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Competition reality a sly fiction

By Mark Christensen - posted Tuesday, 9 June 2009


His gushing endorsement of Rudd Inc’s extravagant National Broadband Network makes it hard to believe Graeme Samuel, chairman of the Australian Competition and Consumer Commission, was once a successful business man.

Believe it or not, companies and small businesses all around this country still have visions of grandeur. It’s just that the private sector must marry such idealism with the harsh realities of only putting resources into investments valued by the community.

This process is fundamentally reliant on the judgment of entrepreneurs who, having put their capital at risk, are incentivised to understand what consumers want and to deliver it to them at least cost. Governments embraced this ethos in the 1980s, accepting that, while capable of making such choices and even sometimes getting them right, their comparative advantage lay in establishing the high-level frameworks that allow the capitalist X-factor to make the win-win decisions that benefit us all.

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Like Rudd, the ingrained cynicism and frustration at things not going to plan blinds Samuel to the possibility that he is part of the problem. Second-guessing the market and crucifying Telstra seems preferable to questioning the limitations of the regulatory regime or the propaganda employed by its guardians.

In a recent speech, he slammed the so-called negotiate-arbitrate regulatory model, suggesting the ACCC should instead have pre-emptive powers to “set access terms and conditions upfront without waiting for an arbitration”.

While certainly plagued by conflict and litigation, few ask if the current orthodoxy itself undermines commercial outcomes. Why would a competitor negotiate with Telstra if it knew a regulator was lurking in the background keen to beat it up? Likewise, how does Samuel arbitrate fairly when he’s already presumed Telstra guilty?

Market efficiency is about the free exchange between a buyer and seller; it cannot be forced or imposed by a third party, regardless of good intentions. Claims of even-handedness and public interest can be fed to the media, written up in legislation, but the truth is the ACCC has an innate bias against those it regulates.

It exists because of a belief, confirmed by the PM in his infamous essay, that corporate Australia is predisposed to doing the wrong thing. True, this bias is designed to counter potential market failure, but it remains a bias nonetheless and its denial inevitably creates intense anger and confusion, none of which is presently recognised by the policy elite.

The use of the word “competition” is another sly fiction. Australia has ACCC-managed competition in infrastructure, banking and various other sectors. Active prevention of market dominance, while maybe limiting gouging, also stymies those companies most successful in meeting customer needs.

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Efficiency in telecommunications is forsaken for the sacrosanct assumption that it’s good policy to pre-emptively and unequivocally screw Telstra because it’s powerful enough to potentially screw others. Moreover, anyone questioning the cost or sense of attempting to achieve equality via legislation is immediately labelled a monopolist, un-Australian or some other pejorative designed to set the tyrannical majority upon you.

Then there’s the perennial promise of regulatory certainty. For this to be reality, Graeme Samuel has to either give Telstra complete commercial discretion, which is no regulation, or make regulatory decisions formulaic, completely transparent and free of professional judgement. The former isn’t considered, while the latter gives an insight into the perverse effects of regulation.

Criticised for adding to business risk, regulators are compelled to enforce a mechanistic, tick-a-box approach that is contrary to the public interest they claim to be upholding.

If asked, Telstra says access to its network by third parties should be based on what it determines to be right. Those reliant on this price of course claim such flexibility to be outrageous. Further, any subsequent unprovable views mandated by the ACCC are exposed to the same open-ended complaint.

In a vain attempt to avoid the unavoidable circularity associated with arguing over the innately subjective, the whole regulatory process drives out the very attribute that delivers upon the coveted vision thing: expert commercial judgment. When the big picture doesn’t fall into place, blokes like Rudd and Samuel unthinkingly surmise the failure to be evidence that tougher regulation is now required.

Australia can’t formulate good policy without accounting for the subtle side-effects of regulation.

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This article is based on a submission to the Federal Government’s Discussion Paper on National Broadband Network: Regulatory reform for 21st century broadband.



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About the Author

Mark is a social and political commentator, with a background in economics. He also has an abiding interest in philosophy and theology, and is trying to write a book on the nature of reality. He blogs here.

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Creative Commons LicenseThis work is licensed under a Creative Commons License.

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