August 8, 2014
Speech

Professor Ian Harper

Speech to the 12th National Small Business Summit

Check against delivery

 

Introduction

I’d like to thank Robert Mallet for extending me the invitation to speak with you tonight; it’s a pleasure to be here.

On reading the agenda for the small business summit, I found it interesting that it covered a range of issues that are also issues front and centre to the Competition Policy Review.

These include:

  • Industrial relations and how that interfaces with competition policy
  • Productivity and its relationship to our competition policy settings, and
  • Complexity of regulation and whether our competition laws can be simplified

These issues are all very important. They go to the viability and productivity of a vibrant small business sector.

The Competition Policy Review’s broad terms of reference allow us to consider these and other issues to ensure our competition policy, laws and institutions are fit for purpose.

While these issues are important individually, the Competition Policy Review will also be considering how a whole range of important issues interact with each other to determine the best competition policy approach to deliver a vibrant and competitive economy into the future.

These are weighty issues for an after-dinner speech, particularly when you have been discussing these issues all day and may be looking for some respite.  So I don’t intend to go into technical detail on any of the issues that I raise – that is for another time and place.  But I do hope to be able to give you some greater insight into what my colleagues and I on the Review Panel have been up to, and what we hope to achieve in coming months.

Framework

This evening I will touch on three key themes:

  • first, our engagement with small business to date and some of the issues raised
  • second, some thoughts about small business and competition policy, and
  • finally, some of the questions for the Review Panel and the way forward.

Consultation and key issues raised by small business

As many of you know, we released our Competition Policy Review Issues Paper in early April.

The Issues Paper asked a range of questions to get businesses and consumers thinking about our national competition policy framework.

As an economist I know how competition should work. But a crucial part of our consultation was to get out and meet the people who are participating in the battleground of competition every day.    People like many of you here tonight.

The first thing we realised is that you are all busy running your businesses and do not have the time to write lengthy and formal written submissions to us.  So we put a facility on our website that allowed anyone to just write us a short message.  This is something that we will definitely continue into the next phase of our consultations.

With the assistance of local chambers of commerce, we met with a wide variety of small business people.  We met suppliers to the main supermarket chains and owners of small grocery shops who compete with them.  We met with farmers and horticulturists. We met builders and surveyors. We met with people who run trucking companies, abattoirs, registered training organisations, insolvency businesses – the list goes on.

We visited every capital city and the regional centres of Loxton, Launceston, Tamworth, Traralgon and Toowoomba.

We’ve been extremely pleased with the level of engagement. We spoke to over 150 people during those visits.  They shared with us not just their business experiences but their personal experiences, their hopes and their frustrations.  By sitting around a table with them we were able to probe into the issues and get to the heart of their problems.

So what are the main issues being raised by small business?

Firstly, market concentration in key markets: particularly grocery and energy and their impact on suppliers and energy customers.

These markets are explicitly mentioned in our terms of reference and it’s no surprise they have come up as issues for those businesses who compete with the big players in these sectors, or buy or sell to them.

Concerns have been raised about the effectiveness of the legal and institutional frameworks to address concerns small businesses raise about the conduct of larger market participants.

I’ll come back to market concentration issues a little later.

Secondly, competitive neutrality: that is, when business competes with government directly where the government business has an advantage because it is government owned.

I must say that we were somewhat surprised by the number of competitive neutrality concerns raised with us. It was not something that had been ‘on our radar’ and hearing the stories has made the issue real for us.

An example that has been raised with us that illustrates the issue is that local councils provide free access to showgrounds or parklands as temporary accommodation for motorhomes but local commercially-run caravan parks must comply with all the fees, licences, taxes, and insurances of a commercial operation, which makes it very difficult for them to compete.

Thirdly, planning and zoning laws: how they impact on the competitive process through entrenching barriers to entry and expansion.

For example, Queensland laws allow only hotel owners to open a liquor store. There is clearly a debate that society should have about reducing the social harm of overconsumption of alcohol, but it should be possible to have that debate in a way that does not limit the ability of small businesses who don’t have the financial capacity to buy a hotel to compete in the market.

The fourth point raised is the difficulties small businesses have accessing justice and enforcing their rights.  We have heard clearly that small business do not have the time or the resources to start legal proceedings through the courts.  Small business owners are using all the energy they have to make their businesses work.

  • For small business the operation of the competition laws is a practical issue, not an opportunity to engage in legal debate or test the court’s interpretation of a new provision.  Their concerns are having somewhere to go for assistance to address their concerns – do you go to the State or Commonwealth small business commissioner, do you complain to the ACCC, do I try and find a lawyer to help?
  • the costs associated with enforcing legal rights – not just legal fees but also concerns about exposure to costs orders should a claim be unsuccessful; and
  • how do small business enforce their rights while maintaining the relationships in supply chains so they can continue to do business?
  • So what are we going to do with these and all the other issues, and what are the next steps for the Competition Policy Review?

Competition policy and small business

The Review is about how Australia's competition policy and institutions can be adjusted (if necessary) to maximise the potential contribution of all players, including small business, to Australia's future economic success.

Our remit is not to solve individual concerns raised with us.  But can I stress that that does not mean that bringing your individual stories to us is a waste of your time or ours.  It is the real life, on-the-ground stories that are most powerful in helping us to make our recommendations and to win the hearts and minds of others.  While I understand that for some of you it is frustrating to have to tell and retell what you go through each day in running a small business, can I assure you that for this Panel it has been invaluable.

It’s also not an enquiry into how any business – small or large - can be given a leg up.  Our focus is squarely on the competitive process, on the rules of the game, not helping any one business or sector to compete against another.

However, not for a minute do we assume that all businesses are in the same position in their dealings with others.

While the general approach is that laws should apply to everyone equally, we do need an effective framework to deal with concerns arising from differences in bargaining power between businesses.

A range of issues have been raised by small business in the interaction between small business and larger businesses in their supply chains in key markets such as groceries, utilities and automotive fuel. The law tries to address these issues through misuse of market power provisions, but also through the unconscionable conduct provisions and the government’s proposed extension of unfair contract terms to small business.  It also provides opportunities for collective bargaining.

While we are unlikely to find a magic bullet for all the issues raised with us, we will be making sure the law, the institutions and policy settings are fit for purpose and are fit for all businesses.

I can imagine that some of you might be listening to me talk about the Review and be thinking ‘that’s all well and good but what does this mean for me and my small business?’

Small business is too important a sector of the economy not to be a focus of our deliberations on competition.  It is vital that small business be able to compete.

Competition delivers choice for consumers – it means that the goods and services that are provided in the economy are the ones that consumers actually want.  And small business can play a key role in making sure that all consumers’ choices can be met by fulfilling niche markets or competing on better quality or a wider variety of services than is offered by the larger players.

Competition also delivers innovation.  Innovation is driven not just by new ideas from current players but importantly from new entrants into markets trying out new ideas.  And new businesses are often small businesses.  This is particularly evident in technology-driven markets where there are many stories of apps developed in teenage bedrooms or parents’ garages can ‘disrupt’ a long lived and established market.

The result is that every now and again we end up with an Apple or Google, or perhaps just as important, a company with great ideas that gets acquired by Apple or Google.

I accept that not every small business will end up part of a global behemoth, what is important is we have the competition policy settings right so we have an environment where small businesses start-ups can decide whether to take those risks.

This principle applies to small businesses across all sectors, whether they are supplying goods or services locally or across the country, and whether they are in the more traditional or newer areas of the economy.

Having our policy settings right means that small businesses are able to create intellectual property, employ hundreds of thousands of Australians and make a substantial contribution to our national economic welfare and the rich tapestry of our economy which in turn makes it resilient. These are the strong points of small business.

But the significant role that small business plays in the economy is itself a reason to make sure that competition policy and laws work for small business. Conducive

Small businesses are ubiquitous, operating in all industry sectors, and providing for 43 per cent of private sector employment.

In Australia, we have seen on average 300 000 new small businesses every year since 2004.  This is remarkable and can be attributed to the stability in our economy.  Stability, prosperity and certainty are core underpinnings that support small business start-ups.

Healthy competition in our economy is important to facilitate the economic conditions that will assist in promoting the formation and growth of small business.

The way forward

As I remarked earlier, the Review Panel is not able to adjudicate all the issues that come before us.  But they are grist to our mill.  They are helping us to put together some recommendations that we hope will strengthen competition now and into the future.

  • After testing our institutions, framework and laws, the Panel will be able to evaluate a number of key questions.
  • Are our competition laws ‘fit for purpose’. This includes assessing the role of the ACCC and the ability of all businesses to find remedies under the law;
  • Are there parts of the economy that could benefit from facing more competition?
    • We have particularly sought views on whether there is scope for more choice and competition in the way that governments provide services such as health, education, disability and aged care.
      • These are growing parts of our economy and as the population ages and medical technology continues to advance we will be asking governments to spend more of our taxes on them, so we want to make sure that they are provided as productively as possible.
      • We have also heard from some small businesses that operate in these areas that they face some competition issues, particularly in dealing with governments
  • Are our competition policy and laws able robust enough to ensure that we get the benefits and minimise the risks from the accelerating pace of technological change?
    • we need to make sure that technology start‑ups are not stopped from competing, and that consumers in Australia – including small business consumers – can access the benefits of technological advances in other countries, and at competitive prices.
  • Do we have institutions in place that will see these reforms implemented and that can sustain the benefits of competition in coming decades?

Next steps

We will be releasing our draft report at the end of September.

Our Draft Report will reflect our deliberations on issues that have been put to us and set out our preliminary views.  There may also be some further questions on which we are seeking additional comments.

There will be a further round of consultation following the draft report, which we will use to test our analysis and views.

We will also pursue avenues for you and other small businesses to engage with the Review at that next stage.

Our final report will be delivered to the Minster in March 2015.

Conclusion

In concluding, on behalf of the Panel I would like to thank you for the opportunity to talk to you tonight about the Competition Policy Review.

Thank you also for your engagement with the review so far, through submissions and discussions with the Panel.

Small business is a diverse and extremely important sector of our economy.

We want to make sure our competition policy, the laws and institutions are fit for purpose to deliver efficient and well-functioning markets to benefit all consumers, including small businesses.

I look forward to continuing the competition policy conversation with you over the coming months so we can work to get those policy settings right.

Thank you.

 

The Competition Policy Review Final Report was released on 31 March 2015 and the Review has concluded.

On 24 November 2015 the Treasurer released the Government response to the Competition Policy Review and the Government response on the National Access Regime.