Competition law will dominate the business news headlines in 2006. The Australian Competition and Consumer Commission's prosecution of Visy Industries will continue to grab headlines, and the federal government will introduce jail terms for executives found guilty of operating cartels.
And there's even the prospect of something quite novel in Australia, a class action by the customers of Visy and Amcor, who claim they were disadvantaged by the alleged price-fixing of the two companies.
What is absent from this flurry of activity is any recognition of the principles of good law-making. Put simply, the country's competition law regime fails the basic tests of common sense and consistency.
If executives from different businesses agree not to compete against each other, those executives could be deemed to have formed a cartel, they could be fined and in the future even imprisoned.
However, if those same executives were fortunate enough to be in an industry that for whatever reason the government of the day deemed to be politically important, they could meet the relevant portfolio minister and have their agreement protected by legislation.
Quite clearly, the way to run a cartel in Australia is to get the government to do it for you.
For example, at the behest of Qantas the government restricts who is allowed to fly between Australia and the United States. If ever there was a restrictive trade practice that pushed up prices for consumers, this would be it. But somehow the arrangement is defended as being in the national interest. The ban on chemists operating in supermarkets likewise increases the costs of pharmaceuticals to consumers. It is the fear of pharmacists dispensing prescriptions to aged pensioners while sporting a "Vote ALP" badge that has cowed successive coalition health ministers into a settlement with the Pharmacy Guild that is no less anti-competitive than the government's deal with Qantas.
The ACCC says cartels "harm consumers and they also harm the economy by distorting the ordinary processes of innovation and product development". Whether this is true is debatable, as is the question of whether politicians should therefore try to regulate competition. Many economists would argue that government efforts to encourage competition are usually counterproductive and the potential for abuse is enormous.
Assuming that cartels are the evil they are made out to be, why doesn't the ACCC focus its powers of persuasion and publicity on the biggest cartel operators in the country, the federal and state governments? There are nearly 50 pieces of federal, state and territory legislation that authorise arrangements that would normally breach the Trade Practices Act, regulating everything from the single desk of the AWB to the monopoly of Australia Post. For every ACCC press release condemning the collusive practices of Australian business, the ACCC should issue two press releases condemning the double standards of the country's politicians.
If class actions by those who paid inflated prices because of private cartels are allowed, there's no reason to object to litigation from individuals who have suffered loss because of government-enforced monopolies. In principle, the tourist paying more for an airline ticket between Sydney and Los Angeles because of the absence of competition on the route has as much right to sue as the person who paid too much for a cardboard box.
In The Wealth of Nations, Adam Smith made a comment that for centuries has been used as justification for government interference in arrangements between businesses. "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices".
Those opposed to the free market argue that if even the greatest exponent of laissez-faire economics believed that businesses colluded at the expense of the consumer, then it must be true that only government can control such behaviour. What those same advocates of competition law neglect is Smith's very next sentence. "It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice". Smith goes on to say that the best discipline against such combinations is the power of the consumer, not government. Indeed, the purpose of The Wealth of Nations is to demonstrate that government regulation of business reduces, not increases, the welfare of the community.
This is a point our parliamentarians would do well to remember during 2006.
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