Andrew Leigh

MARKETS CAN'T BE ALLOWED TO VICTIMISE THE VULNERABLE - The Australian

Like a large tree that overshadows the saplings around it, firms that abuse their market power prevent newer competitors from growing. They hurt entrepreneurs and often reduce the scope for innovation. Consumers suffer through higher prices, lower quality and less choice.

However, one aspect of uncompetitive markets that many have missed is that they may worsen inequality. A recent issue of The Economist magazine notes that many US markets have become more concentrated and points out: ‘‘High profits can deepen inequality in various ways. The pool of income to be split among employees could be squeezed. Consumers might pay too much for goods.’’

Australia has no shortage of concentrated markets. A common metric of over-concentration is when the largest four firms control more than one-third of the market. Against this yardstick, my analysis suggests that more than half of Australian industries are concentrated markets.

In some industries, the big four control much more than one-third of the market. In department stores, newspapers, banking, health insurance, supermarkets, domestic airlines, internet service providers, baby food, beer and soft drinks, the biggest four firms control more than four-fifths of the market. In petrol retailing, telecommunications, credit unions, cinemas, liquor retailing, bottled water and fruit juice, the largest four companies control more than two-thirds of the market.

In pharmacies, pharmaceuticals, hardware, gyms, snack foods, magazines, newsagents and international airlines, the big four account for more than half the market.

Since the early 1990s, merger activity has tripled.

At the other end of the spectrum, start-up rates are falling. New business formation rates are down 2 per cent since 2011.

Given this, I couldn’t help raising an eyebrow when I read Henry Ergas (Commentary, May 30) arguing we should all just chill out because ‘‘markets are working just fine’’. Ergas went so far as to cite the Harper review as evidence that Coles’ and Woolworths’ market share had fallen in recent years. Just one teensy problem: the Harper review actually says the opposite (check out Box 15.1 of the report, if you’re interested). Alas, the only place excessive concentration doesn’t seem to be a problem is in Ergas’s article research.

In an egalitarian era, concentrated markets might have nothing to do with the distribution of incomes. But, unfortunately, this is not such an era. The most concentrated markets in Australia tend to be the ones that employ the fewest people and have the smallest wage share. Over the past generation, earnings have risen by three times as much for the top one-tenth than for the bottom tenth. The top 1 per cent income share has doubled, and the top 0.1 per cent income share has tripled.

Wealth inequality has risen markedly. Inequality in Australia today is as high as it has been in three-quarters of a century.

This is why Labor believes competition laws should be directed towards looking after the most vulnerable, in four specific ways. First, we will amend section 76 of the Competition and Consumer Act to allow courts to apply higher penalties for conduct that targets or disproportionately affects disadvantaged Australians, and apply lower penalties when firms have provided adequate compensation to those affected.

Consumer rip-offs are always reprehensible, but they have a different impact on the most affluent compared with the most vulnerable. To a high-income consumer, losing a few thousand dollars may be an annoyance. To a low-income consumer, losing a few thousand dollars may be life-changing.

Second, we will include a requirement in the act that the Australian Competition & Consumer Commission prioritise investigations of conduct that targets or ­disproportionately affects the disadvantaged.

The growth of inequality makes it vital to enact an explicit legislative requirement for the competition regulator to put the most vulnerable first.

Third, we will investigate the impacts of increased market concentration on income inequality and produce policy recommendations on how the negative effects of market concen­tration can be mitigated. This kind of high-level exercise will doubtless explore ways in which highly concentrated markets widen the gap, as well as suggest practical ways in which competition and consumer laws can reduce inequality.

Fourth, we will encourage the states and territories to include competition principles in planning and zoning legislation, as recommended by the Harper review, with a specific focus on shortfalls of appropriately zoned land for key services in disadvantaged communities.

Traditionally, inner-city zoning issues have attracted a disproportionate share of public attention, leaving zoning in outer suburbs to be neglected. Ensuring the states and territories provide proper attention to outer suburbs, and apply competition principles, is critical to the sustainability of these communities.

Labor has a strong history of consumer-focused policy reform. It introduced the Prices Justification Act in 1973, the Trade Practices Act in 1974, the National Competition Policy in 1995 and the Australian Consumer Law in 2011. In the present parliamentary term, we have supported many — though not all — of the Harper review’s proposals. We also have urged the government to go further. For example, with my colleagues Chris Bowen and Michelle Rowland, we have proposed a policy that will improve access to justice by small business owners who are deterred from pursuing legal action by the prospect of large adverse costs orders.

Our work in competition policy is just one of the ways in which a Shorten Labor government would address the growing economic gap in society. In social policy, Jenny Macklin has released a report, Growing Together: Labor’s Agenda for Tackling Inequality. In the workplace, Brendan O’Connor’s deep concern about inequality is one of the reasons Labor is committed to maintaining penalty rates. In schools policy, Kate Ellis’s commitment to needs-based funding is grounded in egalitarian values.

After a generation of rising inequality, and with the evidence pointing towards increased market concentration, it is vital to look at ways of ensuring that competition works for the neediest. Together, these policies will help tilt the playing field towards the most disadvantaged.

Andrew Leigh is opposition competition spokesman and assistant Treasury spokesman.

This piece originally appeared in The Australian