Why an effects test could help fix our failed competition policy

Contrary to the views of Peter Costello, Graeme Samuel and Stephen King expressed recently, the need for an effects test in competition law is well past its due date. 

As Australian Competition and Consumer Commission commissioners Jill Walker and Roger Featherstone have demonstrated, the use of an effects test is commonplace around the world and it is needed in Australia. 

This is a view supported by Allan Fels, the first chairman of the ACCC, who in a speech earlier this year at Melbourne University also stressed the need for change and for Australia to reflect the approach of most other countries.

What Samuel misses is the bigger picture. The reality is we have a productivity problem in this country and as productivity remains low then our standard of living must start to fall. 

One reason why that productivity is falling, and has been since 2004, is that the people who can innovate and experiment or create new products and new processes have been hindered and pressured by the domination of two large retailers.

The competition issue is of course wider than just retail, we have market concentration in finance, transport, energy and communications. This has occurred due to the small size of our market when compared to other jurisdictions, but it has also occurred due to the laissez-faire approach to competition from government and regulators, an approach championed by Costello and implemented by Samuel.

There are other issues that impact on productivity: high wages, our reliance on raw material exports, lack of value adding and the declining manufacturing sector have all contributed. Underpinning this, however, is the domination by a few over the many. 

The pressure on manufacturing in particular is partly a result of market domination and creates a focus for many manufacturing companies on survival, not on growth. The domestic market is not a level playing field for many small and medium businesses.

All this comment and concern from Samuel and others comes from the announcement late last year of a root and branch review of competition policy by the minister responsible for competition, Bruce Billson. 

Minister Billson is seen by most in the small business community and by many other commentators as a highly skilled politician with vision who is underrated and underestimated. He has listened long and hard to the views of big business groups and has also given small business groups the chance to make comment and be heard. 

This is important, as one reason for the domination by a few is that they have the resources to also dominate the policy airwaves and ensure only their point of view is heard.

The head of this review of competition policy is the well regarded Ian Harper, who has been given terms of reference that are very broad and include a focus on productivity and on small business. This shows Billson sees the future of the economy is with productivity and the small business community is an important part of improving productivity. 

He will not want small business to be protected, neither do we, but he understands our importance and we believe he wants the innovators to have space to think and room to move. But as highlighted above, there are too many people such as Samuel and Costello who basically want things to stay the same – why?

The author of the previous competition review, Fred Hilmer, has also questioned the terms of reference and believes there is too much focus on small business. Why do they not understand the importance of small business to the future of the economy?

The current suite of competition laws was developed last century when there was no internet, there was no domination by two super retailers and global trade was limited. Last century, when policymakers would state, ‘If you look after big business small business will be fine.’ That statement is right in many instances but not when the big business becomes so dominant that normal business to business negotiations and activities break down. Competition in Australia is and has been compromised. 

It is no secret that Samuel is not a champion of small business and is happy to lecture us ad nauseam about what is best for the country and how we should be quiet and go away. In the end, Samuel is an apologist for big business and for laissez-faire economics. It is a fact that big business are best placed to convert innovations and visions into something bigger and better, but the initial innovation, that initial idea and vision will not come from the big end of town, it will come from individuals.

Furthermore productivity will come from those who grow things or make things or add value.  Productivity growth will not come from retail; retailers sell what others make.

As Fels pointed out in his speech competition law is about the broader health of the economy not about whether a business will benefit or not. The current ACCC chairman, Rod Sims, also understands his role in aiding competition, not turning a blind eye to the hard problems. Sims does not favour small business; what he has done is given the ACCC a backbone and a strategy.

We in the business world must focus our attention on productivity. The way to do this is by listening to those who are in touch with the modern world, not those dwelling in the past.

Peter Strong is the chief executive of the Council of Small Business of Australia.