Thursday, May 26, 2016

Australia is a nation of moguls and cartels

It is of course a general rule that cartels are bad for a country -- just as it is a general rule that import tariffs are bad.  A recognized exception to the rule about tariffs is however specifically called the Australian case -- an argument that tariffs may help diversify an economy that is overly dependent on erratically-priced agricultural and pastoral exports

And I think Australia is a special case when it comes to cartels too.  Australia has a relatively small population and cartels may be needed to enable Australian businesses to achieve optimal economies of scale.  Absent cartelization, there would be many small businesses rather than few big businesses.  And in that situation, none of the businesses may be big enough to achieve the most efficient size -- which would lead to prices being higher than they needed to be.

What I have said is of course theoretical and the case would almost certainly apply to some industries but not others.  It's one for the modellers to work on.  In the meantime we should not leap to conclusions and advocate "reforms".  Reforms could clearly be counterproductive in the absence of more data.

Ever played the game where you try to name an Aussie industry that isn't dominated by a handful of companies? Banks? Airlines? Supermarkets? Telcos?

Prime Minister Malcolm Turnbull wants to lead a nation of innovators, entrepreneurs and start-ups.  But a new analysis proves what we've always known: Australia is prime breeding ground for monopolists, moguls and cartels.

And, according to the analysis by Labor MP and former academic economist Andrew Leigh, it's only getting worse.  In a speech delivered to honour Melbourne University economist John Freebairn on Thursday night, Dr Leigh shared the fascinating results of a comb through IBIS World data on the revenue share of firms in 400 industries.

The biggest four firms control more than four-fifths of the market in department stores, newspapers, banking, health insurance, supermarkets, domestic airlines, internet service providers, baby food, and beer and soft drinks.

The biggest four firms control more than two-thirds of the markets for petrol retailing, telecommunications, credit unions, cinemas, liquor retailing, bottled water and fruit juice.

And more than half of the markets for pharmaceuticals, hardware, gums, snack foods, magazines, newsagents and international airlines are controlled by the biggest four firms in those markets.

"Like a large tree that overshadows the saplings around it, firms that abuse their market power prevent newer competitors from growing. They hurt entrepreneurs and often reduce the scope for innovation. Consumers suffer through higher prices, lower quality and less choice," says Dr Leigh.

Compared with the US – where the top four firms control, on average, 33 per cent of that country's markets – market power of top firms in Australia is more concentrated at 41 per cent.

Australia is particularly mogulised when it comes to liquor retailing (78 per cent of market controlled by the top four firms, compared with 10 per cent of the market in the US), supermarkets (Australia 91 per cent, US 31 per cent), petrol (Australia 70 per cent, US 14 per cent) and cardboard manufacturing (Australia 88 per cent, US 36 per cent).

"The combined revenue of the 10 largest Australian firms – ANZ, CBA, NAB, Westpac, Wesfarmers, Woolworths, AMP, Australian Super, Rio Tinto and BHP – is the equivalent of one-fifth of the total Australian economy," says Leigh.

But surely things are getting better, as the cool winds of capitalism stir change and the emergence of new, more-efficient business models to challenge the dominance of the old?

Ha. No, market concentration in Australia is getting worse, according to Leigh.

The number of firms in Australia actually shrank 1 per cent from 2011-12 to 2014-15, driven not because more businesses collapsed, but due to a slowing in new business formation.

In the retail sector, the number of firms shrank 8 per cent, even as the value of goods and services produced in the industry grew 13 per cent.

Despite the entry of Aldi and Costco, the market share of Coles and Woolworths has risen from 60 per cent to 73 per cent since 2008 when Kevin Rudd held his grocery price inquiry.

Observers have long pointed to Australia's relatively small population and distance from larger markets to explain our corporate behemoths and the lack of competition they face.

However, according to Leigh: "This does not explain why markets should have become more concentrated. Since the turn of the century, Australian population growth has been among the fastest in the advanced world, and incomes per person have also risen (though not in recent years). If all that mattered was market size, there should be less concentration in Australia, not more."

According to Leigh, the shift to new technologies and the "weightless" economy were supposed to drive down barriers to entry and switching costs.  However, "in many sectors, this now looks to be a forlorn hope", he says. Think Google, Apple and Facebook.

It remains truer today than ever that to succeed in business in Australia, it matters not so much what you know, as who.

An outsized finance sector has grown up that makes a living charging fees for advising on mergers and takeovers that only further concentrate market power. The former merchant banker and managing director in Australia of Goldman Sachs, Malcolm Turnbull, should know this only too well.

According to the Institute for Mergers, Acquisitions and Alliances, the number of mergers in Australia has risen from 394 in 1992 (with a combined value of $US12 billion) to 1460 last year (with a value of $US117 billion).

The concentration of market power among a smaller number of firms is only adding to forces driving greater inequality, says Leigh.

Labor has rejected the Coalition's so-called "effects test", which would override existing "misuse of market power" provisions and open firms to legal challenge over any activity that had the "effect, or likely effect" of reducing competition.

Turnbull angered big business when he adopted this policy this year in a sop to the National Party, which thinks the new clause would provide greater protection for suppliers to the supermarket giants.

In reality, however, it would apply to competitors of only the retailers, not suppliers, who are instead covered by existing "unconscionable conduct" protections. All the new test would probably do is expose all companies to costly litigation for doing what every business does: try to win a greater share of a market.

There are no easy solutions to diluting the growing market power of Australia's big corporates. Labor's proposals include higher penalties for and greater scrutiny of companies who target disadvantaged Australians.

But if we're serious about sowing the seeds of a more entrepreneurial and innovative nation, we need to start by acknowledging how removed that is from our present reality.

Oh, and if you want to win the guessing game; the most dispersedly controlled markets in Australia are for car dealers, hairdressers, dentists and law firms, the top four in those industries accounting for less than 10 per cent of the market.


Aurukun teachers evacuated again over safety concerns

Teachers in the Indigenous community of Aurukun in far north Queensland are being evacuated after children as young as six tried to steal a car.

It is the second time this month that teachers have been evacuated over safety concerns.

Police Commissioner Ian Stewart said a number of children were involved in the overnight incident.  "[There was] a group of young people trying to steal a car, throwing rocks at security guards and people's houses," he said.

Mr Stewart said the latest incident occurred near homes where teachers were staying.  "I have great sympathy for the teachers," he said.  "They're not armed and they're not trained to deal with the type of violence that sometimes occurs in those communities."

Mr Stewart said Aurukun usually had a contingent of eight officers but there was currently 17 in the town.  He said there would be another increase in police numbers, but more officers were not the answer.  "You could put a hundred police in there, this is about the community stepping up when they've agreed to do that," Mr Stewart said.

"I actually think parents have to be held to account.  "The community has to step up, parents have to step up to make Aurukun a safe place for everybody."

The Queensland Teachers Union (QTU) said the extra police had not been able to prevent teachers from fearing for their safety.

President Kevin Bates said the teachers' anxiety levels were high and they were under huge emotional strain.

"In response to increased concerns from staff the decision has been taken to withdraw [them] from the community until the end of this school term, so that they won't return until the beginning of term three," he said.

"The department has made it clear that if people don't feel that they can return to the community then they'll be supported to exit.  "People can't live and work in these types of conditions with these stresses without suffering consequences.  "This is a proper decision by the employer and we support it wholeheartedly."

Mr Bates said there was an alternative teaching program that could be provided to students in the absence of teachers.

Teachers had voted on Sunday to stay, but Premier Annastacia Palaszczuk said they would leave the community immediately, with a decision about their return to be made closer to the new school term.

The Premier, who has met with ministers, directors general, and the Police Commissioner about the situation, said the safety of staff and the community had "always been the number one priority".

"I've been advised that the teachers are feeling unsafe so we are going to get the teachers out. We need to have a strong presence on the ground to really help build the community capacity," she said.

Ms Palaszczuk said she would travel to the community on Friday, with a public meeting to be held.  "[The Mayor is] going to call a big community meeting and I'll be there listening to what the community has to say," she said.

Most of the Cape York Academy's 25 staff and teachers had only returned last Thursday but tensions again flared on the weekend.

Principal Scott Fatnowna and his wife were allegedly threatened by three youths carrying machetes and knives on Saturday night when they returned home after visiting colleagues. The youths, who have been charged, allegedly took the government car for a joyride before it got bogged just out of town.

It comes after two teachers were terrorised in their home at the start of the month, and another carjacking involving Mr Fatnowna.


Pauline Hanson to make return to politics

Good.  I will be able to vote for her once again

PAULINE Hanson wants to halt Australia’s refugee intake and force people to be fingerprinted before they go to the doctor as part of an anti-immigration scare campaign.

If the former Oxley MP wins a seat in the Senate, she would use the platform to mount another attack on multiculturalism and push for an immigration policy that discriminates against Muslims.

In a series of Donald Trump-inspired policies, Ms Hanson wants a royal commission into whether Islam is “a religion or a political ideology”, a ban on new Islamic schools and CCTV cameras installed in existing mosques.

Ms Hanson wants Medicare cards to include photographs and fingerprints to stop what she says is fraudulent use of Australia’s health system by migrants.

Senior members of the Government and Opposition yesterday condemned Ms Hanson’s attempted political revival after The Courier-Mail revealed the major parties fear she is likely to win a Senate seat in Queensland.

Foreign Minister Julie Bishop warned the Coalition would only work with “sensible senators” and would shun Ms Hanson if she entered Parliament. “It seems to me she doesn’t have policies that will make a positive contribution,” she said.

Labor frontbencher Penny Wong said she was alarmed by the suggestion Ms Hanson “might be in with a chance”. “I’ve spent a lot of my adult life arguing against the views that she’s promulgated,” she said.

Queensland Labor Senate candidate and party powerbroker Anthony Chisholm said Ms Hanson’s return “could not come at a worse time” as Australia tries to boost economic ties with Asia.


Events in Europe vindicate Australian immigration policy

The spectre of political disruption in Europe moved another step closer to reality on Monday when Norbert Hofer, the anti-immigration candidate for Austrian president, lost by a hair’s breadth.

The rise of Hofer, leader of the far-right Austrian Freedom Party, to claim 49.7 per cent of votes is Europe’s Trump moment. For the first time since Austrian voters were given the right to choose their president in 1951, neither mainstream party will fill that role. Disillusioned with the political establishment and its inability to handle the migration crisis, voters cleaved to the far left and the far right and the win by former Greens and now independent Alexander Van der Bellen by 2,254,484 votes to Hofer’s 2,223,458 votes will do little to bridge Austria’s deep divisions. The lessons for Australia are clear. Those who foolishly demonised Immigration Minister Peter Dutton last week fail to understand that social and political cohesion depends on public confidence in an immigration system.

Snooty Europeans have had a tendency to look aghast at the rise of populist Donald Trump in the US. They turn up their noses at Trump’s rise as an “only-in-America” phenomenon where angry, mainstream Americans have snubbed the establishment for reasons relevant only to America. Yet, European elites now face their own nightmare on main street.

The driving force behind Hofer’s rise is deep community anxiety about the ramifications of uncontrolled immigration. In a small country that has taken in 90,000 asylum-seekers last year — more than 1 per cent of its population — almost half of Austria’s voters looked to a leader, even a symbolic presidential one — to send a blunt message to Austria’s political establishment: the political, social and economic consequences of uncontrolled immi-gration from the Middle East cannot be ignored any more.

The fault lines for Monday’s result were laid last year when Angela Merkel opened Germany’s door to every asylum-seeker fleeing Syria. Merkel’s welcome mat is a stark reminder that good intentions can lead to devastating outcomes — such as the rapes in Cologne on New Year’s Eve where one police report recorded a perpetrator saying: “I am Syrian. You have to treat me kindly. Mrs Merkel invited me.” As Milton Friedman said, “One of the great mistakes is to judge policies and programs by their intentions rather than their results.” European elites ruminating over Monday’s election should see Hofer’s rise as the direct result of Merkel’s policy.

Moreover, the Austrian vote is not an outlier event. Far from Hofer being Europe’s solitary Trump, a glance across the continent reveals the political centre has shattered, as people look elsewhere for a voice. Far-right politicians are engaging with voters on issues long ignored by elites: economic insecurity, EU elitism, open borders, national identity, social and cultural cohesion.

Start in France where far-right candidate Marine Le Pen and her National Front party may cause shock waves in next year’s presidential and legislative elections. In Germany anti-immigration party Alternative for Germany has emerged as a force in state elections. In The Netherlands, Poland, Hungary, Slovakia and beyond, outrage over immigration has put populists into parliament. It’s the same northwards where Scandinavian countries famous for their social welfare models have also felt the backlash against uncontrolled immigration policies.

In Norway, there’s Sylvi Listhaug from the populist Progress Party. The Finns Party (formerly True Finns) is in government in Finland. In Sweden, which has accepted the highest number of refugees per capita than any other country in the world, far-right nationalists, Sweden Democrats, is the country’s third largest party. In January, the Swedish government decided to deport 80,000 asylum-seekers.

In Denmark too, Merkel’s migrant-crisis fault lines have elevated Thulesen Dahl, the leader of the Danish People’s Party, to represent the second-largest party in parliament.

In fact, the unfolding immigration debate in Denmark offers an insight into all that is wrong with the unthinking rush of many on the Left to condemn Europeans as xenophobic if they raise questions about the arrival of more than one million asylum-seekers this year alone.

In Foreign Policy, James Kirchick explores how Denmark’s response to Europe’s migration crisis “is now looking like the better part of wisdom”. Media elites derided new Danish laws that allow the state to confiscate property from migrants seeking welfare as reminiscent of the Third Reich.

Writes Kirchick, “these reduction ad Hitlerum arguments are facile” given the same laws apply to native-born Danes. Equally shallow is the way the media has lionised Merkel as a selfless humanitarian given her policy has fuelled the rise of anti-immigration sentiments across Europe.

The self-evident truth that immigration policy needs support from the people is too often ignored by media and political elites. Danes are keen to buttress their social welfare compact, where a largely homogenous country understood a generous welfare system is the quid pro quo for paying high taxes. Hence they have backed the confiscation law along with stricter measures around asylum-seeker family reunification.

Denmark is confronting the progressive dilemma of imposing diversity and expecting solidarity. Writing more than a decade ago in Prospect magazine, David Goodhart challenged his left-leaning audience to understand the contradiction at the heart of their misty-eyed idealism.

He recalled what British conservative politician David Willetts said at a welfare forum: “The basis on which you can extract large sums of money in tax and pay it out in benefits is that most people think the recipients are people like themselves, facing difficulties that they themselves could face. If values become more diverse, if lifestyles become more differentiated, then it becomes more difficult to sustain the legitimacy of a universal risk-pooling welfare state. People ask: ‘Why should I pay for them when they are doing things that I wouldn’t do?’

“This is America versus Sweden. You can have a Swedish welfare state provided that you are a homogeneous society with intensely shared values. In the United States you have a very diverse, individualistic society where people feel fewer obligations to fellow citizens. Progressives want diversity, but they thereby undermine part of the moral consensus on which a large welfare state rests.”

The Austrian result is a timely cue to put our own immigration debate in a global context. The rush to revile Dutton for speaking about the challenges of increased immigration couldn’t be more misplaced. If we are genuinely committed to social, political and economic cohesion, we should thank Dutton for the straight-talking that mainstream European politicians have cowered from.

Our immigration response is far more measured and compassionate than many European anti-immigrant politicians, whose popularity represents a public backlash against the porous borders advocated by the muddle-headed moralisers in the Greens and Labor. It’s far better that immigration policy is settled in parliament than on the streets.


Off-duty female cop stripped, pepper sprayed, punched, kicked: anti-corruption watchdog

An off-duty female police officer was pepper-sprayed, had her clothes removed, was kicked and punched, and then dumped by Ballarat police in a cell for hours without pants or blanket, Victoria's anti-corruption watchdog has heard.

The Independent Broad-based Anti-corruption Commission has begun examining claims of police brutality in Ballarat police cells at public hearings that continue this week after numerous appeals.

IBAC alleges 157 complaints were made against officers at the Ballarat Police Station between 2010 and 2012, most of which were made against senior officers.

An alleged incident involving the 51-year-old woman was the first of four alleged uses of excessive force by police in the area to be heard by the anti-corruption watchdog in the week-long hearing.

Council Assisting IBAC Jack Rush, QC, told the public hearings on Monday the woman was arrested for being drunk in public when she was allegedly subject to violent and degrading treatment while in custody last year, the Ballarat Courier reported.

He said she was partially stripped in front of male officers, pepper sprayed while her hands were cuffed behind her back, Mr Rush said.  "She was kicked, stomped on and stood upon."

Footage of the incident was shown before the commission, of the woman forced to use a cup to scoop water from the toilet bowl to drink. The video has not yet been made public.

Mr Rush said police involved in the alleged incident would be asked to give their account of the night during this week’s hearing.

Another three alleged incidents of police corruption involving officers at Ballarat would be examined this week.

The commission revealed an alarming statistic of 52 Ballarat officers receiving four or more complaints – compared to the state average of 2.5 complaints per member, the Courtier reported.

This week's hearings will focus on the alleged excessive use of force and Victoria Police's management of the incidents.


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