Competition Policy Review: Opinion article in the AFR by Jennifer Westacott and Danny Gilbert

This opinion article by Jennifer Westacott, Chief Executive of the Business Council of Australia and Danny Gilbert, Managing Partner of Gilbert + Tobin, was published in The Australian Financial Review on 13 February 2014 under the title ‘Competition Policy Review Offers Chance to Support Growth’.

Professor Fred Hilmer AO, widely known as the architect of National Competition Policy in Australia, addressed a forum hosted by the Business Council of Australia and Gilbert + Tobin on 13 February 2014. Access his presentation, Competition Policy from 1992 to 2014: Presentation by Professor Fred Hilmer.

Australia’s remarkable run of more than two decades of economic growth has delivered to Australians one of the world’s highest living standards and owes much to the Hilmer reforms which opened our economy up to competition.

For consumers it has meant such things as cheaper milk and eggs, better mobile phone services, the ability to shop after work and on the weekend. For business it has meant being subject to the constant discipline of competitive markets, trucks travelling interstate more easily, and opportunities for investment in sectors that were once dominated by tightly controlled, unproductive and inefficient government monopolies.

In 2005, the Productivity Commission reviewed the national competition policy reform. It found that a 2.5 per cent increase in GDP was attributable to productivity and price changes in key infrastructure sectors during the 1990s. These changes also contributed to price reductions across many parts of the economy, including a 19 per cent reduction in electricity prices Australia-wide, a more than 20 per cent reduction in telecommunications charges, and a 5 per cent drop in the average retail price of milk.

But it didn’t happen without a lot of hard work and challenges for some in the transition to a more competitive economy. In 1991, our governments realised we needed to turn around what was fast becoming a dangerously uncompetitive economy. They agreed that a broad economy-wide policy was required and commissioned an independent inquiry that reported in 1993.

The Hilmer inquiry and the resulting national competition policy is widely seen, both in Australia and internationally, as making a major contribution to Australia’s subsequent economic success. Importantly, the inquiry looked at how innovation and a dynamic economy could be supported by extending competition, and applying competition law, across the economy with a clear focus on making Australia more competitive.

The Abbott government’s forthcoming “root and branch” competition policy review is a welcome opportunity to examine how further improvements to competition policy can build on the success of these earlier reforms. The review should bring a broad focus to questions of how we can improve the competitiveness and efficiency of as many sectors of today’s economy as possible.

There are three key lessons from the Hilmer process that can usefully be applied.

First, a principles-based approach should be applied to the task. Most important of these principles is that the general competition law should foster robust competition, not protect individual competitors or sectors. Governments should generally avoid policy and legislation that restricts competition. Such a result may sometimes be justified if the benefits of the restriction to the community as a whole outweigh the cost, and the social objectives of such policy or legislation may only be achieved by restricting competition.

The general competition law should also entrench the primacy of the consumer, including improved choices, better services, and lower prices. This requires strong enforcement against illegal conduct. To aid Australia’s integration in global markets the Business Council of Australia also supports mindful attention to international best practice when refining our laws, particularly equivalent laws in the US and Europe.

Secondly, regulation across the economy should reflect the competitive landscape of today. The legislative review process following Hilmer removed much outdated anti-competitive regulation.

Since then the global economy has continued to be transformed with technology breaking down international borders and barriers to entry, and in the process making a multitude of products and services part of the tradeable sector. This has exposed Australian businesses – ranging from booksellers, television, newspapers, travel agents, education and dentists – to increased competition.

This means that if we choose not to remove unnecessary restrictions on Australian businesses, they will struggle to be internationally competitive, and global firms will be better placed to meet the needs of consumers.

We also should examine regulation and associated arrangements that can create unnecessary delays, or impose overly onerous requirements on new innovations and investments.

This can delay new products being offered to Australian consumers at the right price.

Thirdly, the focus should be on getting the incentives right so as to promote the successful implementation of government reforms.

Robust and independent monitoring of each government’s progress in implementing reform, and sharing the fiscal dividend was critical post Hilmer, and will again be key to achieving genuine national reforms.