The Herald Sun, Wednesday 2 November 2022
A generation ago, rules in some states governed when bakers could bake their bread. Many families had to do their grocery shopping in a mad rush on Saturday morning before stores closed for the weekend. Energy markets were run by inefficient monopolies, and the electricity grid was much less joined up across states than it is now.
The result was less competition and higher prices.
That’s why thirty years ago this month, then Prime Minister Paul Keating asked Fred Hilmer to lead a reform process that became National Competition Policy.
As Keating put it, ‘We brought a new word to the Labor lexicon – competition… we were tired of paying twice as much as we should be paying for cars, for telephones, for clothing, for electricity. By cutting tariffs and by lifting domestic competition, we created a low price structure, thereby allowing people’s wages to go further.’
To think of a part of Australia where bakers could not bake at particular times is to imagine somewhere that feels deeply foreign. It’s like Doctor Who, but with baking regulations instead of aliens.
To get reform, the Commonwealth agreed to make payments to the states and territories conditional on the implementation of competition reforms.
The result of the reforms was little short of spectacular. Australia’s productivity performance in the 1990s has been described as ‘exceptional’. Labour productivity grew at over 3 per cent a year, driving rapid growth in living standards.
Competition reform was an important factor behind the 1990s productivity surge. One analysis estimated a permanent increase of 2.5 per cent in Australia’s GDP from competition reform. Today, that lift equates to around $5000 per household.
It’s timely to celebrate the 1990s competition reforms because the Australian economy today desperately needs a good dose of competition. Rates of startup business formation and job switching are falling. Market concentration and markups are rising. Productivity growth – exceptional in the 1990s – was sluggish in the 2010s.
Today, a new wave of competition reforms could deliver better prices and more consumer choices. It could help improve living standards of Australian households by increasing access to the latest technologies.
One of the central insights from economics is that competitive markets generally serve consumers better than private monopolies.
If competition policy could lay the groundwork for another 1990s-type productivity surge, the result would be more innovation and more startups, more opportunities for workers, and more choice for consumers. Better use of technology, and household budgets that stretch a little further.
In short, a zippier economy.
Originally published in the Herald Sun on 2 November 2022.