One event which gave me an inkling of the networks of price fixing
and collusion that must have been endemic to Australian business
was the time Sydney's ice manufacturers were accused of fixing prices
on bagged ice.
Nearly 10 years ago I reported on a story in which the old Trade
Practices Commission (now the Australian
Competition and Consumer Commission) accused 19 ice manufacturers
of allegedly striking a price agreement over the bags of ice usually
on sale in service stations. The agreement, so the TPC alleged,
had been put together to end a price war just before the Christmas
The matter has not been publicly referred to again, as far as I
have been able to establish, so it was almost certainly settled
out of court (it was a civil action, not a criminal matter), but
the incident illustrated for me just how easily businesses will
form networks and stake out business turf, so they can take their
profits without the trouble of competition.
These are the sort of networks that the ACCC is meant to fight
and that task earns the commission and its recently departed chairman
Allan Fels, a lot of abuse from the business community. That the
business community is abusive over such matters is understandable
- businesses want cosy, anti-competitive arrangements, ranging all
the way from a wholesaler dictating retail prices to stores (not
allowed), through to whole cartels. Going back even further than
the ice manufactures, the major music publishers, all overseas owned,
were alleged to be involved in a cartel to fix the prices of CDs.
They had the help of copyright law which gave them control of imports,
even from copyright-abiding countries such as the US.
And those examples are just the tip of the iceberg of anti-competitive
practices both hidden (even when they were not particularly unlawful,
before the Whitlam government brought in the Trade Practices Act),
or fully above-board and legal. There were reams of regulations
fixing the prices of commodities such as eggs and milk, not to mention
tariffs on almost everything, import quotas, agreements concerning
newsagents, closed shop rules to protect the legal profession in
each state and volumes upon volumes of industrial relations regulations,
to mention but a few.
But the general Australian community, although the community may
not fully realise it, wants more competition. They want "damaging"
price wars (businesses always refer to price wars as "damaging").
They want price reductions and businesses that are forced to innovate
in order to get an edge, any edge, over a competition that will
not go away.
Otherwise we will have a situation that occurred in Australia up
to the 1980s - before successive governments started dismantling
the tariff barriers and sweeping away regulations - with a succession
of what were known as "sweetheart" deals. The unions would
demand a pay rise; the employers would appeal to the government
which would reluctantly agree to lift tariffs; then employers would
hand over the wage rise, knowing that their profit margins were
safe. For internal markets employers would agree to lift prices.
They would not innovate or invest capital on new machines, attempt
to find new markets, try to export, or do anything else at all.
Why should they? Their markets and profit margins were secure and
competing is hard work - very hard work. Much easier to go to the
government and point to the job losses that will undoubtedly result
from "damaging" price wars. As a result, industry stagnated.
The rediscovery of competition as a driver of business change in
the past two decades or so has many sources but perhaps one of the
most important source was the publication of The
Competitive Advantage of Nations by Harvard Professor Michael
Porter (Macmillan Press, 1990). A great deal has since been written
about Porter's theories, and he points to a range of factors, not
just competition, as the reasons why certain industries in certain
nations get ahead while others fail. Nonetheless, competition is
an important part of his theoretical mix. Among other examples,
Porter points to the Japanese car industry. That industry has been
protected since World War II, first by tariff and then by non-tariff
barriers, but the crucial difference between it and the Australian
industry is that the Japanese car markers were and are in fierce
competition with one another. The competition was so fierce that
the eventual winners were tough enough to take on manufacturers
even in the car making homeland, the USA.
We cannot hope for tough car manufacturers - Australia's manufacturers
are all foreign owned and take orders from head office. The government
response has been to force them to export. For that matter competition
advocates also have to tread carefully when it comes to pay television
cable networks, and power distribution networks. But the general
principle is still sound and it is worth having the likes of Professor
Fels and the ACCC around to keep businesses on their toes, despite
business complaints and public hand wringing over job losses in
Professor Fels was not in the job he has recently departed from
to win popularity contests; the nature of the job is that the business
sector will detest him, as they detest the Tax Commissioner, no matter what he does. Fels was there to enforce the law and this he did. His success and integrity was such that about all the business community could realistically accuse him of, as a sort of parting salvo, was that he sought publicity for the ACCC's actions unnecessarily.
I believe that seeking publicity for the commission's actions is
part of the job. Just as the tax office publicises successful prosecutions,
the ACCC points to its actions as part of the enforcement process,
not to so much shame the parties involved (although it may do so)
but as a warning to the rest of the community. Perhaps business
people who read my report on the ice makers a decade ago backed
away from price rigging deals in their own industry as a result.
We can only hope.