No competition minister in new Cabinet

Despite talk of a root and branch review of competition laws for more than a year, no competition minister appears in the new cabinet, outer ministry or among the various parliamentary secretaries in the new ministry announced today by PM-elect, Tony Abbott.

As expected, Bruce Billson is the new Minister for Small Business. He was the Shadow Minister for Small Business, Competition Policy and Consumer Affairs. Gone are the competition and consumer references.

The change cements some of the fears over a small business focus for competition policy that have arisen in recent months. The Coalition’s Policy for Small Business, released in August, reiterates the earlier promises of an independent root and branch review of competition policy to ‘ensure that both small and big business have a level playing field’.  Last week Peta Sevenson anmd Martine Phillips wrote (King&Wood Mallesons’ In Competition Blog – see ‘Coalition to Uproot Competition Laws?’ (9 September 2013)) that the ‘Coalition’s stated focus on the position of small business suggests a move away from the protection of the competitive process to the protection of the competitors.’

Let us hope they are not too prophetic.  Although small business can certainly benefit (as can other business) from effective competition policy, the policy should not be directed toward the protection of any particular sector of the economy.  It is widely recognised internationally that competition policies ought to be directed toward protecting competition and not competitors or other objectives.  For example, the International Competition Network’s Recommended Practices For Merger Analysis include, as their first recommendation, the statement that

‘the purpose of competition law merger analysis is to identify and prevent or remedy only those mergers that are likely to harm competition significantly.’

Comments to the recommendation make clear that merger review law ‘should not be used to pursue other goals’.  The sentiment that protection of competition and not competitors should be the focus of competition policy has been re-affirmed many times in the Australian context.

When it comes to the ‘root and branch’ review of competition law this issue is likely to arise most acutely in relation to our misuse of market power provisions in s 46.  These have already been the subject of small business focussed reform – the ‘Birdsville Amendment‘ was clearly directed toward this small business objective, despite efforts to claim otherwise by some members as it progressed through Parliament (see earlier blog here).  Lest it be argued that a different approach is required in a small market economy, the issue has been addressed extensively by Michal S Gal in his work ‘Competition Policy for Small Market Economies’ (2003).  He writes:

‘In a small economy it is vital that the goals of competition policy be clearly, consiously, and unambiguously defined, and that economic efficiency be given primacy over other goals.’ (page 47)

and further

(at 48) ‘Undeviating pursuit of wealth dispersion and small size of firms at the expense of efficiency will be costly in small economies because inefficient firms will be preserved in the market, and thus the market will operate inefficiently. … In addition, such protection of small firms harms consumers who, on average, are likely to be less wealthy than the owners of small businesses, especially when such businesses are protected by competition law.’

‘Moreover, even if the protection of small businesses were our chosen goal, competition policy should not be chosen as the method to achieve it.  Competition law, as the name indicates, is aimed at facilitating competition among potential rivals.  It strives to achieve this goal (49) by reducing artifial barriers to competition and by allowing market participants to interact independently. … monopoly, or rather the incentive to become one, is an important “engine” that facilitates competitioon.  Limiting business size per se thus conflicts with the basic principles on which competition policy is based.

‘Although these arguments apply to any economy, regardless of its size, smallness intensifies the primacy of efficiency. …

We can only hope a thorough independent review will consider the broader impact of a small business focus for competition policy and reiterate, again, the importance of preservicing competition ahead of competitors; unfortunately, recent history does not give us much reason to be optimistic on that count.