of these rorts. By far the largest survey available of the international evidence – which covered 700 instances of economic studies or court decisions which looked at cartel price increases – found that
The primary finding is that the median episodic cartel overcharge for all types of cartels over all time periods is 23.0%. It is lower for cartels with solely domestic membership (18.2%), higher for international cartels (25.1%), and highest of all for global cartels (30.4%).
But the proposed law as it stands makes no distinctions, and it should. Ed's solution is as good as any, to split out the especially bad stuff (bid-rigging and "deliberately deceptive" cartels) and leave everything else as is, as a civil rather than criminal offence.

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