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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