Andrew Leigh

CHOCOLATE, CARTELS & COMPETITION

One of the summer’s box office hits is Wonka – the prequel to Willy Wonka and the Chocolate Factory. Without giving too much away, it’s the tale of how Willy Wonka takes on the chocolate cartel of Slugworth, Fickelgruber and Prodnose.

Between them, the cartel controls the chocolate market. Prices are kept high. Innovators are kept out. Big chocolate has the police in its pocket, and is willing to use every bitter trick to preserve its sweet control over the market.

For many Australian consumers, Wonka will resonate. Over recent years, the Australian Competition and Consumer Commission has taken action against anti-competitive behaviour in pharmaceuticals, finance, waste disposal and building construction. When so-called competitors collude, the public pays the price.

As Wonka vividly shows, a lack of competition isn’t just bad for consumers – like the chocolate-loving public. It’s also bad for innovators, such as a new entrepreneur who uses giraffe milk. In the Australian economy, robust competition has been a major driver of economic growth. During the early-1990s, competition reforms helped unleash a surge of dynamism in the economy, leading to a rapid increase in productivity. Wage growth followed, and the income of the typical Australian household rose by around $5000.

There’s never been a more appropriate time to take a hard look at competition reform. Since the start of the millennium, Australia has witnessed a rise in market concentration and an increase in price markups. Fewer workers are enjoying the wage boost that comes from switching jobs. The 2010s were the worst decade for productivity growth and real wage growth in the post-war era. Then, as the pandemic came to an end, supply chain blockages and the war in Ukraine led to a surge in prices.

That’s why Treasurer Jim Chalmers and I have announced a competition taskforce, located in the Australian Treasury, to foster greater dynamism in the economy. Staffed by a crack team of competition experts, the taskforce’s role is to produce practical policies that will boost competition and help fuel innovation and wage growth.

Among the competition taskforce’s first priorities are to look at Australia’s merger laws. When big firms join forces, the resulting entity has better economies of scale, which gives it the potential to benefit consumers. But if it wields significant market power, it can also drive up prices. At a time when many other countries are reviewing their merger codes, it’s only sensible to consider whether Australia’s laws need an update.

Alongside this, our government has appointed former competition minister Craig Emerson to lead a review of the Food and Grocery Code of conduct, to ensure that the supermarket sector is working as it should. With many families feeling the squeeze, it’s vital that Australians pay fair prices at the checkout and suppliers get a fair price for their products. As one of Australia’s top policy economists, Dr Emerson will bring his wisdom and compassion to this vital area of economic reform.

We’ve also announced a review by the Australian Competition and Consumer Commission into the competitiveness of retail prices and allegations of price gouging in the supermarket sector – the first review of its kind in more than a decade. And to help shoppers find the best deal, government will fund respected consumer group CHOICE to provide quarterly price transparency and comparison reports – showing which retailers are charging the most and the least.

Uncompetitive markets aren’t just bad for shoppers – they can also harm workers. According to a recent survey, one in five workers has a clause in their employment contract that makes it harder for them to move to a better job. These ‘non-compete clauses’ used to apply only to well-heeled corporate executives, but in recent years, they’re being used to prevent early childhood workers and hairdressers from switching firms. As the Oompa Loompas could tell you, when employees have fewer choices of where to work, they’re less likely to earn a fair return for their labour.

Uncompetitive markets also worsen inequality. The opening scenes of Wonka show a city in which low-income consumers cannot afford chocolate, which is just fine by the profiteering cartel (one of whose members vomits at any mention of the poor). Like many aspects of the movie, it’s an astute depiction of how competition economics really works. Monopolies transfer resources from consumers to shareholders. But because consumption is more evenly spread across the population than shareholding, monopolies suck money out of the pockets of the poor and into the bank accounts of the most affluent. Uncompetitive markets aren’t just bad for growth, they’re bad for fairness too.

Reforming Australia’s competition laws isn’t as simple as one of Willy Wonka’s ingenious chocolate-making devices, but the result is just as sweet. Curtailing cartels and encouraging entrepreneurs will help boost growth and foster fairness. It will put downwards pressure on prices, and upwards pressure on wages. It will ensure that capitalism works the way it’s meant to, and encourage the kind of productivity growth that translates into higher household incomes. Forget trickle-down economics – this is flow-up economics, with the benefits that are shared across our community.

This opinion piece was first published in the Daily Telegraph on Tuesday 30 January 2024.