Muscle and might: A panel to protect Australian competition

Given his understandable bias towards small business, Bruce Billson’s choice of the panel for the root-and-branch review of competition law is a surprisingly balanced one.

While there is a rural lobbyist (Su McCluskey) and a small business lobbyist (former ACCI chief executive Peter Sanderson), the panel will be chaired by respected economist Ian Harper and includes one of the best trade practices lawyers in the country, Michael O’Bryan.

The presence of Harper and O’Bryan will provide some reassurance to larger businesses that the review won’t be loaded against competitors purely because of their size, which some of the draft terms of reference might have implied was Billson’s agenda. Billson is, of course, the Minister for Small Business.

Nevertheless, there were a couple of curious statements in Billson’s announcement of the panel.

“For the consumer it (the review) will provide a pathway to ensure we all pay a fair price at the check-out in the longer term for the goods and services we purchase.

“In business it means having competition based on merit, not on muscle, creating a more level playing field and supporting a competitive environment where efficient businesses, big and small, have the opportunity to thrive and prosper,” he said.

That first paragraph and its reference to check-outs and fair prices “in the longer term” will raise eyebrows at Woolworths and Coles.

Despite the clear evidence of the intensity of competition and the extent of consumer benefit and national productivity gains that competition is driving in the grocery and petrol retailing sectors, the chains have been continuously accused of abusing their market power by politicians and small business lobby groups.

It is unclear what Billson meant by competition based on “merit, not muscle”, or the reference to a level playing field. Numerous parliamentary inquiries, Australian Competition and Consumer Commission reviews and, indeed, the last review of the law by the Dawson Committee in 1993, have concluded that the core of the competition law is effective in promoting fair competition and consumer benefit.

Harper won’t need to be reminded of that. Former ACCC chairman Graeme Samuel, his former ACCC colleague Stephen King and Herbert Smith Freehills’ Chris Jose pointed out bluntly in a paper for the Monash Business Policy Forum last year that the objective of competition law is to protect competition, not specific competitors.

As they put it, the review shouldn’t introduce any changes to the law that would “risk making unlawful strong but fair competitive conduct by efficient businesses that benefits consumers but harms competitors”.

As the pace of change within the economy and the forms of competition evolve at an accelerating rate, that objective becomes even more powerful. It is not in the interests of the economy for competition to be stifled by tilting playing fields against the most dynamic and innovative competitors, or trying to preserve some notion of the 20th century competitive status quo.

Competition policy should promote competition on the basis of merit without regard to the size of the “muscles” of the competitor. The Dawson Committee rejected the strong lobby for the inclusion of an effects test in competition law as a mechanism for handicapping businesses with market power.

The committee has been given a canvass wide enough to look at a lot more than the narrow question of whether the grocery chains or integrated energy groups and other relatively concentrated sectors have too much power within their markets and supply chains.

The national economic priorities are productivity and competitiveness. The over-arching priority of the review should be to ensure that competition law and the regulatory structures that administer it are focused on protecting and improving economic outcomes from fierce but fair competition, rather than creating distortions.

Ian Harper is intelligent enough and strong-minded enough to ensure the panel ignores populist and protectionist pleas and seeks to make a contribution to the Australian economy analogous to the Hilmer Committee’s landmark report in the early 1990s.