ANU forum on competition policy reforms - Fred Hilmer

The ANU Crawford School hosted an excellent forum on Friday, mostly a retrospective from key players in the 1995 Hilmer competition reforms, but also with some interesting insights into competition policy design and work left to do for the Abbott Government's new review.

Fred Hilmer talked about what the Abbott Government's proposed review of competition policy should focus on, and what can be learnt from the Hilmer reforms.


What is competition policy?

People like winning, people like competing, and if you un-leash competition you generally get tremendous results. But, because there are also times when you get destructive competition and there are times – when, for example, consumers par aren’t able to make good choices – that competition can actually cause damage.

So competition policy is about how we harness the force of competition to do good things. But competition policy isn’t about protecting business and it isn’t about competition über alles (in the German sense) - it isn’t about competition per se. It’s really about where and how competition will be used as a constructive force that makes us a stronger economy and a better society. So it is an important tool, and it is linked to industry policy.

Competition policy is effectively an industry policy that says we want to have a high-quality playing field, but we don’t want to influence too much what happens on the playing field.

Different policy environment

Key issues in 1992:

• stagnant productivity, low economic growth
• prevalence of inefficient government monopolies 
• heavily regulated non-traded services and goods 
• bi-partisan consensus 

Key issues today:

• need to increase productivity and job creation

- low hanging fruit picked
- poor data/understanding
- critical role of start-ups / innovation 

• re-emphasising incentives versus enablers
• unfinished business

- privataisation
- regulation review
- access
- pricing by natural monopolies

• new challenges

- health
- eduction
- red tape
- infrastructure
- technology

• institutional framework

- in the 1990s, driven by the Prime Minister, Treasurer and COAG
- today, its just a junior Minister for Small Business

• adversarial politics 

Incentives and enablers
The forces that shape an economy can be grouped into things that provide an incentive to do better, and things that enable. Enablers say "I can do this"; incentives say "I will do this".

The 1990s were really about incentives; competition was actively encouraged. In the 2000s we haven’t actively encouraged it; we’ve wound it back in a number of areas.

In the 2000s, we’ve really been concentrating more on enablers than incentives, and that means competition policy wasn’t getting as much attention. It means that some of the policy areas that supported competition policy were going backwards.

Regulation review
Regulation review is unfinished; in fact, it’s gone off the rails. The Office of Best Practice Regulation is an inappropriate way to deal with this. Regulation review needs to be boosted. Previously there was something in it for the states: they got competition payments. When that stopped, regulation review stopped.

So red tape is still today more of a challenge, but we have to be more sophisticated about dealing with it. We have got an Office of Best Practice Regulation Review that looks at all of those things but doesn’t actually classify red tape in terms of its effects. So – no great surprise – regulation just goes on and on.

Lessons
Stay at the policy level of those six levers that we talked about, rather than trying to solve the problem of the supermarkets or the problem of the petrol stations or the problems of small business or the problems of rural areas.

It is important to maintain strong links with the States and really work on building the consensus.

It’s important for the inquiry and also the bureaucrats to help the politicians develop a narrative. The competition narrative is boring to the average punter. When you talk about productivity and competition policy people think of job losses. So you don’t have a very good or constructive public debate. You need to develop a narrative - what is the compelling case for change?

Forum website - Crawford School
Fred Hilmer's slides