OUTDATED COMPETITION POLICY HURTS CONSUMERS
The Australian, 7 February 2022
I’ve never forgotten the woman who told me ‘there’s always more month than money’. She reflected the quiet frustration of so many people – hardworking, ethical and decent – who feel that prices are rising, while wages are flatlining.
Since the pandemic began, some prices have surged. Since December 2019, the price of beef has risen 17 percent. Furniture is up 11 percent. Car prices are up 10 percent. Childcare costs are up 9 percent. Late last year, fuel was selling for more than $2 a litre at many petrol stations. Yet in the Morrison Government’s last budget, real wages were forecast to fall.
Supply pressures account for a considerable portion of the rise in prices. But it doesn’t help that many industries in Australia are dominated by a handful of big firms. As Rod Sims, the outgoing head of the competition watchdog, has noted, market power in Australia seems to be growing.
Whether it’s energy retailing or internet service provision, pathology services or social networking, mobile phones or banking, a few giant firms dominate. Sims concludes that ‘Market power is hurting Australians across many walks of life’, since ‘Consumers are paying more than they should for a wide range of goods and services.’
Unfortunately, the trend is for many of the big firms to get bigger. In 2021, Microsoft, Amazon and Alphabet (Google’s parent company) announced more acquisitions than in any other year in the past decade. Microsoft did 56 deals, including Nuance Communications for US$19 billion. Amazon did 29 deals, including MGM Studios for US$8.5 billion. Alphabet did 22 deals, including Fitbit for US$2.1 billion. And as if to show that the buying spree isn’t over, Microsoft has just announced a US$69 billion deal for video game maker Activision Blizzard.
Elsewhere, regulators are concerned. In the United States, President Biden has appointed Amazon critic Lina Khan as head of the Federal Trade Commission. Tim Wu, author of The Curse of Bigness, serves on the National Economic Council. Jonathan Kanter, a long-time critic of big tech, is the top competition enforcement official at the Justice Department. Regulators have filed a complaint against Meta (Facebook) that claims its purchases of WhatsApp and Instagram led to it abusing its monopoly power.At the heart of the Biden team’s approach is the view that competition policy has spent decades treating megacorps with kid gloves. Starting in the 1980s, a ‘Chicago School’ view held that big could be
beautiful. The Chicago School approach didn’t much mind large companies snapping up their rivals. As regulators sat on their hands, two-thirds of the US economy became more concentrated.
Yet in the past few years, the pendulum has swung back. It turns out that when the forest consists of a few oak trees, it’s hard for the saplings to take root. When major platforms dominate, it’s hard for new companies to get started. This new view on competition policy is reflected in Europe too. EU competition commissioner Margrethe Vestager recently declared ‘We need to push for a broader notion of consumer harm’.
In Australia, the federal government has shown no willingness to take a fresh view of competition policy. Yet uncompetitive markets are hurting the nation’s growth prospects. Over recent decades, the business start-up rate has fallen, while market power has risen. When a few big firms dominate the market, they’ve got less incentive to innovate. Instead, the temptation is to run a mass marketing campaign, and buy up any pesky rivals that get big enough to pose a threat. The result is slower productivity growth, since the big companies are focused on moat-building, not research and development.
Workers can get hurt too. When employees work in a sector with plenty of players, they can easily switch companies if things aren’t going well at work. Changing jobs is often the best way of getting a pay rise. If you’re not getting on with your co-workers, or you hate your boss, it helps to be working in an industry with plenty of firms. Yet when there’s only a couple of companies, employees are more likely to find themselves stuck in a rut, earning less than they deserve. Australia’s competition problem may be a part of the reason that wages have been stuck in the slow lane since 2013.
When it comes to getting a fair deal for consumers, new firms, and workers, the Morrison Government has been asleep at the wheel. While the world of competition policy demands fresh approaches, their response has been sleepy sameness. Last year, Rod Sims pointed out that Alphabet, Amazon, Meta, Apple and Microsoft had spent the previous decade acquiring businesses at the rate of four a month. Sims called for a debate over reforms that would allow Australia’s competition watchdog to act. Treasurer Josh Frydenberg rejected the idea the same day.
The Morrison Government’s lazy approach to competition is hurting our economy. We’ll have less innovation. Fewer start-ups. Slower productivity growth. Lower wages. Consumers may find ourselves paying more, but getting less. If we want a more energetic economy, we need a more energetic government.
Authorised by Paul Erickson, ALP, Canberra.