The Spinoff: We need to stop shadow-boxing on competition
Read the original article on the Spinoff
When, earlier this month, finance minister Nicola Willis warned our uncompetitive supermarket duopoly that they had been put “on notice”, Foodstuffs and Woolworths must have been trembling with fear. Indeed they can barely have recovered from the shock incurred the last time they were – according to RNZ – put “on notice”, in August last year, for routinely over-charging customers. This came on top of the mortal peril of – you guessed it – being put “on notice” in 2022, this time by Labour’s David Clark.
During his 2022 press conference, Clark insisted that the supermarkets’ uncompetitive behaviour “can’t be kicked down the road”, while in the same breath announcing “another review of competition in three years’ time”. Black comedy aside, the wrenching incompatibility of these two statements hints at the reason why our supermarket giants may not, in fact, have collapsed in terror. They have correctly deduced that all this half-hearted making of threats, all this putting “on notice”, amounts to nothing whatsoever.
In a similar boat are our cartel-like banks, who have somehow mysteriously survived being put “on notice” not only by the current government (the National Party in December last year: “The big banks are on notice”) but also by its predecessor (Kris Faafoi and Grant Robertson in November 2018: “Banks [are] on notice to lift their game”). The banks have also bravely endured the finance minister’s rapier-sharp wit, shrugging off her carefully crafted description of their industry as “a cosy pillow fight” where other firms might have crumpled under this near-mortal blow.
Customers, meanwhile, await action. The Commerce Commission has calculated the supermarket duopoly extracts $1m in excess profits every day – profits, in other words, above and beyond those they would make in a competitive market. That $1m a day comes straight out of shoppers’ wallets. Kent Duston, the convener of the Banking Reform Coalition, estimates that another $10m a day in “unearned and unjustified profit” is extracted from us by the four big Australian-owned banks. A small handful of firms likewise dominate – and earn excess returns from – electricity generation, building supplies and other markets, many of which have also been put “on notice” to equally little effect.
Why is there so much shadow boxing, and so little action? One major culprit is the hands-off approach to regulation that has haunted the English-speaking world for decades. Anti-monopoly regulations should theoretically be popular even among small-government types: competition is, after all, the only thing that makes markets work. Monopolies, duopolies and oligopolies – the latter denoting market dominance by a handful of firms – are a menace to consumers, raising prices and squashing innovation. But even pro-competition regulations have long been deemed suspect.
The dominant view has instead stressed the economies of scale that – in theory – accumulate in larger firms. The mere possibility of competition, what’s more, is supposed to put a check on monopolistic behaviour. Obviously this latter idea is self-serving – or, rather, big-business-serving – nonsense, but it has nonetheless been hugely influential. Hence New Zealand has long tolerated two supermarket chains having over 80% market share, while further afield Facebook was – to take just one egregious instance – allowed to buy up both WhatsApp and Instagram.
Overseas, the grip of this laissez-faire view is weakening: witness the US Justice Department’s determined prosecution of Google’s monopolistic behaviour, and the tougher approach to anti-competitive activity crystallising within the European Union. Even in sleepy old New Zealand, everyone can feel the pressure build. It is not hard to guess why Willis has started talking a good game on competition: people don’t like the banks very much, and they really don’t like the supermarkets. Having a go at those firms – and their uncompetitive colleagues the electricity gentailers – is a free hit.
Our current politicians have, however, an immense fear of taking risks. No matter how angry the public gets over excess profits, there is far less peril in making big-sounding statements – and taking small, ineffectual steps – than in implementing the weighty structural reforms that would actually drive change. Decisively shaping markets feels like a step into the unknown; the possibility of a botched effort looms large. Hence, when it comes to the supermarkets, Willis has done nothing more than talk vaguely about removing “unnecessary regulatory hurdles that discourage new entrants”, whatever those may be, and taking further steps that “could” – note the hesitant conditional tense – include helping new entrants access suitable land.
It doesn’t help that there is no clear consensus on the exact remedies for anti-competitive behaviour – which may vary from sector to sector – nor much detailed academic work on how to implement them. Several influential figures have called for the gentailers to be broken up, so that they can no longer exploit the commercial advantages of being able to both generate and retail electricity, but it is unclear just how much good this would do.
When it comes to the supermarket duopoly, a third competitor might be encouraged – but how? Some credible thinkers – among them the Australian competition expert Lisa Asher – argue New Zealand is badly under-served with supermarkets. Others, such as 2 Degrees founder Tex Edwards, believe that on the contrary New Zealand is “oversupplied”, and that the only solution is to force Countdown and Woolworths to divest 140 of their existing stores to a new entrant. Other thinkers on the progressive left are arguing, at least in private, that tougher regulation of the current supermarkets – rather than a new competitor – is the way to go.
Questions abound, too, about whether our entire legal framework on competition is fit for purpose. Clarity on all these points will be needed before the next election. Because right now, when it comes to tackling anti-competitive behaviour, New Zealand politicians are locked in a pointless cycle of empty words and signals of virtue. For the sake of the consumer, they may need to stop handing out “notices” that are about as threatening as a wet wipe, and start taking action.