Keating redux: Competition is having a moment with politicians, but powerful enemies are gathering

Your problem is you believe in competition, and more than that I believe in having my cake and eating it too.

Kerry Packer to Paul Keating

The lack of competition in Australia — and the ability of large firms to exploit ever-more concentrated markets to gouge consumers — is finally being taken seriously again, at least among policymakers.

It’s “horse has bolted” stuff. According to a paper on increasing concentration released by Treasury in October 2022, the market share of the top four firms in each industry began rising in 2002 and is now at record highs. But better late than never.

While the debate around how market concentration has helped drive profit-led inflation has progressed in leaps and bounds overseas among think tanks, central banks, academic economists and statistics offices, here it has consisted of mainstream economists, commentators and the Reserve Bank effectively sticking their fingers in their ears and yelling that non-mining profits haven’t increased so there’s no profit-led inflation — an argument Professor Allan Fels debunked in his analysis of profit-led inflation for the ACTU.

Competition has always been the poor cousin of economic policymaking in the neoliberal era. Competition is the fatal flaw in the otherwise perfect theory of neoliberal economic reform. Neoliberalism espouses competition for all — workers, corporations, nations. But corporations, meant to be at the forefront of competition, reflexively sought, successfully, to reduce competition for themselves — turning market reform into what I’ve called the forced transfer of certainty from workers to corporations.

Mainstream economists have struggled with this gap between theory and reality. Many of them saw the proliferation of corporate mergers that occurred in the wake of deregulation in the 1980s as a good thing — mergers and the acquisition of smaller firms by larger firms generated economies of scale and greater efficiency, to the benefit of consumers, they said — even when many of these benefits never materialised or went straight into profits, not consumers. In Australia, the problem is especially bad because we’re such a large country with such a small population, with more industries tending towards natural monopoly or oligopoly.

Moreover, there are plenty of people invested in greater concentration. The Financial Review regards itself as the watchdog of neoliberal orthodoxy, but it also champions mergers and acquisitions because they generate copy, and that copy is avidly read by the entire industry of dealmakers, managers and ticket clippers that feed off mergers. This is a whole constituency, and newspaper, invested in ever-growing levels of market concentration. It’s no surprise the AFR lauded the Australian Competition Tribunal’s rotten decision to overturn the Australian Competition and Consumer Commission (ACCC)’s rejection of the anti-competitive merger of Suncorp and ANZ.

Don’t look to the Reserve Bank for guidance on competition, either. It prefers stability to competition within the banking sector. And don’t look to the wider media to focus too much on the dangers of market concentration. Our media industry is even more concentrated than most other industries — an oligopoly that makes its money from gouging customers and influencing governments.

As with the banking royal commission, it’s only been after years of abuse of market power and rising, palpable anger on the part of voters that politicians have finally decided to do something about concentration, with Labor’s Treasury competition taskforce, mooted reforms of mergers laws, the ACCC probe of supermarkets and, now, a proper investigation into airport slot hoarding. Some of the credit for this goes to Labor’s Andrew Leigh, who has been pointing out the damaging effects of market concentration since his days as an academic economist.

But the only political leader with a consistent interest in and zeal for competition was Paul Keating. Not for nothing did Keating, in accepting a life membership of Labor in 1999, say that one of his key achievements was bringing:

a new word to the Labor lexicon — competition. Competition is our word, not their word. Not the Tories’ word … The great evil of working Australians was inflation. This was not as true of the business community. They always did well from inflation because they were always geared and able to pass on costs. But for ordinary people, inflation ripped away their savings and put enormous mortgages on their backs. And so competition became a goal and a new idea. Part of Australia’s renovation — indeed, our renovation.

It was Keating who not only, as treasurer, drove the overhaul of the Australian economy but who, as prime minister, drove national competition policy, aimed at curbing the market-skewing dominance of government-owned enterprises in service delivery. Hated by the Nationals, it was another of the many reforms that the Coalition at the time opposed.

When Packer — an arch-oligopolist — lashed out at Keating’s fondness for competition, he was channelling what every senior business figure in the country felt: competition was for everyone else, not me. And you can still see the same sentiment today in the recent slimy media releases from the Business Council, warning Labor against changes to merger laws because they would “risk unnecessary economic damage and would reduce Australia’s attractiveness as a place to invest and innovate”.

In fact, market concentration is correlated with poorer productivity performance and lower investment — and greater lobbying by larger corporations.

Between big business, its media cheerleaders and head-in-the-sand economists, there’s a powerful constituency eager to choke off this renewed interest in competition and concentration. Remember the banking royal commission — the banks just waited a few years for the political pressure to come off, and a compliant government began reversing the Hayne reforms. The current versions of Kerry Packer will be hoping for the same outcome.