<>Is the Government tipping the balance away from consumers? <> <>Listener: 18 April 2009 <> <>Keywords: Business & Finance; <> <>Some years ago I was involved in a merger case before the Commerce Commission. The chief executives of the firms involved did not know whether to co-operate, which was the (desired) outcome if the commission approved the merger, or compete, which they would have to do if the commission overruled it. Proceedings before the commission can go on for some time; one can understand businesses disliking any official regulator. <> <>And yet they can easily praise the commission when it untangles a monopoly that stops them competing. The privatisation of Tele-com provided a classic case, as the company’s dominance prevented more agile firms from providing cheaper, different or better services. Our telecommunications infrastructure got behind the rest of the OECD; the impasse had to be unlocked by competition law. <> <>Whatever views business has about competition policy – they vary from case to case – consumers would be much more positive if only they knew how often the commission has acted on their behalf. New Zealand businesses do not often “rip off” consumers, in part because of competition. But where that is not effective, legislation like the Commerce Act, Fair Trading Act, the Consumer Guarantees Act and the Credit Contracts Act has been used to protect them. Sometimes the mere existence of legislation or a related case decision is sufficient for businesses to be careful. <> <>New Zealand competitions policy has never been as vigorous as, say, that in the US, where the Sherman (Antitrust) Act was passed in 1890. Not until 85 years later, in 1975, was our first Commerce Act was passed. That was partly because New Zealand was such a small economy that market competition could not be relied on to regulate the few firms in each market. The countless public interventions meant the Government had other means of controlling monopolies – sometimes its interventions created them. Our commerce legislation is the counterbalance to the Government withdrawing from close involvement in business decisions. <> <>Paula Rebstock has chaired the Commerce Commission for the past five years, and for many years before that successfully practised as an economist in New Zealand. An American with a London School of Economics masters degree, she brought passionate US anti-trust attitudes with her. Some businesses thought she was too passionate – but they would, wouldn’t they? <> <>Perhaps Rebstock got her reputation because she is one of those feisty, competent women whom New Zealand males sometimes find so threatening. But whatever the chairperson’s style, the Commerce Commission’s powers are restrained. They are subject to the law, and can be overruled by the courts (although that takes time). <> <>Rebstock’s recent resignation has led to widespread speculation that the Government wants to be less strict on business. I doubt her successor, lawyer Mark Berry, would see it that way, but there is always the Bush administration trick of leaving the regulators in place but underfunded. <> <>Or legislation change could reduce the commission’s powers. The previous National Government said it would replace the objective of promotion of competition with that of “efficiency”. Sounds reasonable, except it is damned hard to measure the efficiency gains from a merger. Much economic literature shows the promised gains when a merger is announced are rarely attained when the merged entity settles down. (I recall one case in which the promised rationalisation of production included closing a factory; decades later the factory was still there.) In the end the Government did not go down that track. <> <>Efficiency gains can benefit the business at the expense of consumers. Competition law exists because untrammelled competition does not always work in the interests of consumers. (If you doubt this truism, remember that the global financial crisis is a prime example.) <> <>The purpose of the Commerce Act is to promote competition in markets for the long-term benefit of consumers. So, how the Government handles competition policy could be a test of the extent to which it supports big business over consumers. <> <>The public have little sense of how the vigorous application of consumer law has so often benefited them. I hope they don’t find out the hard way – by the law, or its implementation, being gutted.