Don’t Blame Voters For A Lack Of Competition Reform

Malcolm Turnbull should count himself lucky. Tony Abbott has handed his successor a remarkably fleshed out agenda for economic reform.

Shortly after the 2013 election, Abbott and Joe Hockey commissioned a series of reviews and inquiries. There was one on the financial sector, which reported in December last year. A federation inquiry and a tax inquiry are both working their way through the system.

And then there was the inquiry into competition policy, headed by the economist Ian Harper, which released its final report in March 2015.

The last major competition policy inquiry was the Hilmer Report under the Keating government in 1993. That report laid the groundwork for half a decade of competition policy reform. Hockey to his credit knew what he was doing when he commissioned a sequel to Hilmer.

It’s easy to forget all these reviews. The Abbott government was so policy shy in its last 12 months. The Harper review sunk like a stone almost as soon as it was released.

Only one of the Harper recommendations was seriously considered by the Abbott government – the so-called “effects test”, which would have made it easier to penalise firms for “lessening” competition.

The effects test divided the Abbott cabinet. It is the only major recommendation from the Harper review that would constitute an increase in regulatory interventionism. The free market right hated it. Small business minister Bruce Billson was the effects test’s biggest advocate. He was dropped from the ministry when Turnbull took over. We can speculate that this was not a total coincidence.

So when Scott Morrison announced on Friday that the Turnbull Government was going to look again at the Harper review, he was wading into a deep pool.

Morrison did not commit to the effects test either way. He did, however, specifically note the much more ambitious proposals in the Harper review: reforms to urban planning and zoning to open up the housing market, and subjecting social services to competition.

All good stuff. But it will be a hell of a challenge to implement any of these proposals. It’s true that the Coalition now has a minister for cities. But all functional power in planning and urban policy lies with state governments, who created the disastrous land supply restrictions that caused the housing mess in the first place.

Likewise, the Commonwealth can cajole and bully all it likes but the ultimate responsibility for most service delivery is in the hands of the states. Very little marketisation of social services is going to go ahead unless state governments buy in.

Last week we had an even more glaring illustration of the institutional barriers to competition reform. The Harper Review put particular emphasis on taxi deregulation and removing barriers to the ride-sharing firm Uber. But on Monday the Commonwealth’s independent competition regulator the ACCC provisionally denied the taxi industry authorisation to launch a smartphone app, iHail.

The iHail app would have allowed users to book the closest taxi from participating taxi networks. The ACCC thought that this would reduce competition in the taxi sector because it was a joint venture between a number of taxi networks. You can read their draft determination.

The ACCC’s arguments don’t even pass the laugh test. There is virtually no competition between taxi providers right now. Indeed, we’ve had a century of regulation with the express purpose of eliminating competition between taxis. The only real competition that is exists is between taxis and ride-sharing services like Uber.

But the ACCC has decided that, because the legality of Uber is still unclear, for the purposes of competition law taxis do not compete with Uber. (You can see this rather astonishing claim on page 21 of the draft determination.)

Therefore the ACCC believes that taxi companies collaborating on an app endangers the taxi market – rather than being an example of how competition from Uber is encouraging taxis to offer a better service.

Malcolm Turnbull and Scott Morrison should be looking at this draft decision closely. Not because its specifics are particularly important. The ACCC might well change its mind on the scope of taxi competition before it releases a final determination. And as the Harper review noted, even a completely deregulated taxi market reform would do little to boost total Australian productivity.

But Harper thought taxi deregulation was important because failure to do so symbolised a lack of seriousness in competition policy. The ACCC draft determination is important. It’s a warning. We now have a legal framework where firms have to request permission from the government to innovate.

In an influential short book, the American technology scholar Adam Thierer argued for “permissionless innovation”. Thierer argues that if we want take advantage of technological progress, we must remove the approvals, authorisations and clearances that innovators and entrepreneurs need from government before they bring ideas to market.

For years commentators have complained that the era of economic reform is over. In the most common version of this story, any attempt to restructure the Australian economy will be scuttled by a hostile Australian public. This is really just blaming voters for the failures of the political class.

In fact, what is more likely to hold back economic reform is government itself: the network of interests and institutions that believe their job is to supervise the innovation economy.