Harper competition review puts consumer choice to the fore

Jared Lynch
September 27, 2014
The Age
The federal government’s hotly debated competition review proposes scrapping laws that dictate who can own a pharmacy or drive a taxi, what hours shops can open and who can sell alcohol when and where.
It’s a win for small business. So no surprise that corporate giants have been quick to attack it, particularly its proposed “effects test”, which could hold big companies responsible for putting their smaller rivals out of business.
The political battle has begun, with independent senator Nick Xenophon vowing to block the review’s plan to axe pharmacy ownership and location restrictions.
But when the inquiry’s chairman, economist Ian Harper, prepared the inquiry’s draft report, he had one aim above all else – the welfare of consumers.
That is what competition policy is meant to be about – making life better for ordinary people by improving the competition rather than protecting individual companies.
“I want you to be clear about how we went about this,” Professor Harper told Fairfax Media.
Vowing to block plans to axe pharmacy ownership and location restrictions: Nick Xenophon.
Vowing to block plans to axe pharmacy ownership and location restrictions: Nick Xenophon. Photo: Alex Ellinghausen
“We simply asked a bunch of people for their views, but we just didn’t put all that in a blender and turn up with a report. There’s a framework there and it starts with the forces for change.”
Increasing globalisation has made the world seem far smaller than it was 40 years ago when the present Competition and Consumer Act was drafted.
“Every time you get a new iPhone coming out, people talk about fundamental changes in the way we are making our payments, not to mention the way medical services can be provided, as well as changes in education and the way retail is done,” Professor Harper said.
“The task of this review is to bring all our competition laws and institutions up to speed, so that they are fit for purpose of this new world that’s dawning on us.”
So how would this new world look if the government adopted all 52 recommendations by Mr Harper and his panel? First, supermarkets would be free to edge nearer to becoming one-stop shops.
Professor Harper said anybody should be able to own a pharmacy, not just pharmacists, in a same way that anyone can own a doctor’s clinic.
He said the present law “stops pharmacies from serving their customers where their customers want to be served”.
“In particular, it makes it difficult for pharmacies to be established in remote, regional locations where you can’t necessarily get an owner [to live].”
Removing this rule could allow big supermarket chains to incorporate dispensaries in their stores, as their British counterparts do.
Woolworths has seemingly prepared itself for such a change by renewing its trademark, Pharmacy-in-Supermarket, late last year, although a company spokeswoman said at the time nothing should be read into that.
And the recommendation is unlikely to become legislation. Even before the review’s draft report was released this week, Federal Health Minister Peter Dutton said that he would not deregulate chemists.
Outside the supermarket, the recommendations roll on. Professor Harper wants competition principles to be included in planning and zoning rules.
His panel accepted arguments from German supermarket chain Aldi that current planning laws which limit free and open competition in the sector should be removed.
“A lot of local government rules around the country give incumbent businesses the right to object to new businesses wanting to come in,” Professor Harper said.
“That’s not about competition. Competition is about letting these people come in and have a go at meeting the market demand. If the market won’t support two firms, well, that’s a different matter.”
The Business Council of Australia supported urban planning reform. Chairman of the BCA’s competition policy review working group Danny Gilbert said it would help generate “investment that grows the economy, create jobs and provides local choices for consumers”.
With this in mind, the review suggested removing restrictions on retail trading hours and supermarkets selling alcohol.
But the shop assistants union, the Shop, Distributive and Allied Employees Association, rejected the proposal. Union spokesman Bernie Smith said the “impact on families will be huge and the impact on the economy will be negligible”.
Mr Smith said 2012 research by the McKell Institute which looked at the impact of removing the last few trading restrictions found “there was no definite benefit”.
Hailing a taxi in town could also be easier, with the review suggesting deregulation of the taxi industry and more competition from cab-like services.
“Technological change is also disrupting the taxi industry and forcing change upon it,” Professor Harper said.
“For example, traditional booking methods are being challenged by the emergence of apps such as goCatch and ingogo, as is the industry itself through ride-share apps like Uber that can connect individuals wanting a lift to drivers willing to take them for a fee.”
Professor Harper said the emergence of Uber has been particularly controversial, with regulatory agencies questioning its legality and fining drivers, despite there being “considerable public demand for its services”.
“This indicates existing regulation is more concerned with protecting a particular business model than being flexible enough to allow innovative transport services to emerge.”
GoCatch founder and chief executive Ned Moorfield told Fairfax Media more concerted government intervention to boost competition would result in gains for business and travellers.
“More options are needed to make the industry customer-centric,” Mr Moorfield said.
He said the costs built into the system, such as the hefty fees for taxi licenses and varying legislation in each state, made it hard for new players to grow effectively.
When goCatch first began operating in 2011, NSW and Victoria changed laws to accommodate its services. The company is campaigning for similar changes in other states such as South Australia, where several of its drivers have recently been fined.
Mr Moorfield said it would be hard to regulate a service such as ride-sharing that largely operates outside the current regulatory framework.
NSW Taxi Council chief executive Roy Wakelin-King said opening the industry to such competition was dangerous.
“Ride-sharing companies … provide a transportation service without any regulation, meaning no public safety, no vehicle standards, no insurance guarantees, no work cover, no capped pricing, no anti-discrimination provisions, etc,” Mr Wakelin-King said.
“The taxi industry has always been at the forefront of customer service and new technology over the years, whether it be dispatch systems, apps, voice recognition software, on-board safety cameras, etc, and we will continue to develop that customer focus.”
Former Labor competition minister Craig Emerson said many of the proposed reforms would struggle to become legislation because they were split into state and federal issues.
He said the only way to convince the state governments to reform trading hours, planning and zoning, liquor licensing and taxi laws was to induce them with competition reward payments.
“When I was competition policy minister, the states actually raised with me the idea of the Commonwealth getting involved in [taxi reform] and they essentially said ‘we’d like you involved because when the shit hits the fan, we can blame the Commonwealth,” Dr Emerson said.
“So the idea is that the Commonwealth pays the states to do taxi reforms, the states take the money and when the whole place erupts, they say ‘we had to do it because the Commonwealth made us’. So we didn’t take on taxi reform.”
Dr Emerson said even reforms involving only the federal government were politically challenging, such as tinkering with the Community Pharmacy Agreement, which expires mid next year and bans anyone other than a pharmacist owning a chemist shop.
He thinks it highly unlikely that any major political party would pick an argument “with pharmacists in white coats, saying ‘your kids are going to be at risk because unqualified people would be dispensing pharmaceuticals.’
“No government would allow unqualified people to dispense pharmaceuticals, but that’s what they would say. That would be the campaign.”
Pharmacy Guild executive director David Quilty said Australia’s pharmacies were struggling under new price-disclosure rules and needed “certainty and stability – not a constant push to abolish a system that’s working and replace it with an economic theory”.
But Agriculture Minister Barnaby Joyce – who has been pushing for a relaxation of competition laws, in some cases, to create national champions comparable to the dairy company Fonterra in New Zealand – said the review was not legislation and aimed to stimulate debate.
The review rejected calls to allow mergers to create “national champions”, saying while it may benefit the businesses involved, it could “diminish the welfare of Australian consumers”.
“When that occurs there are conflicting interests: the gain to businesses that wish to merge through achieving greater efficiency against the potential detriment to Australian consumers due to the reduction in competition,” Professor Harper said.
But Mr Joyce believed each case should be assessed on its merits. “If you want to play on an international market, then you need scale, because you’re up against people with scale.”
Professor Harper invited debate about the draft report, which is open for submissions until November 17.
“Our view is that the 52 draft recommendations should be viewed as a package. This is a framework within which we expect these decisions to be made,” he said.
“At the end of the day we will prepare the final report based upon the views of myself and my three co-panelists, and present that to the government. Then it’s up to the government to decide what it wants to do.”
Additional reporting: Rose Powell
Read more: http://www.smh.com.au/business/harper-competition-review-puts-consumer-choice-to-the-fore-20140925-10m34g.html#ixzz3Ee2X3gt8