Andrew Leigh

HOUSE OF REPRESENTATIVES

TUESDAY, 5 SEPTEMBER 2017

It is timely for this House to be debating competition policy given the increasing concern internationally about the impact of rising market concentration on growing inequality around the world. The importance of competition policy has not always been appreciated by the economics profession. In a recent speech, Rod Sims quoted from a number of doyens of the economics profession, including Milton Friedman, who was sceptical of the role that antitrust has to play. But, as he noted, the economics profession has come around on that issue.

The notion that firms will always demand a competitive environment in which to operate is not borne out by the evidence. Indeed, one only has to look to the strategy literature to see precisely that. In his speech, Rod Sims quoted from perhaps the most famous paper in the strategy literature, Michael Porter's 1979 Harvard Business Review piece, 'How competitive forces shape strategy', in which Professor Porter laid out five focuses of firms that will drive commercial success: 'erect high entry barriers', 'keep suppliers weak and dispersed', 'reduce competition', 'curb buyer power—for example, with high loyalty', and 'reduce the likelihood of substitutes'. In other words, as Rod Sims notes, competition policy equals corporate strategy multiplied by minus one.

The Economist magazine has recently analysed the extent of market concentration in the United States across 900-odd sectors, comparing concentration in 1997 with concentration in 2012. They found that the weighted share of the top four firms in each sector had risen from 26 per cent to 32 per cent. Inspired by their analysis, last year Adam Triggs and I published a paper in The Australian Economic Review, 'Markets, monopolies and moguls: the relationship between inequality and competition', in which we used private market research data to estimate the degree of market concentration across 481 industries. We found that the largest four firms controlled 36 per cent of the market—a higher degree of market concentration than in the United States. In a number of industries, the big four controlled more than 80 per cent of the market, including department stores, newspapers, banking, health insurance, supermarkets, domestic airlines, internet service providers, baby food and beer.

The impact of this emerging research on the growth of market concentration has been significant within the economics profession. As The Economist noted on 12 April this year:

One sign that monopolies are a problem in America is that the University of Chicago has just held a summit on the threat that they may pose to the world’s biggest economy. Until recently, convening a conference supporting antitrust concerns in the Windy City was like holding a symposium on sobriety in New Orleans. In the 1970s economists from the "Chicago school" argued that big firms were not a threat to growth and prosperity. Their views went mainstream, which led courts and regulators to adopt a relaxed attitude towards antitrust laws for decades.

But the mood is changing. There is an emerging consensus among economists that competition in the economy has weakened significantly.

Increasingly, researchers are suggesting this is not just a problem for growth but also a problem for equity with the increase in market concentration potentially behind the rise in the profit share, the fall in the labour share, stagnant wage growth, and sluggish research and development and productivity statistics. Indeed, the overall rise in inequality has been well documented and the Leader of the Opposition, the shadow Treasurer and many others on the Labor side have spoken about it.

With regard to this bill, Labor opposes schedule 6 and supports the remaining 13 schedules. Were the government to remove schedule 6 from this bill, Labor would support it in this House and in the other place. The bill is largely uncontroversial. It flows from a panel led by Professor Ian Harper that was commissioned in 2014 and reported in March 2015. It has been 2½ years since the Harper review was handed to the government, and the parliament could have acted with much greater alacrity to implement the recommendations. As the shadow Treasurer has made clear, Labor engaged constructively with the Harper review throughout and would have been happy to support these recommendations in 2015 when the Harper review finished its work. We won't be supporting schedule 6 of the bill since that schedule proposes to increase the maximum penalty for breaches of secondary boycott provisions—also known as sympathy strikes—from $750,000 to $10 million. I will detail later in my remarks the reason that Labor won't be supporting this largely industrial relations measure.

Labor has been the party of competition for decades. We recognise that competition means lower prices, higher wages and better-quality products for Australian families. It brings about a more productive and innovative economy and increases the standard of living. Labor backs competition law because Labor backs the little guy. We believe in an economy in which start-ups are able to break into new markets. For us, supporting competition is about supporting consumers over vested interests. It is about supporting the little guy over the rent seekers.

Labor introduced the Trade Practices Act in 1974. Prior to that, there was no act of parliament dedicated to competition matters. The original act is now known as the Competition and Consumer Act 2010 and remains the backbone of competition law in Australia. Under Prime Minister Keating, Professor Fred Hilmer was commissioned to chair a comprehensive review into competition policy. The Hilmer report set the agenda for the next two decades of competition policy reform in Australia. The Grattan Institute has described national competition policy as one of 10 big reforms which has underpinned recent decades of strong economic growth in Australia. The Productivity Commission found that the reforms from the Hilmer review led to a significant and permanent increase in Australia's economic capacity.

Under the Rudd and Gillard governments, further changes were made to competition and consumer policy settings. The introduction of the Australian Consumer Law in 2011 was a cooperative reform between the states, territories and the Commonwealth government that created a consistent approach to a range of consumer issues, such as unfair contract terms, consumer rights and product safety.

Labor went to the last election with a suite of policies to strengthen the Competition and Consumer Act, including increasing the penalties for anticompetitive and anticonsumer conduct—one of which we're pleased to see was picked up in the government's budget this year—and to use some of the additional revenues generated by those higher penalties to increase the competition watchdog's litigation budget from $24.5 million to a maximum of twice that level. We welcome the government's budget announcement, as I said, but we urge the government to adopt policies that are in line with international best practice, such as making fines for anticompetitive conduct referable to total turnover.

Labor is also committed to giving the competition watchdog a completely independent market studies function, which would allow the competition watchdog to use investigatory powers to look at particular industries, rather than waiting for a reference from the government on a sector such as the electricity distribution industry. This market studies power would help the ACCC identify competition challenges before they become systemic. Labor criminalised cartels back in 2009 and, prior to that, this form of white-collar crime was merely a civil offence. We did so because, again, it brought Australia in line with international best practice.

Labor understands that reducing barriers to entry and protecting consumers is fundamental to a stronger economy. We have consulted widely to ensure that this bill does not water down cartel provisions. We certainly don't want legitimate joint ventures to be unintentionally prohibited by the cartel provisions under the act. This bill broadens the exemption so that it covers not just contracts but also agreements and understandings. The bill also extends the joint venture exemption to include provisions that are 'for the purposes of and reasonably necessary for undertaking the joint venture' and extends the exemption to the acquisition of goods and services, not just the production of goods and services.

Another measure worthy of special consideration is the introduction of a reasonable search defence. Labor's consulted widely to ensure this measure wouldn't allow companies or individuals under investigation to use this defence in refusing or failing to comply with a compulsory information request by the competition watchdog under section 155. Section 155 is the foundation of the Australian Competition and Consumer Commission's ability to investigate alleged breaches of the act.

Labor is also committed to ensuring that sensible measures in this bill receive bipartisan support. Schedule 1 of the bill, which Labor will be supporting, defines 'competition' to include competition from goods and services that are capable of being imported, in addition to those actually imported. The ACCC says it already considers potential imports, so this change merely provides greater clarity than any substantive alteration to the law. We support schedule 2, the changes to the cartel conduct provisions, which I've mentioned already. Confining the application of the provisions to cartel conduct affecting competition in Australian markets is a logical reform which reinforces other parts of the act to prevent extraterritorial application. We support schedule 3, dealing with concerted practice; and creating a new offence in section 45, prohibiting a corporation from engaging in a concerted practice that has the purpose, effect or likely effect of substantially lessening competition. Section 45 continues to also prohibit making, arriving at or giving effect to a contract, agreement or understanding with a purpose, effect or likely effect of substantially lessening competition.

As recommended by the Harper review, 'concerted' isn't defined because it has a clear and practical meaning. However, there is more information in the explanatory memorandum. An example of concerted practice would be where petrol stations communicate their prices to each other whereby—short of creating a contract, arrangement or understanding—a common practice develops where they then set their prices in unison. A recent academic study into the Perth petrol markets suggests that this kind of behaviour may be increasingly widespread in a big-data era.

Schedules 3 and 4 repeal provisions on price signalling and exclusionary provisions—and Labor will be supporting them—as those provisions are made redundant because of the introduction of the above concerted practice offence. Exclusionary provisions are defined as an actual or proposed contract, arrangement or understanding between competitors where the provision has the purpose of preventing, restricting or limiting supplies of goods and services to, or acquisitions from, particular persons or classes of persons. The concerted practice provisions capture this conduct and prohibit it across all industries. The existing price signalling provisions apply only to the banking sector. They were introduced by Labor in 2012 and relate to the private disclosure of pricing information to a competitor on a per se basis and the general disclosure of information where the purpose of the disclosure is to substantially lessen competition in the market. The concerted practice provisions capture this conduct and prohibit it across all industries—not just banking.

We support schedule 5, which deals with covenants affecting competition, simplifies the act by defining 'contract' and 'party' to include covenants. This allows for the repeal of redundant provisions which separately deal with covenants. I'll return in a moment to schedule 6, which Labor opposes. Schedule 7, which Labor supports, deals with third-line forcing—effectively, the behaviour of saying, 'I'll sell you this pen as long as you buy the ink from my sister.' It is prohibited per se, meaning that it's prohibited regardless of its effect on competition. Schedule 7 changes this, such that third-line forcing is only prohibited when it has the purpose, effect or likely effect of substantially lessening competition, which is consistent with other parts of the act and other jurisdictions.

Schedule 8, which Labor supports, deals with resale price maintenance and the supply of goods on the condition that goods not be sold below a price specified by the supplier. Currently, a supplier can seek an authorisation from the ACCC to engage in conduct that would otherwise be prohibited as resale price maintenance when it is in the public interest. The Harper review noted that the seeking of such authorisation is seldom done due to cost and delay and that notification is generally a quicker and less expensive means of obtaining an exemption and is available for other forms of vertical restriction.

Schedule 9, which Labor supports, consolidates the ACCC's various authorisation provisions, including those relating to mergers, into a single authorisation process. It also grants the ACCC a class exemption power, which allows it to provide its usual exemption but across a class of kinds of conduct rather than individually. It also allows the ACCC to impose conditions on notifications for resale price maintenance. Schedule 9 allows the ACCC to impose conditions on notifications for collective boycotts and to introduce a stop notice requiring collective boycott conduct that is the subject of a notification to cease. Schedule 9 also provides for tribunal review of merger authorisation decisions made by the ACCC, and Labor supports that.

Schedule 10 deals with admissions of fact and allows a party bringing certain proceedings under the act to rely on admissions of fact, in addition to findings of fact, made in other proceedings. This makes it easier for parties to bring proceedings under the act and provides clarity in an area that was particularly unclear. Schedule 11 extends the ACCC's power to obtain information, documents and evidence in section 155 to cover investigations of alleged contraventions of court enforceable undertakings and merger authorisation determinations. This has been a gap in the ACCC's powers and is strongly supported by Labor. The bill also introduces a reasonable search defence. Stakeholders in our consultations have assured us that this would not allow companies and individuals under investigation to use this defence in refusing or failing to comply with a compulsory information request by the ACCC under section 155. The bill also increases the fine from noncompliance with section 155.

Schedule 12 amends provisions relating to the National Access Regime, which allows access to nationally significant infrastructure services. The bill's aim is to make it easier to access infrastructure to compete in the provision of services. Its changes include that the declaration criteria that must be considered by the council and minister are contained in a single section; the promotion of public interest in access declarations; and that the minister is taken to have accepted the council's recommendation if he or she doesn't publish a decision on the declaration with the 60-day limit. Schedule 13 inserts a new division 3 into part XIII of the act, which deals with the transitional application of amendments made by a number of other schedules, and schedule 14 includes eight minor amendments, which Labor will be supporting.

I return now to schedule 6—which Labor will not be supporting—which deals with secondary boycotts. Those who are familiar with this issue will know that it has a long history. Following the 1974 introduction of the Trade Practices Act by the Whitlam government, the Fraser government came to power and, with then Treasurer John Howard, introduced section 45D and later section 45E into the Trade Practices Act. Those sections outlawed secondary boycotts, also known as sympathy strikes, and were particularly targeted at trade unions. The Hawke government attempted to repeal sections 45D and 45E in 1984, but the legislation was defeated in the Senate. The Hawke government's view was that these were essentially industrial matters, best resolved through specialist industrial courts or tribunals rather than through competition law and the competition regulator. The repeal attempt was defeated in the Senate, as I said, in 1984, and another attempt by the Hawke government to repeal these provisions was dropped in 1987.

In 1993 the Keating government repealed secondary boycott provisions, modified section 45D and deleted section 45E. The effect of the amendment to section 45D was that the prohibition covering secondary boycotts in the Trade Practices Act was restricted to boycotts that involved a substantial lessening of competition. Other secondary boycott provisions were re-enacted in a much modified form in the Industrial Relations Act of 1988, which limited the operation of the prohibitions on secondary boycott actions and made relief available only if conciliation of the dispute was first attempted through the commission. The effect of this was that, if an employer wanted to commence legal action in respect of a secondary boycott, they had to first go through the conciliation and arbitration process.

Sadly, however, the Howard government, in 1996, introduced the Workplace Relations and Other Legislation Amendment Act, which reformed enterprise bargaining, removing secondary boycott provisions from industrial relations legislation and returning them to the Trade Practices Act.

A secondary boycott, as members will be aware, involves one person in concert with another person engaging in conduct that hinders or prevents a third person from supplying or acquiring goods and services to or from a fourth person. Schedule 6 of this bill attempts to increase the penalty for breaching those provisions from $750,000 to $10 million. International Labour Organization convention No. 87 says that sympathy strikes should be permitted, provided the original industrial action was lawful. The International Labour Organization has indeed turned its attention specifically to Australian law and noted that the prohibition of secondary boycotts in Australian law is beyond what they regard as permissible prohibitions. The higher penalties would move Australia even further away from international best practice.

Unsurprisingly, as befits this government's agenda, secondary boycott laws are typically used against unions that engage in sympathy strikes. They are not as prevalent as they have been in the past, which makes one wonder what the policy case for higher penalties might be. There has been one instance of the ACCC undertaking action on secondary boycotts in the last decade.

This is a move that would put Australia out of step with international best practice. I mentioned previously the criminalising of cartels and Labor's move to increase penalties for anticonsumer conduct and anticompetitive conduct—these have all been done in the knowledge that Australia was out of step with international best practice. But international best practice would not see us increase the penalties on secondary boycotts; indeed, quite the opposite. For more than four decades Labor has held the view that secondary boycotts are primarily an industrial issue rather than a competition issue, and that is reflected in the legislative history to which I have referred.

It is worth, therefore, comparing the penalties that the government proposes to impose on sympathy strikes to penalties for unprotected industrial relations activity under the Fair Work Act 2009. The maximum penalty there is 60 penalty units, which is $12,600. If schedule 6 of this bill were to become law, the maximum penalty for a secondary boycott would be nearly 800 times higher than the maximum penalty for unprotected industrial action. We can also compare this to the proposed penalties associated with noncompliance with a section 155 order—20 penalty unites, $4,200. Yet the government thinks that a $10 million penalty is appropriate for a sympathy strike.

The government is pushing ahead with measures that will not improve competition in Australia. We've got the government at the moment still pushing ahead with an effects test, with their proposed changes to section 46. In the words of Peter Costello:

The so-called effects test is designed to protect competitors, particularly less efficient ones, from a competitive challenge.

Since 1974, 10 of the 12 inquiries into Australian competition laws have considered the proposal of an effects test and rejected it. In submissions to the Harper review, an effects test has been described as 'legally unworkable', something that will 'chill competition' and something that 'will create uncertainty for business'. That's why, when an effects test came to the cabinet, the now Prime Minister, Malcolm Turnbull, argued against it, as did other colleagues, including Senator Brandis and, we're told, Senator Cormann. The attempt to put in place an effects test is the National Party tail wagging the Liberal Party dog. This is not good competition reform. This is a smokescreen attempt to suggest that the Turnbull government are serious about competition.

If they were serious about competition, they would be supporting Labor's small-business access-to-justice reforms. Those reforms recently passed the Senate, and we believe that, now that they have passed the Senate, they should come before the House of Representatives for a vote. Labor's access-to-justice proposal will overcome the basic problem that small business have when considering whether they have the ability to take on anticompetitive conduct by the big guys. They're willing to pay their own legal costs but what they're scared about is the prospect that, if they lose, they could be bankrupted by an adverse costs order—that they might have to pay for the armada of QCs engaged by the big end of town.

Labor's access-to-justice bill allows court cases in the public interest to seek a no-adverse-costs order from the Small Business and Family Enterprise Ombudsman. Such an order would allow the litigant to go ahead in the public interest, knowing that, if they lose, they'll pay their own costs but not those of the other side. This would supplement the work that's being done by the ACCC. Having private parties litigate breaches of the competition law in the public interest is indeed a pro-small-business measure. It's rumoured that there are many within the National Party who support Labor's access-to-justice reforms, who recognise that to support access to justice is to support small business. That's why many small-business organisations, and the Ombudsman, have come out supporting Labor's position on access to justice. An effects test will simply create additional confusion. Access to justice will create new powers for small business, to level the playing field.

In conclusion, Labor supports good competition policy reform. We are the party of competition law. We are the party that recognises the market concentration challenge that Australia faces today and that is dragging down the productivity and the equity of the Australian economy. We are the party that has constantly been proposing constructive solutions to rein in monopolies and ensure that the Australian economy operates as productively as possible. But we will not support the attempt, under the cover of competition reform, by the government to further attack unions. The attack on unions through the massive increase in penalties for sympathy strikes doesn't make our economy more productive, but it is to be expected from a government which has supported cutting penalty rates for up to 700,000 Australians in the retail, hospitality, fast-food and pharmacy sectors. Despite some positive signs on wage growth in the last quarter, these sectors have seen sluggish wage growth over recent years.

In an environment of sluggish wage growth, Australians don't need further laws that will demonise unions, because we know from careful economic studies that unions are one of the strongest forces for equity in the labour market. A study by Jeff Borland suggests that about a third of the rise in Australian inequality over recent decades can be attributed to the declining share of unions. Other work in the United Kingdom by John Pencavel and Richard Freeman and others in the United States have shown a similar picture: an attack on unions is an attack on equity.

Labor will stand up for penalty rates and will stand up for working Australians. Labor will stand up for Australian egalitarianism. At the same time, we have a government that is denying that Australia even has an inequality problem. No wonder, if you deny that Australia has an inequality problem, you look to bash the representatives of working people. Labor will oppose schedule 6 of this bill and, unless it is removed, we will vote against the bill.