Government should be focused on fixing market failures - Ernie Newman

For those who couldn't read my opinion piece in The NZ Herald today due to its being premium content, I've copied it below:

Ernie Newman is a semi-retired consultant in Waikato and a former industry advocate in the telecommunications and grocery sectors. He is a regular submitter to the Commerce Commission on competition issues.

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What are our top economists thinking? How can they list our major economic issues without including the catastrophic failure of key markets that is destroying competition in groceries, banking and electricity?

Its making living costs unaffordable, depressing real wages, battering many small and medium size businesses, and transferring massive wealth from the poor to the rich. Our social fabric is in jeopardy.

Our Commerce Commission knows this well. It’s proved beyond doubt that in groceries and banking, competition is failing in its job of protecting consumers due to combinations of excessive ownership concentration, collusive behaviour and general dirty tricks. We see greatly excessive profit with declining service.

Any supermarket visit shows the very high prices compared to other countries, and reduced choice of brands. Businesses who supply the supermarkets have been sidelined to make way for duopolists’ Foodstuffs’ and Woolworths Australia’s house brands. By controlling the branding they are able to switch suppliers without consumers knowing, increasing their market power.

Meanwhile they have deliberately used confusion to de-sensitise consumers to prices, “shrinkflation” to reduce product size, and decades of land banking to frustrate any meaningful new entrant.

In banking, Parliament was sufficiently disturbed by the Commission’s findings that it went to the unusual length of having a Select Committee conduct an enquiry into competition. The banks’ CEOs and Chairs were called before the Committee to face awkward questions about excessive remuneration and their employers’ billion-dollar profits while the basic needs of customers go unmet.

In electricity it’s been obvious for years that the privatisation of the 1990s – driven by the dogmatic assertion that the private sector runs things more efficiently than the state - has failed consumers dismally. We see chronic underinvestment, supply shortages, inflated prices, and excess profits for the private shareholders. Manipulation of the market and underinvestment has been at the expense of household users and small businesses who depend on infrastructure-based services as a necessity of life.

Collectively the effect on the cost of living and peoples’ lives is devastating.

But commissioning reports is futile unless governments are willing to act on the findings. It seems they’re not.

In banking there are tiny pockets of hope. The Select Committee might have embarrassed the banks into curbing some of their excesses. Under pressure they are at last moving toward “open banking” – a shared database that will open the way for a new generation of “Fintechs” or digitally based payment service providers.

And a class action on behalf of Kiwi customers of the ANZ and ASB, relating to their breaches of the law designed to protect consumers, the Credit Contracts and Consumer Finance Act, is progressing. Affecting nearly 100,000 Kiwi consumers, it had a boost just before Christmas when an application by the banks to add further delay was rejected by the Supreme Court, so its now likely to be heard this year.

Interestingly the USA is facing a similar emergence of class actions in its food and grocery sector which like ours is seeing consolidation into the hands of very small numbers of owners.  

But it shouldn’t be left to private legal action to protect competition. It’s the job of government and its regulators. And there’s an extremely successful local precedent in the breakup of Telecom’s monopoly 20 years ago which was led strongly by capable and courageous Ministers in both the National and Labour governments.

This is not an issue of “government versus business.” Its an issue of a handful of very big and dominant businesses bullying numerous small and medium enterprises, while increasing poverty to an unprecedented level.

So why so little meaningful legal response from the politicians?

Maybe the ACT party has been granted power of veto?

Maybe the revolving door of politicians, consultants, senior public servants and other members of the political elite has created so many blatant conflicts of interest or loyalty that nobody can make a move?

Maybe our “wealthy and sorted” class has decided it can prosper best by investing in the monopolist businesses and using these as a means for the rich to effectively tax the poor - to them the price of cheese goes unnoticed.

While the macroeconomic issues identified by the economists are imported or hard to fix unilaterally, market failure can be fixed by our government alone. Forced separation in the supermarket sector, a windfall tax on the banks, and a restructuring of electricity to return control to the crown and are all remedies available to any sovereign government.

They’ve been used before, here and internationally. Not frequently nor lightly, nor should they be.

But this is a crisis. The capitalist system depends on robust competition. Its survival is at stake. Businesses have brought this situation upon themselves.

So economists – please enter this debate. The community deserves to have your profession actively involved in market failure issues and their remedies.