Small business feels stamp of corporate boot

At a black tie dinner on Wednesday David Purchase will stand on the podium to try to instil fear into 200 guests - including politicians, police, lawyers, government agencies and business leaders - in an attempt to move forward the debate on the treatment of big business to their smaller counterparts.

Purchase, executive director of the Victorian Automobile Chamber of Commerce, says it is an issue that is causing great concern as he watches small businesses getting squeezed out of existence, and with them employment opportunities.

"Many small businesses, be they suppliers to supermarkets, newsagents, independent service stations, new car dealers or motor vehicle crash repairers, are claiming that those big businesses with whom they deal are increasingly treating them unfairly and, in some instances, unconscionably," Purchase argues. Given that there are more than 2 million small businesses registered in Australia employing more than 5 million people, it is a concern for more than just Purchase about the long-term effects on employment and society at large.

The big and powerful are getting increasing airplay in the media as Coles and Woolworths thrash it out.

But it is an issue far wider than supermarkets, and raises questions about whether we want an efficient society with fewer jobs, or a less efficient, high-cost society.

It is a phenomenon that is not isolated to Australia. It has inspired much thought including a book by a professor at the University of California, Robert Reich, Supercapitalism, which argues that since the end of World War II, the world has seen a shift from the citizen to the consumer and investors. "The last several decades have involved a shift of power away from us in our capacities as citizens and towards us as consumers and investors," he writes.

Purchase draws on Reich's hypothesis to explain the new aggressive competitiveness of big businesses, some of which he believes have become a law unto themselves. "Under supercapitalism, democracy charged with caring for all citizens has become less and less effective ... Because the consumer and investor are now king, large companies pursue policies and strategies that adversely impact on their small business suppliers," he will argue.

He is right. On the one hand Australians lament the rising power of big business but on the other hand they are demanding better deals, which sometimes results in the suppliers being caught in the middle.

Investors are doing the same. They demand higher profits to pay for higher dividends and rising share prices, but in a flat trading environment that often means cutting costs, including slashing staff. In recent months a number of companies have announced staff cuts to try and keep a lid on prices. These include BlueScope Steel, BHP, Rio Tinto, QBE, Boral and Qantas. Shareholders rejoiced at the news by raising the share price of these companies.

In the past two years, food and liquor discounting by Coles and Woolworths has never been as fierce or the cries from their suppliers louder.

Last year Coles estimated there had been price deflation of 2 per cent a year since the start of 2009, and matching competitor price reductions, which has saved consumers more than $2 billion a year.

Coles is focusing on improving its supply chain to further reduce costs and pass savings on to customers. It is also addressing its liquor business, which has been a drag on grocery earnings.

The dairy industry was the first to raise attention in the price war crossfire, followed by bread makers, then the brewer Foster's, which pulled tens of thousands of cartons of VB off its trucks in February 2010 after it found its product was to be sold at what it argued was below cost.

Many suppliers have been hit hard by the consolidation of businesses. Concentrated markets have negative effects on manufacturers and growers. Innovation shrinks when there is too much power, which does not help anyone.

If enough suppliers and smaller competitors are driven out of business, it will reduce choice and eventually drive up prices.

Purchase believes it should not be left to the market to sort out. "Yes, you heard correctly, market intervention, which I think is the only way many otherwise viable small businesses will survive, and retention of employment opportunities and other societal benefits achieved."

It is here that his speech is expected to give some in the audience indigestion.

It is a complex issue and to stop the naysayers, Purchase offers a couple of examples where government intervention has worked.

He says during the Fraser government the Petroleum Retail Marketing Sites Act 1980 was enacted to prevent oil companies from owning and directly operating more than 5 per cent of their branded service stations. It caused a stink but it took 30 years before the legislation was quashed.

"From in excess of 22,000 service stations then to less than 6000 now, has the reduction in numbers and the reduction in competition done anything for the motorist, who certainly is not paying less for fuel, let alone the independent who is no longer in business?"

The other example of government intervention is the agreement between government and the Pharmacy Guild of Australia, which prevents supermarkets operating pharmacies, which has stood the test of both sides of politics.

It is an interesting argument that is certainly worthy of debate.