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Competition policy evaluated

By Saul Eslake - posted Wednesday, 7 December 2005


But that doesn’t explain why multi-factor productivity also declined by 1.7 per cent in 2004-05, the largest decline in 22 years. This decline in productivity adds further gravitas to calls for a re-invigoration and extension of the reform agenda.

The Federal Government argues that it is doing that with its proposed workplace relations reforms, and to a large extent I agree with that: although it’s important to note that, to the extent that such reforms are successful in getting people with low skills into employment (as was with New Zealand’s 1990s labour market reforms), aggregate productivity will initially decline.

Although the level of product market regulation in Australia is now quite low by OECD standards - only Ireland and Britain have lower levels, on average - there is still ample scope for further reform.

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Electricity, gas, water, transport and communications stand out as areas where further reforms would yield large dividends, as has been well-documented elsewhere.

There is also unfinished business in regard to enhancing competition in retailing, From that perspective, it is disappointing that the Federal Government has recently flinched at the opportunity to introduce greater competition into the retail pharmacy sector.

It is similarly disappointing that Western Australians voted down a referendum proposing the removal of restrictions on shopping hours - and little short of astonishing that they did so at the urging of that state’s ostensibly “pro-free enterprise” Liberal Party. As the National Competition Council pointed out, “the evidence is that such restrictions are not in the public interest”. Moreover, while it is easy for opponents of unrestricted shopping hours to mount “fear campaigns” in communities which have no experience other than of governments telling them when they can shop, or with whom, experience in places such as Bendigo and Canberra suggests that once consumers do have the opportunity to experience deregulated trading hours, they are much more inclined to resist efforts to bring back the dark ages.

There is also plenty of scope for the extension of competition in areas serviced by professions such as medicine, the law and architecture. Once again the OECD is emphatic on this score: “there is little empirical evidence … to suggest that regulatory interventions in the area of professional services that prevent competition improve consumer welfare. In practice, these restrictions have been associated with higher prices and weaker innovative activity without significant quality improvements, serving mainly the interest of the profession”.

Finally, while National Competition Policy has primarily focused on areas of state jurisdiction, its impact on federal government practice has been more limited. The National Competition Council’s 2003 assessment of governments’ performance in implementing NCP noted that there were five areas in particular where the Federal Government had not met its obligations - wheat marketing, broadcasting, the Australia Post monopoly on standard letter services, the monopoly on provision of superannuation services to MPs and restrictions on the import of second-hand motor vehicles.

However it is wrong to imagine that the task of promoting and strengthening competition is achieved only through de-regulation.

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As the economy becomes less regulated in the traditional sense of that term, as government-owned instrumentalities cease to exist or become less important, and as globalisation puts more activities actually or potentially beyond the reach of national governments and regulatory agencies, the importance of competition as a discipline on business behaviour increases - and with it the importance of effective enforcement of competition laws.

Thus, for example, I think it’s entirely proper that the Federal Government is seeking to take a tougher legislative approach towards anti-competitive cartels and to prescribe tougher penalties for breaches of laws pertaining to cartel behaviour.

Similarly I think the ACCC should take a tough line, unless persuaded to the contrary, in relation to mergers which appear, at least on the surface, to result in a substantial lessening of competition. I’m happy to leave precise definitions of what that means to the lawyers.

All of which serves to bring me back to the point that competition is not an end in itself, but rather is desirable only to the extent that it furthers the welfare of the Australian people.

As ACCC chairman Graeme Samuel said earlier this year, “a society that relies purely on market forces to distribute the benefits of change will inevitably sow the seeds for polarisation and resentment. Ultimately, this feeds into social dislocation and political instability”.

Advocates of greater competition thus need to be careful that their advocacy identifies the benefits which greater competition will bring to consumers, rather than merely to producers or sectional interests; that their advocacy does not amount to a plea for deregulation for deregulation’s sake; and that their advocacy also includes advocacy of the need to assist those adversely affected by the extension of competition to cope with the resulting changes.

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This is an edited version of a speech given to a conference on Government Competition Policy and Economic Reform in Sydney on November 29, 2005 . The full text can be found here (pdf file 96KB).



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About the Author

Saul Eslake is a Vice-Chancellor’s Fellow at the University of Tasmania.

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