Andrew Leigh building case for competition reform

Joseph Brookes
Senior Reporter

Assistant minister for competition Andrew Leigh on Monday capped off a three-lecture series building the case for competition reform, saying the new government is inspired by the “boldness” of historical interventions that broke up monopolies.

In his latest competition address, Mr Leigh drew on historical examples like the US antitrust movement at the turn of the 20th century to underscore the importance of scrutinising market power and remaining persistent in addressing it.

“Yet over recent decades, Australian markets have become more concentrated. Markups have risen, while startups have fallen. The share of employees starting a new job has dropped,” he said at a University of Sydney lecture on Monday evening.

“As history tells us, competition reforms can change lives for the better, delivering growth with fairness. Inspired by the boldness of past competition reformers, we are working to build a more dynamic, more productive, economy.”

Assistant minister for competition Andrew leigh says reforms can spur a economic dynamism. Image: Facebook

Mr Leigh and fellow Treasury ministers are currently consulting on proposed sweeping changes to the regulation of digital platform giants, including several areas of competition, and will also consider the regulator’s long running demand for more effective merger and acquisition laws.

The new government has already passed a law that increases the maximum penalty for anti‑competitive conduct and banned unfair contract terms.

“Competition is one way to build resilience – a diverse and dynamic economy is also a resilient economy. It means we are better equipped to deal with unexpected shocks and absorb, adapt, and solve the challenges of an uncertain world,” Mr Leigh said.

But there is more room to improve, according to a series of lectures delivered by Mr Leigh, and history shows it will take time.

Having already warned of Australia becoming less competitive and argued for significant interventions to get the economy to a “zippier” state, Mr Leigh on Monday said landmark global competition cases offer another reform lesson.

The cases are the US antitrust movement beginning in the late 19th century, the breakup of German industrial giant IG Farben in 1952, and Canada’s more recent competition law reform.

“Each is a fascinating story because these competition reforms were not driven by blind ideology but by a practical desire to boost living standards and ensure that economic power is broadly distributed across the community,” Mr Leigh said.

The lesson from US trusts is change takes time – it took decades to break up the monopolies after passing legislation – and public engagement and competition isn’t just about consumers; it’s also about suppliers.

The breakup of German conglomerate showed a positive impact on competition, according to a recent study which found both IG Farben’s successor companies and their competitors became more innovative.

“Clearly, important historical factors were also at play, but the paper concluded that none of these factors explain the increase in innovation better than the breakup of IG Farben,” Mr Leigh said.

“The lesson of IG Farben is that more competitors equals more innovation.”

Australia’s competition laws have no broad‑based divestiture powers and the assistant minister for competition said the new government is not seeking them, but the case is a reminder of why authorities need to scrutinise mergers.

“What is striking about the IG Farben example is that it relates not to consumers prices, but to the impact on research and innovation,” Mr Leigh said.

“Today, the importance of innovation cannot be overstated. Competition encourages firms to innovate in their business processes, and use their staff more effectively. In competitive industries, companies are forced to ask themselves what they need to do to win market share from their rivals.

“That might lead to more research and development, the importation of good ideas from overseas, or adopting clever approaches from other industries.”

The final historical lesson comes from Canada, which actually beat the US to enacting a major competition law in 1889. But limitations in the legislation meant its impact was far less pronounced and it would take another century before it was fixed and added to with new competition law.

“The Canadian experience highlights, perhaps even more than the United States, that change takes time and that it is vital to persist with reform efforts in the face of opposition from self‑interested parties,” Mr Leigh said.

“It also illustrates the benefits of broad legislative provisions that can be directed at a wide range of conduct impeding competition. And, while a range of factors may have been at play, it is notable that industry concentration in Canada fell significantly in the decade following the 1986 reforms.”

Canada continues to reform its competition law, including increasing maximum penalties in June this year, and is planning a review of existing legislation.

“The Canadian example shows how vital it is to persist with reform efforts in the face of self‑interested opposition,” Mr Leigh said.

“Competition is one way to build resilience – a diverse and dynamic economy is also a resilient economy. It means we are better equipped to deal with unexpected shocks and absorb, adapt, and solve the challenges of an uncertain world.”

Do you know more? Contact James Riley via Email.

Leave a Comment

Related stories