Why Australia’s love affair with oligopolies needs to end

Australia’s love affair with oligopolies needs to finish.

There will always be some huge companies; the air transport industry seems to be one where very large businesses will rule. But the biggest oligopolies never add to the diversity of the economy or national productivity. Indeed the biggest businesses Australia has ever seen impede our innovators and inhibit growth.

Competition is about productivity, innovation and diversity and the future of productivity rests with medium and small business owners.

Oligopolies, regulators and the misuse of market power

The reality is the domination of the retail sector by two mega companies means they effectively control the innovators in what is a captured supply chain of tens of thousands of businesses – large, medium and small.

The domination of telecommunications by one company has resulted in Australia having a communications system that is one of the slowest and one of the costliest in western economies. This is also an inhibitor of innovation and of business growth.

One way to manage oligopolies is through well-written and well-regulated competition regulations. Australia currently has a very good regulator – the Australian Competition and Consumer Commission is performing the best it has in over a decade under Rod Sims’ chairmanship – but we need better regulations. The ACCC needs better tools to do its job more effectively.

One obvious proof that we have a problem is the oligopolies have form with regulators.

For example, Coles is mentioned in the ACCC’s annual reports and has been taken to court over allegations relating to unconscionable conduct and misleading information. Woolworths is currently in dispute with the ACCC, having been accused of forcing suppliers to provide information and business data that is used to push those same suppliers out of business.

The Fair Work Ombudsman took Coles to court for over the treatment of trolley collectors, while both Coles and Woolworths were recently fined by the national weights and measures regulator for discrepancies between how much products actually weighed and what was listed on their packaging.

It goes on and on.

It isn’t just productivity that suffers from poor regulations and dominant oligopolies, it is consumers, suppliers, employees and contractors.

Perversely, there is unanimous agreement that the debate around the misuse of market power provisions of Australia’s competition law continues to be full of misinformation and misguided information. We obviously agree.

For example, members of the big business lobby continue to demand that the words “take advantage” remain in section 46 of the Competition Act. This is in spite of the fact the majority want those words removed. The majority includes: more than 96% of businesses and business associations; the Chairman of the ACCC and the ACCC commissioners; Professor Ian Harper and his esteemed panel; most federal members of parliament; Professor Alan Fels, a past ACCC chairman, and many, many others.

The apologists for oligopolies argue, among other things, that if these words were removed “large businesses would risk breaking the law every time they innovate… ”.

What is not understood is that large businesses do not innovate often; people who own small and medium business do. Innovation is also to be found in startups, business disruptors and new entrants to the business world, businesses often held back by the major oligopolies. Interestingly the countries that are home to big businesses that do innovate – Apple and the iPhone being the best example – have an effects test in place.

The main reason why the words “take advantage” need to be removed from competition law is that it is difficult, if not impossible, to prove in court that a business has deliberately taken advantage of their dominance to impede competition.

Australian courts have ruled a big firm that undertakes anti-competitive behaviour, such as attempting to drive a competitor out of business is not breaking the law if a small business could also do the same.

In practice, of course, we all know that a small business has almost no ability to do such things. So until the term “take advantage” is removed, misuse of market power cases will be very hard to prove for the ACCC.

The regulator would need a smoking gun of some sort – an email, an internal memo, or notes from meetings; information that big companies will ensure is not available.

It seems the biggest businesses Australia has ever seen want to be protected from the law by making the law impossible to prosecute.

What matters is productivity

The most important issue about competition is the need for stronger regulations to assist in improving Australian productivity.

The fact is we have a good economy but productivity is sluggish and we have a large national budget deficit.

The people from which productivity and budget surpluses will come are those that create jobs and/or add value, these are: the manufacturers, producers and growers who are under constant attack and pressure from the retail oligopolies and are held back by poor telecommunications.

It must also be noted that not all oligopolies are bad or damaging. It is the ones that have become large due to poor policy or regulations not those that have achieved success by good business practices

Some oligopolies do damage the Australian economy because the words “take advantage” are still in section 46. Remove those words and the ACCC will have the ability to stop the damage and enhance competition and productivity.

Then the oligopolies will only have to make sure they do not damage innovation or competition by thoughtless ill-considered behaviour. That should be easy for businesses with access to so many resources and to so many ‘experts’.

The government must implement the recommendations of the Harper review. We don’t think the recommendations go far enough and the big end of town doesn’t want it at all.

Let’s just do it and move on.

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