KGB: Rod Sims

ACCC chairman Rod Sims talks to Alan Kohler and Stephen Bartholomeusz about:

• The case against breaking up the ACCC
• The scope for competition in health and education sectors
• The importance of getting pricing right to drive productivity gains
• The ACCC's focus on the supermarkets
• How to navigate the relationship between big business and small businesses

Alan Kohler: Rod Sims, just talking about the root and branch competition review being undertaken by Ian Harper, are you approaching it with the idea of protecting the ACCC as it is, or do you think that there’s a case for a break-up of the ACCC?

Rod Sims: Two comments, Alan, if I could. First of all, we’re approaching the root and branch review as a tremendous opportunity to introduce more competition into the Australian economy and improve incentives overall. That’s what I think a lot of its work is going to be on and the ACCC is going to contribute to that in a very fulsome way. 

But to answer your question directly -- whether you call it defensiveness or not, Alan -- I think there’s a lot of merit in the current structure. I think having competition and consumer issues together makes complete sense.

A lot of cases we take have both competition and consumer implications. Then you look at our role in telecommunications -- that always raises issues and misuse of market power. If you separate the telco regulator from the ACCC, you’d have two organisations poring over the telco sector and you’d lose the synergies that we currently have and I think that example applies.

AK: But it’s become a huge bureaucracy, with all of the extra things that the Labor Party in particular has given you. Surely it must be becoming unwieldy to operate the thing.

RS: Not at all, Alan. Thank you for that segue to make the point. We’re currently at 800 staff. We’re heading down as most APS agencies are.  We’ll be 750 staff by the end of June.  That makes us just a little bit bigger than APRA. It makes us about a third of the size of ASIC. It makes us much smaller than the Reserve Bank. 

We’re quite a small agency, Alan. We cover a lot of ground, as you correctly say: competition, consumer, mergers, telecommunications, energy, water, transport. But there’s a common theme about all of those, Alan --  the common theme is that you’ve got economic rationale behind it all. You’ve got an idea that competition works best, that it really is the underpinning of everything we do. I think one needs to think very carefully before you lose that.

Stephen Bartholomeusz: Rod, the…

RS: Also, Alan, if I could say, enormous diseconomies of scale if you split the place up. 

SB: Rod, the Hilmer review’s most potent impact was on the public sector. I know you’re an advocate for more privatisation of the residual state-owned enterprises, but to what extent do you think competition could and should be brought to bear on more sensitive areas, like health and education?

RS: I think there is more room for competition.  I think reviews we’ve had of health and education probably haven’t focused on competition enough, Stephen.

If you look at education -- take higher education as an example -- there’s a lot of regulation that limits how courses are done, limits pricing of courses.  If you could look at it from a competition perspective, you may find that some of that regulation is limiting competition between universities because they’re so highly regulated, they can’t differentiate themselves enough. 

So, I think there is plenty of scope for more competition in health and education. There’s scope for more competition with government services generally.  It doesn’t mean you outsource all of them; it simply means that many more services for now are contestable and open to other providers. I think that would be a good thing.

SB: There are also still some sectors of the private economy that are sheltered from competition: things like newsagents and pharmacies, some professions, book publishers and distributors. Do you hope that the review opens those up?

RS: I think the review is an opportunity to look at all of that, Stephen. 

In addition, there are issues around coastal shipping, liner shipping, both of which are hugely important for Australia. The whole question of land transport, because the review terms of reference allow us to look at pricing issues and micro-reform incentives in general and road authority structures. I think there's tremendous scope right across the board to introduce competition.

There’s a lot of focus in Australia on productivity at the moment. The key thing that drives productivity is incentives. That’s what matters. That means competition. That means getting pricing right. 

That means finding the right owner of assets, querying whether the government is the right owner of many things that government does. All of that is the key way to unlock productivity and so that’s why this review is so exciting and so important.

AK: It’s interesting.  In the light of this discussion about all the other areas of the economy where there is not enough competition the work you could do in that area, you spend so much time focusing on an area where there’s clearly a lot of competition -- the supermarkets. They’re beating each other up day after day and you spend a huge amount of time going after them. 

RS: Alan, if I could correct that -- and I don’t mean to have a go at either of you -- but it’s the media who focuses on this much more than we do. At the moment, we have about a hundred in-depth investigations going on. A very, very, very small number involve the supermarkets. 

I give the example, Alan. Late 2012 we instituted proceedings in a cartel matter. That didn’t get reported. In February, we instituted proceedings last year against VISA for misuse of market power. That didn’t get reported. We took action against Coles for their par-baked bread and that was on page one, page six and the back page of the Australian Financial Review. 

So, I’m not sure it’s us that have got the preoccupation with supermarkets. But just to answer your question in a more serious way: the supermarkets are our major retailers, so of course there are occasionally issues of misrepresentations, which is what we’re looking at with the par-baked bread issue. 

Woolworths are doing a lot of acquisitions -- an enormous number --  so of course now and again they’ll run into merger issues with us.  You had that bottle shop in Launceston where they owned two of the four bottle shops and they wanted to own three of the four.  What do you expect us to do in those circumstances?  Then you’ve got issues like shopper dockets. Those are important issues; they have a big effect on the petrol market.  The petrol market is very important. It’s just that they’re big players in many sectors, Alan, so it’s not surprising that we come across them a bit. The amount of time I spend on supermarkets, Alan, would be 2 per cent of my time, if that.

SB: Notwithstanding what you’ve just said, Rod, there is a view that the whole gestation of this review was the focus on supermarkets. I suppose that’s a sort of a shorthand for small business versus big business.  Do you see some of the core issues before the inquiry being about that relationship between small business and big business?

RS: Stephen, I accept that there was that focus. But early on, the Opposition said this review was another Hilmer review and of course the Hilmer review was seventy per cent microeconomic reform.  They deliberately use the term ‘Hilmer review’, so I think that the then opposition current government has always been quite clear that this review was quite a broad one. 

There has been a lot of concern by small business, issues that they would allege around misrepresentation, unconscionable conduct, misuse of market power. The thing with our Act is that it’s a very tricky area.  Everybody has a view on these essentially economic philosophical issues.

Big business has a view that they should be able to run unfettered. Consumers and smaller business feel that there needs to be some tighter business boundaries around large business.  These are debates you can have with anybody in the country at any time and they’ll all have different views.

I would assert that big business and its legal advisers probably think we oppose too many mergers and we take on too many enforcement cases. I would argue the other 98 per cent of the population think we let too many mergers through and we’re not active enough in enforcing the Act.

You’re always going to have these debates and I think it’s really, really healthy that we have these debates; that we don’t just assume that what we’ve got is working.

It’s crucially important in a market economy that people have faith in it. That has a lot to do with their faith in the laws that we work under and how we do our job.

AK: We’ll have to leave it there, Rod, but thanks very much for joining us.

RS: Thanks, Alan. Thanks, Stephen. Sorry we ran out of time. Happy to do it again.

SB: Thank you, Rod.