Competition laws need to be flexible, responsive, adaptive: Professor Ian Harper

Australia’s competition policies, laws and institutions need to be flexible, responsive and adaptive to deal with changes such as the industrialisation of developing nations, the ageing Australian population and the diffusion of digital technologies.

They need to cope with fluid markets with constantly shifting boundaries, and not be constrained by unnecessary barriers.

Reform focused on improving productivity, including competition reform, is not only desirable, it is necessary to ensure future growth in Australian living standards.

To achieve these outcomes, we have 56 recommendations in our Final Report from the Competition Policy Review including priority policy reforms in the areas of human services and procurement, intellectual property, competition law reforms and reforms to competition institutions.

Human services and procurement

In terms of competition policy, the main area where we break new ground in this Review is further extending competition into all the places where government has an impact on the market: including procurement and human services such as health, education, disability care, aged care, job services, public housing and correctional services.

In the area of human services, we discuss how to get suppliers to respond to user needs and preferences in areas where traditionally users have received ‘standard offering’. So in addition to productivity benefits, this offers greater choice, life satisfaction and control for Australians.

Many Australian governments are already developing choice-based competition reforms in areas such as aged care and disability services.

Our report proposes ways to extend and continue these important reforms.

We recommend that all Australian governments, individually and collectively, adopt choice and competition principles in the domain of human services, including a guiding principle that user choice should be placed at the heart of service delivery.

What would this look like in practice?

The Panel heard many examples of the benefits service users have enjoyed from increased choice. For instance, when people in need of aged care services were put in control of funds, they experienced an increase in bargaining power and service providers became much more responsive to their needs and requirements.

In one case a man employed someone to fetch a meal from a local takeaway as an alternative to his regular ‘meals on wheels’. In another case, a user employed a support worker who cooked meals of the person’s choosing.

Users also benefitted from being able to choose their support workers, rather than being assisted by agency staff who changed frequently.

This is what choice is about.

Access and choice are particularly relevant to vulnerable Australians or those on low incomes, whose day-to-day existence can mean regular interactions with government. They too should enjoy the benefits of choice, where this can reasonably be exercised, and where service providers can respond to their needs and preferences.

In our view, the general presumption needs to be that individual Australians are the best judges of what they want and need, in the area of human services, just as in other aspects of their lives.

Our Final Report also includes new recommendations on government procurement. Government procurement guidelines and practices can have a significant impact on the range of goods and services available to consumers. Procurement can also affect the structure and function of competition in markets. We recommend that competition principles be incorporated into procurement, commission, public-private partnerships and privatisation policies and practices.

Intellectual property

Disruptive technologies have put IP rights in the spotlight. While IP rights can create incentives for innovation, they also have the potential to restrict market entry by preventing access to technologies.

What we need is an overarching review of IP, focusing on competition policy issues arising from new developments in technology and markets.

Australia is a net importer of IP. The IP provisions in international trade agreements are therefore important to us.  Agreements can have potentially harmful impacts on competition, and so we recommend that trade negotiations should be informed by an independent and transparent analysis of the costs and benefits to Australia of any proposed IP provisions.

While in most cases granting an IP right is unlikely to raise significant competition concerns, IP rights can be used in a manner that harms competition. The Panel recommends that the use of IP rights should be subject to the Competition and Consumer Act.

Competition law reforms

In the area of competition law, we have evaluated the law to ensure it is fit for purpose. A key focus has been on simplifying and streamlining the law to reduce the cost to business of uncertain and complex law. 

While we have made a number of recommendations about changes to the law, it’s the misuse of market power provision or ‘section 46’ that has generated the most discussion.

The misuse of market power provision is included in the law to recognise that conduct undertaken by a firm with market power can have anti-competitive effects that would not result from the same conduct undertaken by a firm without market power.

Our focus when considering whether to make changes to this section was whether the policy intent was properly reflected in the law.  We believe that our recommended changes will give better effect to the policy.  Our changes focus on the harm that could be done to the competitive process, not on damage to individual competitors in a market.  That’s in line with all the other provisions of the Competition and Consumer Act.  We have also brought the provision into line with other parts of the Act by looking at both the purpose and the effect of the conduct.

Through our draft report we sought to road-test how we could frame a provision that strikes the balance between prohibiting conduct which has the purpose, effect or likely effect of substantially lessening competition, but not harming pro-competitive conduct. 

Following feedback on the draft proposal, we have reframed our misuse of market power prohibition to be clearer and better targeted to anti-competitive conduct and ensure that pro-competitive conduct is not captured.

The main change we have made is to recommend including principles in the legislation to guide the court when assessing whether conduct is anticompetitive or is designed to enhance efficiency, innovation, product quality or price competitiveness.

We also make recommendations aimed at simplifying the law and lowering the regulatory burden on businesses. These include recommendations to simplify the authorisation and notification provisions and to remove redundant provisions from the law.

Our approach to the law is that brighter lines and less complexity increase certainty for businesses.

Reforms to competition institutions

Lastly, I believe our recommendations on competition institutions are vital.  Good institutions matter to achieve outcomes. 
The reforms we are proposing need to be able to survive changes of governments and key personnel. This will be aided if we have strong institutions to progress reform. The elements of a strong institution include independence, transparency, and credibility.

We propose a new institution be established to take forward this work, the Australian Council for Competition Policy, or ACCP. We want this body to be independent, well constituted and transparent in its actions.

The ACCP would be a ‘truly national body’, that is, it would have strong ties to the States and Territories alongside the Commonwealth, with shared governance and funding and ability for all governments to refer work to the ACCP.

The ACCP would play a strong leadership role, including advocacy for competition policy, holding governments to account, and regularly analysing the state of competition.

The ACCP would also be responsible for assessing whether jurisdictions were eligible for competition policy payments. We recognise that payments were useful under the previous National Competition Policy reforms.  We recommend that such payments be made only if the government implementing the reforms is not the one that receives the payoffs.

Our Report also discusses the main competition regulator, the ACCC. The ACCC is a well regarded and effective body.  In our draft report we recommended that its performance would be strengthened by a Board. 

Following submissions we consider that including a more diverse range of views and experience can best be achieved by introducing part-time Commissioners whose commitments beyond the ACCC — including, potentially, in business, consumer advocacy and academic roles — would broaden the Commission’s perspective on issues before it.

We also recommend establishing a new Access and Pricing Regulator to take on access and pricing functions across the economy, including telecommunications, energy, water and access under the National Access Regime. This would strengthen analytical capacity in this important area of regulation, and having an economy-wide ambit would avoid the risk of industry ‘capturing’ of the regulator.

Implementation

Taken together our 56 recommendations are a comprehensive forward-looking agenda for improving productivity and the lives of

Australians, through changes to competition policy, changes to competition laws and changes to competition institutions.

For any agenda to succeed, a clear plan for implementation is needed. Our Report sketches a ‘road map’ for implementation that identifies pathways forward.

There are risks if changes are too rushed.

The Panel is sensitive to this. We have set out a process for reform, including elements such as pilot programs and trials, more detailed reviews in complex areas such as intellectual property and a transitional process for reform.

We believe that competition reforms should be signed up to as a package by all Australian governments, to create an integrated way forward. Also, there needs to be a process for governments to share lessons learned on what does and doesn’t work, particularly in sensitive areas like human services.

The time has come to reinvigorate competition policy.  This will unleash the forces of choice and diversity, so that the lives of Australian users and consumers improve over the next twenty years.

Our long-term competitiveness, productivity, real wage growth and rising Australian living standards depend on us successfully meeting the reform challenge as we did in the 1990s.

We have set out a competition policy framework based on sound, stable and enduring principles. We have identified areas where our current framework falls short of the mark, and suggested ways to improve it.

This is a significant opportunity to improve Australia’s future economic prospects. We believe that our Report provides a roadmap for that journey.

This is an excerpt from a speech delivered to a CEDA event in Melbourne on 14 April 2015.

Professor Ian Harper will also address CEDA's Competition Policy Review event in Brisbane on 23 April 2015.