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Academic says politicians should ‘ferociously’ tackle dominant firms, Minister says government backing competition through market studies

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Academic says politicians should ‘ferociously’ tackle dominant firms, Minister says government backing competition through market studies

An economics professor says New Zealand needs another round of aggressive law reforms to tackle the outsized profits being made by dominant industry players and the government response to lack of competition has been “tepid”.

University of Auckland professor Robert MacCulloch said anti-competitive practices and the domination of some industries by a few firms, like supermarkets and building supplies, has been tolerated  — and even supported — to entrench their market power through the pandemic.

MacCulloch said there was a clear example of the government handing big firms like Fletcher Building millions of dollars in taxpayer funds by allowing large companies access to the wage subsidy, and by giving the supermarket duopoly a green light to trade through the lockdowns while many competitors were forced to close.

Fletcher Building on Wednesday reported yet another bumper profit of $423 million, in the same year the country faced a plasterboard crisis. Fletcher’s GIB product is estimated to hold 95% of the plasterboard market.

MacCulloch said New Zealand needs a true competition champion like former US president Theodore Roosevelt who took on monopolies, or former attorney general of New York Eliot Spitzer, who used little-known laws to crack down on dodgy practices in the influential investment banking industry.

“The time has come for a new round of quite strong reforms to shake up, across the board, many of these industries. I think there are groups that have largely been undisturbed for 30 or 40 years now. And I don't see a willingness to take on that privilege.”

MacCulloch said on both sides of the political spectrum, whether it’s the National party or incumbent Labour government, there’s not a strong enough response to the dearth of competition, or strong enough rhetoric being voiced through the media.

'Why do they seem afraid, I would query."

He said the government changes, to the Commerce Act for example which allowed for market studies, hasn’t been strong enough and in his view is “tepid”.

“There is an impression that business is being run for the few.”

But his comments were rejected by Commerce and Consumer Affairs Minister David Clark. He said MacCulloch’s comments about the lockdown were a “red herring”.

Clark said the government has supported the development of competition, and with it the interests of consumers, like few before it.

“Before the Labour-led Government funded and commissioned market studies in 2018, attempts at reigning in anticompetitive conduct were hampered by a lack of empirical evidence and thoroughgoing analysis. Market studies have given leading competition experts at the Commerce Commission the resources to lay bare issues of competition in sectors where anecdote has long been the lingua franca.”

He pointed to the grocery study and said the supermarket big two, Foodstuffs and Woolworths, admitted that they needed to change.

“There have been temporary price rollbacks on some essential items, and the industry has agreed a grocery commissioner and code of conduct is necessary. This was not happening before the commission’s report.”

And there are further law changes coming down the line, Clark said. A new bill will bolster section 36 of the Commerce Act, which brings in a new test with firms with substantial market power prohibited from engaging in conduct that has, or is likely to have, the effect of substantially lessening competition in a market.

Clark said this will strengthen the Commerce Commission’s hand “in an area where they had only managed two successful prosecutions since the 80s”.

Legal watchers are also tipping that this change may have an impact.

Barrister Gary Hughes said this "important and controversial amendment could infuse new breath into the law on conduct by large firms that may have a damaging effect on market competition.

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44 Comments

Of course they are scared of big business. Who do you think is behind the donations and provides all the lobbying soirees and junkets.

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16

In one reported case a prominent businessman assaulted a very senior politician in his parliamentary office after hours for not doing as he was told. So not just scared of losing donations. 

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That's what happens when the money is paid, but the services are not rendered.

Maybe the businessman should have looked up his options under the CGA ;)

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Holds up sign "No".

The whole lot of them belong in prison.

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4

And there was another excellent article here yesterday on NZ First. Keep up the good work Rebecca. When the Labour and National donations court case is over it would be good to get the full story there too.

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5

Just another reason for public funding of the political parties rather than funding by whatever vested interest wants a favour. 

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8

Unfortunately that wont stop it. The corporate cash would then just be in addition to.

You will never get rid of the non-cash things like events, holidays, and meals. But you could quite easily restrict cash donations to registered voters only, and I am sure IRD could check up on how ol' Joe managed to finance a $250k donation on a min wage job.

Personally I would also say that any donation (even $0.01) must come from a registered voter and should be fully disclosed. Be interesting to see how many people actually care enough to donate then.

Once you can dry up the excess funding, independents and smaller parties will be on a much more level playing field to the major parties.

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It may not be a complete fix but surely it's an improvement. Still room for a nod and a wink and a lucrative board position in the future, but at least a political party would be able to compete without being corrupted by brown nosing the richest individuals and corporations they can get their hands on. 

You could add the mandatory disclosure of donations on top of this, if you want to permit donations at all. 

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5

"a nod and a wink and a lucrative board position"  We need to be auditing politicians financial affairs during and after office. The $400m commission on the state asset sales seemed excessive to me. Would love to follow that money to reassure us that all is legit.

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Exactly! 10 years worth of transparency, 5 years before and 5 years after and see how many are keen to snuffle at the public trough then.  If you have something to hide then you will continue that behaviour in office...leopards and all that. We want real people with a real public service ethos in positions of political authority.

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In my corporate career whenever I saw something really dumb going down you would usually trace it back to someone chasing their bonus. The lesson being that people will knowingly go against the collective long term good if it means money in their own pocket.

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4

Better to start by assuming most politicians are naturally back-stabbing, self interested and amoral people pretending to be decent human beings for the sake of power.  

Get rid of the Anti-Waka Jumping law.  Allow each MP the chance to hive off to form their own party if they want. This will make it more expensive and complicated to buy political support, because instead of buying one leading politician you will need to buy at least 61.

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Yes, the issue with Politics is not so much the MPs but the Parties.

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The only biggish donation I saw was from large insurance company who gave $50,000.00 each to both major parties.    (this was the 1990s). Yes toboth.    I was not aware of any direct purchase of a favour, but the idea was to build a generally favourable relationship.  Still dodgy in my view.

As for treats, there was a time I was in corporate boxes a lot at the rugby.  The boxes were infested with politicians, both local and government.   Not hard then for the taxpayers to have a stadium built, when politicians on Saturdays could suck up the free beers and catering in comfort.

What does suck in the central politicians is funding international sports teams.  (Is anybody thinking yachts)  So then of course you have to travel internationally to check out the taxpayer gets bang for buck.   Tough work not, hanging out in some delightful place, paid for by us.

 

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1

During the Covid19 lockdown our Minister of Health at the time stayed in Dunedin rather than lead the response from Wellington , and he  broke the curfew 3 times  .... 

.... why would anyone believe him now , when he comments on the covid response  ... zero credibility , pal !

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16

Well put

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Commerce and Consumer Affairs Minister David Clark categorises Health Minister David Clark's lockdown restrictions on competition a "red herring". 

Maybe David Clark isn't the best choice for this job either.  

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5

The government should focus on ways in which it supports dominant firms, unfairly. Start with some introspection, rather than "tackling" firms.

For example, review the way legislation is used to prevent supermarket competition through the control of land. 

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Legislation was passed 3 months ago to end the use of restrictive covenants by supermarkets.

The new law bans restrictive covenants on land and exclusive covenants on leases - as well as making existing covenants unenforceable.

https://www.rnz.co.nz/news/political/469971/legislation-banning-supermarkets-from-blocking-competitors-passes-final-stage

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3

That’s still not going to prevent them from weaponising the RMA to kill off competing supermarkets.

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A step in the right direction. One partial solution to just one of the problems caused by the government, not business. Businesses are predictable, they'll maximise profits - they have to. They'll exploit bad law where an opportunity arrises.

The problem isn't business. It's the government.

 

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Why not both?

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Scared ?   I think they just don't understand how much of the leach on the public the monopolies are.  And the politicians are advised by the civil 'servants' who are just as much a leach.  So they don't understand either

The most ridiculous example of recent times is the commerce commission and the supermarkets.   Outcome ?  ongoing monitoring recommended.  (an ongoing job fest for the commerce commission)  And then I heard on the radio that they would get that up and running mid 2023.

We need to get real.

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The government's inability to keep big businesses on a leash has cost our productive economy in more ways than they understand.

Looking beyond the obvious higher cost of everything from these businesses fleecing their customers, there is no incentive here to invest in productivity enhancements, staff training and moving your offerings up the value chain. Their shareholder returns are secured by ineffective market regulators and their easy access to cheap foreign labour.

I just finished up a contract (data science-y stuff) with a public regulator and can tell on authority that the public sector's internal conflict of interest regime is laughable. I could report my vested interest in a regulated company to my line manager or his higher up and they wouldn't know what to do with that information.

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"......Foodstuffs and Woolworths, admitted that they needed to change....."  With these hard case operators does anybody think that will lead to anything ?   I don't

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I have some sympathies here but we would need to be careful not to further scare people away from productive investments and into rental property. If you're scared a company is going to be knocked out as soon as it starts to make a decent return for you, why would you buy shares or invest capital? Especially when you know the Government and RBNZ is usually going to bend over backwards to support your rental property portfolio. 

That said, the Aussie banks making profits of ~$1k a year from every man, woman and child in NZ does look particularly offensive. Even Fletchers on a temporary good run are only making 10% of what the Big Four are taking routinely, and delivering actual physical infrastructure while they do it. 

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3

In many respects this indicates that the corruption many of us take great glee in accusing the US of is also evident here in NZ. 

An argument I have been trying to push forward for a while is how we need to strengthen our democracy, and this article points to a big way in which it is undermined. Dialling back our politicians is very difficult once they get into power, so each and every one of us must step up to challenge them every and any chance we get.

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+1, great article.

Government response in the article is gutless as has ComComs response been to the supermarkets.

Force Comcom to take account of the HHI index and make it act where we do not have good competition.

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Clark to the rescue -really!!!!

 

This Govt loves monopolies as well as centralised control more than the Nats - think 3 waters, NZ Health, Education, Kainga Ora and RMA rules 

and the biggie that costs everybody a fortune - electricity - it use to be our competitive advantage now its a state controlled public company cartel

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Yes Murray86 I agree we have plenty of corruption but in USA it is more embedded and a true art form. Our politicians are like spoiled children who get away with stuff and become more and more unruly. Then tell lies and gaslight informers. They also have no shame and a lot of the crap happens in broad daylight.

No shame, no accountability, no public service when the party comes before constituents.

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What do people expect the Commerce Commission to do here? They can’t arbitrarily just break up firms making supernormal profits. The firm actually has to be taking advantage of market power in a manner proscribed by the Commerce Act, and even then, they’re limited to the penalties under the Act; they can’t just take control of the sector.

The government imposed market studies on them. But this essentially turned them into another working group, so that the govt can procrastinate, and ultimately shift the blame to them. So far, they’ve just come back stating that competition is being strangled by council regulations, which isn’t the answer Clarke wanted. 

Firms are going to maximise profits in a given environment. It’s how capitalism works. If they were to attempt to set “fair” prices, it would break price signals, and meeting demand would become intractable. It’s the governments job to create conditions that enable fair prices. But so far they’ve done the opposite.

If they want to blow up these sectors, why don’t they just use their dwindling parliamentary supremacy, and do it. Instead of more working groups, and codes of conduct and reporting obligations (which just impose more regulatory burden, making entry in the these markets even harder).

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4

Shafting the average Kiwi is the national sport of big business, and politicians of all stripes are nothing more than spectators who occasionally call out from the sidelines. 

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Yes Murray86 I agree we have plenty of corruption but in USA it is more embedded and a true art form. Our politicians are like spoiled children who get away with stuff and become more and more unruly. Then tell lies and gaslight informers. They also have no shame and a lot of the crap happens in broad daylight.

No shame, no accountability, no public service when the party comes before constituents.

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Yes Murray86 I agree we have plenty of corruption but in USA it is more embedded and a true art form

NZ corruption is largely institutional. The whole KPMG fraternity and all that. Giving people like Trevor Mallard a golden parachute and the sheeple don't even blink.  

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When society expect and want to be well paid, little chance for back yard entrepreneurs to flourish. Only corporations can do that.

 

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No mention of Aussie banks and their super-sized, tax-free profits from lending into existence and destroying the value of labour  

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5

I'm not quite sure who is worse, big corporations or big governments? They both have their dark sides. And the closer these two groups get, the tougher it becomes for the average Joe/Joelle on the street.

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To be fair, the parties are big corporations in everything but Ltd status. They are ultimately in it for a profit.

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Political corruption in NZ is so embarrassingly low-rent.

if you’re going to be bent, do it properly.

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We do cronyism so well.

corruption is much more equitable than slimey old cronyism. At least you don’t have to be part of the old boys club, you just pay the money!

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“At least you don’t have to be part of the old boys club, you just pay the money!”

And like any good free market system, price points vary on the bribers ability to bear it!

I think in some respects we have the worst of both worlds - systems that are both immune from scrutiny and also deeply inefficient and bureaucratic.

Dealing with my local council regarding consents, I ended up effectively just paying them off to *not* get the result I wanted, but was cheaper than taking it through a review process which was really asking them to do their job properly (I.e visit my house to make a physical determination on sight lines).
 

This is the type of corruption and incompetence that really rankles.

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I'm not sure the problem is even constrained to political donations.

If I was a Prime Minister, not mentioning names, who was beholden to say a master in let's say, the CCP, what is stopping them giving that PM a gold played credit card attached to a Swiss bank account. Which they could then use to buy a nice abode in Hawaii.

Corruption is far more entrenched in this country than we realise.

Nothing else explains what government does against the interests of kiwis.

Political donations alone cannot account for their actions.

Hence we get inner cabals such as the kitchen cabinet.

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Or just give them $20m for his house and call it quits.

has he transferred the title yet?

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