Capitalism must focus on competition, says Rod Sims
Promoting competition among businesses is vital in ensuring social objectives are achieved, says the former consumer watchdog boss, Rod Sims.
The Albanese government must focus on promoting competition among Australian business or else capitalism will not succeed in the country.
That’s the assessment of former Australian Competition and Consumer Commission chairman Rod Sims. He says “we cannot expect companies to do what is not in their self-interest” and said policies such as a carbon tax “would do wonders for harnessing capitalism to tackle climate change”.
Mr Sims’ comments come as Treasurer Jim Chalmers has pledged to ditch the free-market policy consensus that has steered rich countries over two generations and fashion a values-based economy in partnership with business, unions and community groups.
But the move has attracted criticism. Howard government treasurer Peter Costello, who now chairs the $196bn Future Fund, said it was government’s role to focus on social objectives while business and superannuation funds had their own objectives.
Meanwhile, Business Council of Australia chief executive Jennifer Westacott and Australian Industry Group chief executive Innes Willox said the private sector would work with the government in good faith but advised against undermining the market-based system.
In a speech at Sydney University Law School on Thursday night, Mr Sims said he embraced capitalism, as it generates prosperity and lifts living standards.
“But it must come with rules ensuring competition, and there must be policies to redistribute some of the wealth created,” he said.
“Many rightly applaud the Hawke and Keating pro competition reforms, but they forget the massive accompanying social reforms, largely driven by deputy Prime Minister Brian Howe, that had a considerable effect on improving income inequality. This successful reform combination should never be forgotten.”
To this end, Mr Sims said the government must promote competition to ensure a healthy democratic society and fulfil social objectives.
“The moral philosopher, Adam Smith, famously said over 200 years ago: ‘It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest’,” Mr Sims said.
“If there is only one or two bakers in town their ‘regard to their own self-interest’ will work out badly for consumers. Without strong competition clearly your ‘dinner’ will be expensive and of low quality.
“Some believe that businesses only succeed by looking after the interests of consumers. This is naive. It ignores particularly issues to do with market power.”
Mr Sims highlighted the rise of Google in the past 20 years and its dominance of Australia, and the world’s internet search market.
“It innovated its way to success through a superior search engine, but then cemented its market power through numerous acquisitions, of Android, YouTube and DoubleClick as examples, and a lot of self-preferencing and potentially anti-competitive agreements. Google now has 94 per cent of Australia’s search market.
“Have you noticed the number of paid search results you now get versus organic search results? Google has an advertising-based business model and so its profits depend on using the enormous data it has on you to influence what and how frequently you buy.”
Mr Sims said when market power is concentrated, so are company profits, which in turn increases inequality.
“Our liberal democracies are under threat from the consequences of a lack of competition, particularly that the benefits from capitalism are not being properly shared.
“It must be said that encouraging people to pursue their self-interest is not the most obvious way to run a society. But it works as it creates prosperity. It will only be able to do this in a democracy, however, if the wealth is reasonably evenly divided. Some who want to keep wealth unequal have realised that democracy can no longer serve their interests.”
He said social objectives could also be achieved via government incentives to promote innovation among other policy settings.
“For example, a carbon tax would do wonders for harnessing capitalism to tackle climate change.
“ESG (environment, social, governance) norms will not get us there. We cannot expect companies to do what is not in their self-interest.”
