Time to Turbocharge the Commerce Commission

My opinion piece from The Post and elsewhere yesterday is online at Time to turbocharge the Commerce Commission | The Post

For those without a subscription, here's the text.

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Opinion Piece, 20 May 2024

TIME TO TURBOCHARGE THE COMMERCE COMMISSION

By Ernie Newman

Another month, and another delay to the Commerce Commission’s resolution of the proposed merger of the South Island and North Island arms of Foodstuffs. Maybe a blessing – if approved the merger will more likely lead to higher grocery prices than lower. But it puts the Commission’s role under a spotlight.

The Commission, our competition regulator, has historically operated largely outside the public gaze. Its not been one of the institutions that rates a spirited dinner party conversation - dealing with market failure, tacit collusion, and accommodating behaviour in business doesn’t engender a lot of excitement.

But today, just as an explosion in crime has increased scrutiny of the Police, a spike in the number and size of our broken markets has brought the Commission’s role to centre stage. Genuine competition among our banks, supermarkets and building supplies businesses has disappeared.

Every consumer is paying the price. We’ve always had a trickle of Kiwis moving across the ditch, but now unaffordable living costs are forcing a flood of us – nurses, police, public servants and bus drivers – to migrate to where they can afford a basic block of cheese and decent housing. That means dislocation for those who leave, a social emergency for many who remain, hungry kids, and a massive challenge for future governments adjusting to the economic fallout.

So how have we reached a situation where so many major industries have consolidated to the point that competition – the force that protects the interests of consumers in a capitalist society - has gone out the window? And why is it taking an eternity for our regulator to intervene in consumers’ interests?

Its all about weak legislation and poor process. Every issue before the Commission has become a playground for a mass of lawyers. Decisions that should turn on good sound, common sense analysis by pragmatic people with business or economic backgrounds have instead become bogged down in legal debate and fine nuances of interpretation and precedent. Who cares about consumers – the lawyers are abuzz?

Even where the proverbial blind man at a checkout can see the market is broken, a feeding frenzy of lawyers engage in erudite battle for months or years. They charge millions of dollars, most of which the wider community picks up through our grocery bills, interest charges, and taxes.

The Foodstuffs application to merge its North and South operations is a case in point. Common sense shows it would be an utter disaster for consumers here in a market that is less competitive than anywhere in the developed world except Iceland and Latvia. it could also enable the cooperative to be restructured and sold to a global supermarket company, sending the excessive profits offshore and replicating the problem we have with our banking sector. Don’t we learn?

Only the Commerce Commission stands in the way of such an outcome.

Yet political parties appear to place little priority on strengthening and modernizing our Commerce Act and associated legislation. And that’s what’s needed - more power for our competition regulator. That means overt political support and encouragement for its work with our broken markets, and a high priority rewrite of its empowering legislation.

And if necessary, emergency measures to enable it to fast-track measures to deal immediately with the public harm arising from broken markets. This is a 2024 problem, not something to kick out to the 2030s.

Supermarkets, of course, are not the only crucial sector where markets have failed. Banking, where super-profits generated from captive Kiwi consumers are exiting to Australian investors in torrents and adding to the decline in our productivity, requires urgent intervention, much faster than the Commission’s laborious market study process.

As Consumer NZ pointed out, the PayWave surcharge on a flat white is now up to 2.5%. That’s bad enough, but consider this: what if our banks aspire for us to become a cashless society, a trend they are already stoking along by closing branches so merchants can’t get change? That way there would be absolutely no transaction that the banks could not take a cut of. Not even buying a raffle ticket from a social club or betting with a mate on the next Warriors game.

People in the checkout queue know what’s wrong. So do numerous business people. Its market failure. Common sense, not a labyrinth of legal process, is needed to fix it. Every Kiwi has a stake in this – its time for politicians to listen and act.

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Ernie Newman is a Waikato consultant with experience in the grocery and telecommunications sectors, including around challenging monopolies.