Let companies compete and consumers take the gains
Competition The effects test proposed in the Harper review could tilt too easily towards protecting rivals at the expense of consumers -- that's fundamentally against the principles of competition law.
The Harper report provides an invaluable blueprint to re-energise the national competition policy. These reforms were started after the Hilmer report in 1995 but were suspended by the Council of Australian Governments in 2004. Professor Ian Harper has pressed the restart button.
NCP is based on one of the best researched, most validated, but least understood, concepts in economics. Competitive markets with clear, transparent rules, provide a better outcome for society than government planning and ad hoc intervention. The corollary is that competition should apply to all sectors of the economy unless it can be shown that the public interest is better served by restricting competition. This requires government to place the interests of the public above those of private vested interests. The difficulty, of course, is in the detail, which the report doesn’t examine.
Many of the reforms recommended by the Harper panel, for transport, competition and even human services, are not new. But governments have shirked from implementing these reforms because of the special pleadings of strong vested interests. One of the most successful of these has been the Pharmacy Guild, which has maintained anti-competitive ownership and location restrictions on pharmacies. As the Harper panel note, these are not in the long-term interest of consumers and should be removed. Other industries, such as taxis, are beset with financial and social complexities flowing from decades of arcane regulations that have placed the public interest at the bottom of the list of policy considerations. Dealing with these complexities is no easy matter for governments.
To implement the Harper panel’s recommendations, governments have to decide whether they will place the public interest first or continue to be beholden to loud and persistent vested interests.
Technological change may make some reforms inevitable. The digital economy is making many anti-competitive regulations inoperable. As consumers exercise their choice, using the options available to them “at the push of an app”, the regulatory mechanisms developed in past decades are proving powerless in the face of overwhelming public preference for how and with whom it deals. Governments need to decide whether to be proactive and embrace pro-competitive innovation, or stand like King Canute against the tide of technology.
The proposed Australian Council for Competition Policy is an essential institution to provide a continuing process of competition policy reform education and advocacy. The proposed amendments to the Competition and Consumer Act are, with one exception, sensible and welcome.
The proposed recast of S 46, however, is troubling. The section is titled “Misuse of market power'”. But the proposed section has nothing to do with “misuse” of market power. It applies to all conduct by big business. The primary prohibition effectively threatens big business with substantial penalties if it engages in any conduct that has the purpose, effect or likely effect of substantially lessening competition. This is ambiguous and places faith in the courts to disentangle conduct that is anti-competitive and harms consumers from pro-competitive conduct that helps consumers but may harm competitors.
The proposed legislative guidance will not help the courts. Rather it just restates obvious principles. If actions are pro-competitive then they are not anti-competitive. And the court must determine if the lessening of competition is trivial or substantial. At the same time, the change renders useless existing guidance from previous cases.
BIG BUSINESS TO BE HAMSTRUNG
This will drown the commercial activity of big business in a sea of uncertainty. One can only wonder how a committee that on the one hand recommends pro-competitive reforms to commerce, can then proceed to urge a significant intrusive constraint on the commercial activities of big business. The only winners will be the lawyers and economists who will need to sit at the right hand of business CEOs to guide them on the legality of every significant transaction and the ACCC that will need a big budget increase to deal with the mass of authorisation applications.
The Harper panel suggests that the ACCC issue guidelines on its approach to enforcing the section. This will not effectively reduce business risk and uncertainty. The guidelines cannot and will not bind the courts. The guidelines cannot prevent or limit private parties from taking a business to court under S 46. Indeed, the guidelines will not even bind the ACCC. It can ignore them or change them as it sees fit.
The section is a misconceived approach to satisfy the urgings of small business groups. These groups would have been better to focus their attention on the effectiveness of the provisions attacking unconscionable conduct.
The proposed section is a fundamental contradiction to the economic philosophy underpinning our competition policy. As the Harper panel tabulates, similar changes have been considered and rejected in no less than 10 reviews over the past four decades. It is an unfortunate blight on an otherwise excellent report.
Professors Stephen King and Graeme Samuel AC are co-directors of the Monash Business Policy Forum.