Download Driving prosperity through effective competition

Rod Sims,
Chairman of the Australian Competition and Consumer Commission
The Mexico Forum 2013
Wednesday 9 January
•
•
Competition
essentially drives
productivity
Competition best
way simultaneously
to drive growth and
reduce income
inequality
•
•
Productivity drives
national differences
in GDP per capita
Especially when pro
competition reform
reduces entrenched
market power
1.
2.
Extend competition to all
sectors
Strengthen and widen the
reach of competition
regulation
1.
2.
3.
4.
The changes that were made, the
role of the National Competition
Policy
The benefits from these reforms
Why and how these reforms were
achieved
The lessons learnt, some of which I
hope will be useful to you
AUSTRALIA’S RELATIVE DECLINE
Per capita GDP (PPP) ranking in OECD
Australia
ranked
4th in
1950
Australia
ranked
14th in
1983
TOTAL FACTOR PRODUCTIVITY GROWTH, 1980 - 1990
%, average annual rate, OECD countries
Australia with poor
productivity
performance
OECD weighted
average
MAJOR NATIONAL COMPETITION POLICY
ELEMENTS
Policy Element
Example
1. Limiting anti-competitive conduct of firms
Competition conduct rules
2. Reforming regulations which unjustifiably
restrict competition
Deregulation of egg marketing
3. Reforming the structure of public
monopolies to facilitate competition
Restructuring of energy utilities
4. Providing third-party access to certain
facilities that are essential for competition
Access arrangements for the
telecommunications network
5. Restraining monopoly pricing behaviour
Prices surveillance
6. Fostering “competitive neutrality” between
government & private business
Requirements for government businesses to
make tax-equivalent payments
EXAMPLE OF INFRASTRUCTURE CHANGES
FROM
LATE 1980S
Telecommunications

Government owned Telcom fully
vertically integrated, essentially no
competition
Electricity

Each State owns a vertically integrated
monopoly that faces no competition
Gas

Trading only within State boarders,
many barriers to trade
Rail Freight

Each State has own rail freight
monopoly, which is vertically integrated,
and is loss making
TO
LATE 1990S (USUALLY)

Pro-competition access regime plus auction of
new licences creates many fixed line and mobile
competitors

Many electricity generation companies/retailers
compete nationally across an interconnected east
coast grid

Interstate free gas trade; third party access
regime to gas pipelines.

Two privately owned competitors operating
nationally formed out of previous State entities
with separate rail track company
Road Freight


National road freight rules and user charging, a
national road freight market.
Separate publically owned domestic and 
international airlines, the latter strongly
protected from competition
Qantas privately owned and flying domestically
and internationally in an “open skies”
environment
Different rules means trucks often
cannot cross State boarders
Aviation

Rural Water

Non tradable virtually free water
entitlements create static water usage,
particularly to low value activities
Urban Water

Non cost reflective pricing; in some
cases no usage based charges

World leading water trading regime that
separates water property rights from land title
and allows temporary and permanent trading

Largely cost reflective pricing; many cross
subsides removed
EXAMPLES OF OTHER REFORMS
1. Deregulation of retail
trading hours
6. Removed restrictions on
health professionals
2. Reduced controls on liquor 7. Free up grain export
licensing
marketing
3. Reduced business
licensing ‘red tape’
8. End price and supply
restrictions on eggs and
poultry
4. Streamlined development
assessment processes
9. Remove dairy price and
supply controls
5. Removed restrictions on
the legal profession
10. Phase out non
transferable fishery
management licences
1.
2.
3.
4.
The changes that were made, the
role of the National Competition
Policy
The benefits from these reforms
Why and how these reforms were
achieved
The lessons learnt, some of which I
hope will be useful to you
FORECAST GROWTH AND REVENUE BENEFITS
FROM NCP CHANGES
1995 $
GROWTH
Real GDP
Real consumption
Real wages
Employment
5.5%
$9 billion pa
3% increase
30,000 more jobs
REVENUE
Commonwealth
States; Territories, local
government State
$5.9 billion
$3.0 billion
$23 billion pa
$1,500 per household
CONTRIBUTION TO GDP GROWTH
Percentage points
Total 2.5% increase GDP
INCREASE IN REAL INCOMES FROM NCP
REFORMS
% change, 1989-90 to 1999-00
Household Income
EXAMPLE SPECIFIC SECTORAL GAINS
• Electricity prices fall 19% from early 1990s to
2004
• Some coal rail freight rates fall 42% in
second half 1990s
• Average telecoms charges fall by 29% for
business and 17% for households from 19962003
TOTAL FACTOR PRODUCTIVITY GROWTH,
1990-2000 VS. 1980-1990
Percentage Points, difference between average annual growth
OECD
weighted
average
Strong
Australian
performance
REAL GDP GROWTH, AUSTRALIA VS OECD
Percentage Points, difference between average annual growth
The National
Competition Policy
comes into effect
AUSTRALIA’S RELATIVE DECLINE AND
RESURGENCE
Per capita GDP (PPP) ranking in OECD
Australia back to
5th in 2008
Australia
ranked
4th in
1950
Australia
ranked 14th
in 1983
1.
2.
3.
4.
The changes that were made, the
role of the National Competition
Policy
The benefits from these reforms
Why and how these reforms were
achieved
The lessons learnt, some of which I
hope will be useful to you

Prior to the NCP reforms Australia had experienced
a decades-long debate over tariff reform

The Australian economy was performing poorly;
challenges set by Treasurer and Prime Minister

With removal of the tariff wall, Australian industries
were exposed to international competition, and
had to adapt so demanded lower input cost
structure

The public had the gains quantified by the
respected Industry Commission

There was strong political leadership





The formation of the Council of Australian Governments
(COAG) brought together Australia’s Prime Minister and
all State and Territory leaders to drive reform
While the main work was usually undertaken by industry
experts, central agency people were closely involved
COAG created a new institution, the National
Competition Council (NCC), as an independent body to
assess the progress of all governments on
implementing their agreed reforms
To encourage reform, the Federal Government
established National Competition Payments
Formation of ACCC
1.
2.
3.
4.
The changes that were made, the
role of the National Competition
Policy
The benefits from these reforms
Why and how these reforms were
achieved
The lessons learnt, some of which I
hope will be useful to you
Ten lessons
1.Prepare the ground well
before proceeding with
reform
6. Provide generous financial
assistance and/or
incentives
2. Pursue reform on a board
front
7. Get industry structures
right
3. Formulate a well
structured agenda that is
not cluttered
8. Avoid seeking “national
champions”
4. Bring high level political
drive and constant
attention
9. Privatise for competition
and efficiency, not for
maximum sale proceeds
5. Set a considered, not a
frenetic pace
10. Remember that
deregulation does not
mean no regulation
“ In the life of a country, six years
is a short period, but 2191 days
are enough for laying the
foundations for what now must be
our goal: to make Mexico a
prosperous country, with new
opportunities and greater welfare
for all ”