The RBB Economics conference is back

After the Covid-induced hiatus since its 2019 conference, RBB Economics got back on track last week with its traditional face to face conference in Sydney. It was good to be able to schmooze again, and you never know who you'll meet: this time round I bumped into Lilla Csorgo, who's back in our part of the world as the about-to-be ACCC chief economist.

The first panel session was 'Reflections from the agency, judiciary, and private practice'. It featured the CEO of the ACCC, Scott Gregson (somewhat oddly, the ACCC doesn't list bios of its senior staff on its website but here's the 2020 media release about his appointment as COO, upgraded to CEO in February '22) on 'Pursuit of a strategic enforcement model – the ACCC’s journey'; King & Wood Mallesons partner Peta Stevenson on 'Those who do not learn from the past are doomed to repeat it – is the ACCC doomed?'; and the Hon Justice John E Middleton AM KC on 'A more demanding judiciary emerging?', all moderated by RBB Economics partner George Siolis.

Scott took us through a history of the evolution of the ACCC from an essentially reactive complaints-driven collection of regional offices to an integrated national outfit with a more purposive agenda. Looking ahead, and he said these would be modest rather than massive moves, he expects that while a penalty-based regime will still be central, there's likely to be more focus on remediation and redress (good); that the ACCC will be driven more by market data and intelligence (as is everybody else these days); and that it will aim for better measurement of performance (always a tough job for anyone in the services game).

(Left) George Siolis kicks things off; (right) the panel for the first session, Scott Gregson, Peta Stevenson, Hon Justice John Middleton

Peta walked back a bit from what she called her "click bait" title - no, the ACCC is not doomed - and focused on the performance-measurement element. Some purported measures based on levels of ACCC outputs or activities may well be problematic: higher numbers of cartel prosecutions, for example, could easily be a result of more cartels operating rather than less, and could well mislead people into thinking that the actual desired outcome (cartel deterrence) had been achieved. Better measures might be found by rerunning the likes of the University of Melbourne 2011 survey of public awareness of cartels. And John explored some of the remediation and redress issues: the "demanding" bit of his address referred to judges demanding clearer and more convincing reasons why they should go along with agreed penalties, especially around whether they are appropriate to the degree of harm involved.

The second session, 'Reflections on policy (1)', was a pre-taped address by Dr Andrew Leigh, Assistant Minister for Competition, Charities and Treasury (and incidentally a Harvard PhD and ex economics professor at ANU), on 'No Competition, No Progress'. He pointed to evidence of rising market concentration, higher company markups, declining job switching, and declining start-ups as a percentage of total firms (when you look at firms with employees, and not just ex-employees going out as one-man-band consultants, not that, ahem, there's anything wrong with that). He made a good case that effective competition policy can combat these productivity-sapping developments, and that the post- Hilmer-report competition reforms had been one of the reasons supporting an Australian productivity boom in the 1990s. All good stuff: whether the rest of the Albanese government shares Andrew's vision of being "pro-growth progressives" remains to be seen, but it's a good thing to aim for.

Then came 'Reflections on policy (2)' on the broad theme of 'The shifting mandate of competition policy in Australia and globally'. We heard from Tom Leuner, Executive General Manager, Mergers, Exemptions and Digital at the ACCC (sorry, no web link or bio obviously available), White & Case partner Belinda Harvey, and Minter Ellison partner Katrina Groshinski, moderated by RBB principal Chris Hart.

Tom (disclaimer - his views, not necessarily ACCC's) referenced the debate about whether merger enforcement globally had become too lax (he pointed to this joint report from the CMA, the Bundeskartellamt and the ACCC). Looking forward he expected that merger policing would need to involve more focus on: non-price effects (such as on quality or privacy); effects on potential competition (the whole 'killer acquisition' thing); upstream markets facing downstream monopsonists; vertical mergers and potential foreclosure problems (very few challenged in the US recently, but more a live issue in Australia); and the process of dynamic competition, even if the analysis is necessarily qualitative. People tend to make a song and dance about how hard it is to judge whether some currently fringe start-up has the potential to be the Next Big Thing. My feeling (which I put to Tom) is that there are private equity and venture capital types who are 24/7 all over these start-ups and could well (given their skin in the game) have a pretty good sighting view of a start-up's eventual evolution. Don said that they do pick up on the valuations being paid for start-ups as an indicator of how big their idea is, which is fair enough, but I still wonder if there is some further information lurking unused.

Belinda endorsed what Tom said, in particular picking up on the importance of protecting dynamic and potential competition, but she also wondered whether in a newfound tougher global merger approach, there weren't risks of 'big' being regarded as 'bad' irrespective of the efficiencies a merger might bring or of a big company's success in meeting customer needs. She also wondered how protecting nascent competitors from incumbent acquirers would play out: it could reduce the incentives for start-ups to form in the first place if their most likely cash-out, to one of the big guys, gets taken off the table.

Katrina accepted that there is a global move of scepticism about big companies and where we've ended up - she instanced Bernie Sanders' book It's OK to be Angry about Capitalism - and that there's a view that ever bigger companies are a standing reproach to merger underenforcement. But she too wondered about going too adventurously down that road: big can be beautiful (the indirect reference was to E F Schumacher's Small is Beautiful) if efficient. On a separate topic, she said that competition policy needs to be at the centre of Australian decarbonisation: it might yet get sidelined (e.g. to allow room for government acquisitions of energy assets), but the risk would be that you end up with an economically inefficient greening transition.

And finally we came to 'Reflections on NSW Ports', a recent Full Federal Court decision. Speakers were Sarah Lynch, Special Counsel at Gilbert+Tobin, RBB principal Chris Whelan, and Michael Borsky KC, Ninian Stephen Chambers, List A Barristers. Sarah took us through the factual matrix of the case and Chris took us through some of the economic issues.

The genesis of the case was interesting. I think it would be fair to say that the then chair of the ACCC, Rod Sims, had got so exasperated at Australian states maximising the value of their privatisations, by means of arrangements (in his view) providing anti-competitive protection for the assets being sold, that he'd had a gutsful (an earlier example had got on my wick, too). The ACCC duly took on provisions that it said protected the container depot monopoly of Ports of New South Wales: their privatisation had included a clause whereby Port of Newcastle, if it entered the container port game, would have to compensate the incumbent New South Wales ports (Port Botany and Port Kembla) for business lost to the upstart Newcastle challenger. The arrangement, the ACCC argued, acted as an anti-competitive barrier to Newcastle giving the container business a go.

Unfortunately once the ACCC had clambered out of the trenches, it ran into the barbed wire of Crown immunity (the state of New South Wales could do what it liked, as its privatisation decisions were outside the purview of the Competition and Consumer Act, and the immunity also extended derivatively to Ports of NSW).  While still tangled in the wire it was mortar bombed by failing to establish anti-competitive purpose (the court preferring the simple story of a financial purpose, namely an arrangement that the buyers would get the value of the monopoly they were paying good money for). And it got raked by the judges' machine gun fire on effect: they reckoned that the provisions made no difference, as it was very unlikely that Port of Newcastle would in fact get into the container trade. Chris had wondered, given the 50 year term of the lease the purchasers were buying, how confident you could be that Port of Newcastle would stay out of the game for such a long period: on the other hand, the state of New South Wales (likely for solid economic efficiency reasons) had made it clear that it was only interested in allowing sequential container port development, with Port Kembla second in the queue when Port Botany eventually reached capacity.

The ACCC's reaction is here. The good news is that despite the lengthy and expensive defeat, the ACCC's intervention probably helped to get to a better place: the compensation arrangement was eventually rescinded. The bad news, for mine, and accepting that the courts cleared Ports of New South Wales in this case, is that Crown immunity could leave too much scope for future anti-competitive rorts. Michael Borsky usefully reminded us that the Harper report recommended that competition law ought to be extended to cover more of the activities of various levels of Australian government: at p282 it said that "Through its commercial transactions entered into with market participants, the Crown (whether in right of the Commonwealth or the States and Territories, including local government) has the potential to harm competition. The Panel considers that the NCP [National Competition Policy] reforms should be carried a step further and that the Crown should be subject to the competition laws insofar as it undertakes activity in trade or commerce". That looks a sensible view.