Imagine a world in which the government outlawed your business competitors. You wouldn't have to worry about pesky things like keeping your customers happy. You wouldn't need to concern yourself with improving the quality of what you sold and you certainly wouldn't be engaged in any price discounting.
Naturally you'd have to ensure that you didn't let standards slip too far lest customers stopped buying your product altogether -- that's unless you were lucky enough to be selling things people couldn't avoid buying, like food.
Sounds far-fetched? Thanks to our town planning laws such a world is actually not too far removed from the reality of this country's grocery business.
The excuse used to justify banning competition varies, but the absence of competition invariably produces the same sort of results regardless of whether what is being regulated is airline travel, television channels or supermarkets. Consumers pay higher prices, and suppliers and producers have no incentive to innovate.
The focus of the Australian Competition and Consumer Commission inquiry into grocery prices is on the supposed collusion between the big supermarket chains. So far, not too much evidence of supposed collusion has been uncovered. That's because the ACCC is looking in the wrong spot as it searches for the culprit responsible for high grocery prices.
The behaviour of the supermarket chains is not the problem. As usual the problem is with government itself. State and local government planning laws operate to prevent new supermarkets from opening and existing ones from expanding. These laws are a large part of the reason why Australia's grocery prices are rising faster than in other similar countries. What's obvious from the submissions to the ACCC inquiry is that it's the anti-competitive behaviour of local councils that the ACCC should be investigating. Despite promising to do so for more than a decade, state governments have not yet made their planning laws conform to the principles of national competition policy.
Eliminating anti-competitive planning laws could reduce food prices by about 20 per cent, and reduce prices for other household items by 30 per cent. This is a finding of research published last week, commissioned by Urban Taskforce Australia, an industry association of property developers and equity financiers.
In its submission to the ACCC inquiry, the taskforce argued that NSW's supermarkets and shopping malls were one of the most heavily regulated sectors of the economy, alongside mines, casinos and brothels. As the taskforce commented: "Frankly, this is bizarre."
In NSW, the Environmental Planning and Assessment Act makes the planning minister responsible for the "planning of the distribution of population and economic activity within the state".
Giving a minister from the worst-run government in the federation the authority to organise their state's "economic activity" sounds like something out of Bulgaria in the 1960s. Yet that's the law that applies in NSW in 2008. Local government planning schemes allow councils to block the entry and expansion of supermarkets if they have the potential to adversely affect the financial viability of existing retailers. Yet the whole point of competition is that it works because it has the potential to adversely affect existing operators.
The case a few years ago of a Penrith fruit and vegetable shop owner who attempted to sell cheese highlights the ridiculous condition of our planning laws. The owner wanted to add a "deli counter" and sell cheese. The problem was that cheese wasn't listed as one of the products approved for sale from the shop under the council's original planning approval. Penrith City Council refused the development application and the owner appealed to the NSW Land and Environment Court.
The court ruled that the shop was not allowed to sell cheese. According to the court, if the shop started selling cheese then its character would change to become a "general store". Under the Penrith local environment plan, general stores were required to be located at least three kilometres from each other. The fruit and vegetable shop could therefore not sell cheese because it was located within 1.5 kilometres of an existing general store.
Planning laws originally intended to control things like traffic flow are now the instruments used by urban planners to impose their economic and social visions on the rest of society. Planning laws are being used to stop competition between grocery retailers -- and because of these laws Kevin Rudd's "working families" end up paying more for their food.
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