Federal election 2016: evidence doesn’t justify more regulation

Here’s a disturbing fact: “Since 2008, the market share of Coles and Woolworths has risen from 60 per cent to 73 per cent.”

Or so Andrew Leigh, Labor’s spokesman on competition, tells us, in proposing yet more regulation.

Except that it isn’t so. As the Harper report explained, far from extending their dominance, the two major supermarket chains have lost ground, with their market share, which was initially between 60 and 70 per cent, falling to between 55 and 60 per cent.

Nor is that surprising: in 2008, ALDI had 106 stores in Australia; now it has 410. As competition from ALDI and Costco has intensified, the majors, in an attempt to stem the loss of sales, have had to slash prices. Profits and profit expectations have therefore taken an even greater battering than have market shares, with the two majors’ market capitalisation sliding from 75 per cent of their combined revenues in 2008 to barely 60 per cent last year.

But while shareholders are hurting, consumers are clear winners. Moreover, the greatest beneficiaries are precisely the disadvantaged families Labor claims to champion, with the international evidence suggesting their gains from the expansion of grocery discounters are one-third larger than those of higher income households.

Leigh could have celebrated those developments. So could he have celebrated the effect the internet has had in dramatically expanding consumers’ choices, facilitating price comparisons and reducing the ability of any single supplier to “give less and take more” (as the Australian courts have defined market power).

But it is never Labor’s way to acknowledge that markets are working just fine.

Instead, in his John Freebairn Lecture at the University of Melbourne, Leigh argues Australia is rife with monopolies, concluding that only further government intervention can save us from the Dickensian inequality monopoly capitalism inexorably spawns.

Making that argument appear even vaguely plausible obviously requires more than the usual measure of diverting acrobatics. Leigh, however, does not disappoint, showing a degree of inventive legerdemain one does not readily ascribe to our political class.

It is, for example, creative to ignore imports in calculating how concentrated markets are: as if Australians could only choose among domestically produced cars, refrigerators or sources of news and entertainment. Yet that is what Leigh’s admittedly poorly explained calculations of market shares seem to do.

And it also takes creativity to ignore geography in comparing concentration levels in Australia and the US: yes, there are more supermarket chains and banks in the US than in Australia; but while 85 per cent of Australians live in close proximity to at least two rival supermarkets and two competing banks, many Americans are limited to a Walmart and a one-branch bank.

However, those errors pale into insignificance relative to Leigh’s assertion that rising concentration is skewing the distribution of income towards capital.

It is true that labour’s share of market sector income has fallen by 2 to 3 percentage points since the late 1990s. But that is not because monopoly has allowed producers to jack up profits: on the contrary, rates of return have also declined by 2 to 3 percentage points.

Rather, it is because the market sector’s capital stock more than doubled over the period, which, as the Productivity Commission concluded, “explains the entire fall in the labour income share” — and set Australia up for the prosperity we now enjoy.

Leigh’s assertions are therefore hardly a solid foundation on which to propose revising the competition and consumer laws.

But even the slightest whiff of an opportunity to slam business seems to set Labor off like wolves running after fresh meat.

So as well as implying that mergers should be tested for their impacts on poorer households (without ever considering what that would involve), Leigh announces that Labor would make penalties greater for conduct that harms disadvantaged consumers than for that which merely slugs Middle Australia.

What is startling is that Leigh not only provides no evidence those changes are required, he shows no understanding of how the law he intends to amend actually operates.

Far from disregarding the severity of the misconduct and the harm it inflicts, the relevant section already specifies that penalties must reflect “the nature and extent of any loss or damage”, with the High Court emphasising that the sanctions must be sufficiently punitive to ensure “those engaged in trade and commerce (are) deterred from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention”.

And in adhering to that guidance, the courts have repeatedly shown their awareness that the harm falls on “consumers who are usually economically weak and do not have meaningful power to obtain redress”.

None of that is to downplay the gains proper competition reform could bring to disadvantaged Australians.

But if Leigh genuinely wants to harness competition to the benefit of the poorest households, why not grant low income families vouchers which would give them a real choice of schools?

And why not require state governments to allow patients rotting on public hospital waiting lists to use private hospitals when they can do so cost-effectively?

Of course, merely canvassing those reforms, which the Harper review pointed to, would infuriate the public sector unions, which are Labor’s paymasters. That Leigh steered well clear of even mentioning them, instead delivering a stump speech, is therefore unsurprising.

But it is disappointing, all the more so as John Freebairn, the ­distinguished economist the lecture honoured, deserved so much better.

And the even greater pity is that Leigh, who is as bright as they come, could have done Freebairn proud. He chose not to. That, unfortunately, is today’s Labor Party.