Features Australia

Applying the wrong industrial remedies

On industrial policy our governments are lazy

22 May 2021

9:00 AM

22 May 2021

9:00 AM

Australian governments have a long history of trying to play industrial gods. Rather than create the conditions in which entrepreneurs and business can thrive, our governments think they can pick winner industries and firms. This is impressive arrogance from a bunch of people who generally know nothing about business and who are advised by bureaucrats who know even less.

It is correct that it’s hard to create and maintain production- and entrepreneur-friendly conditions. Tax, industrial relations, efficient infrastructure and a balanced regulatory environment are not easy. It is much easier to take from some and give to others and then demand to be thanked.

What better case study than the Australian car industry that, for all of the billions of dollars of Commonwealth and state aid and protection provided, could not produce a product that consumers wanted. But industry policy in Australia has taken a different direction of late. Where once, industry policy was about distorting the market and bribing business to create jobs, contemporary industrial policy is about making the job of government easier.

Look across the board. Australian industries tend to monopoly or oligopoly. The excuse is often rendered that this is a function of the size of Australia and that our market can’t accommodate multiple players. This of course is unsubstantiated and self-fulfilling nonsense. Governments believe this is the case and so they create the conditions for consolidation. And presto, Australia has industries that tend to be monopolies or oligopolies.

From banking to supermarkets to insurance to energy to telecommunications to financial services to car sales to now even waste collection. All these industries are consolidated.

Why did this happen? Because governments and bureaucrats are fundamentally lazy. It is much easier to deal with a small number of fat, lazy and compliant businesses who look the same than it is to deal with many businesses of many sizes with many business models. Two to four businesses around the same size and that look the same make it much easier for a Prime Minister or Treasurer to call up and demand they act in the political interests of the government of the day.

It would take much too long to call 20 banks or 15 energy companies when calls to four banks or three energy companies could be knocked over in an hour.

How did this happen? Deliberate government policy. Our government has implemented both active and passive policies to encourage industry consolidation.

Passive policies have come through increased numbers and complexity of regulation. Regulation is subsidy from small business to large. Small businesses can’t hire the expensive accountants and lawyers to deal with the ATO. They can’t hire the compliance officers to deal with ASIC and APRA. They can’t hire the industrial relations officers to deal with the Fair Work Commission.

Big businesses can afford these value-destroying corporate overheads. It is a very simple trade-off the government offers. Big business can increase their costs and the government will destroy their nimble competitors so these dead weight compliance costs can be easily passed onto customers. As an added bonus, new regulations increase the barriers to entry for new competitors.

Just have a look at any government regulation or legislation consultation.  All the responses are from big business.  Small business does not have the time or resources to reply so big businesses use these consultation mechanisms to shape the legislative and regulatory environment to their advantage, and usually to the disadvantage of small businesses. But Australian governments have become even more ambitious in trying to shape the Australian business environment. They now pursue active policies to force and encourage industry consolidation.

One of the earlier attempts at this game was the Button Car Plan of the Hawke Labor Government. In anticipation of reduced trade barriers, the Button Car Plan sought to force the Australian car manufacturing sector to consolidate and to standardise its product.

As an industry policy it was worthy of Soviet commissars: ‘The most obvious effect of the plan for the Australian car buyer was the appearance of badge-engineered vehicles, where the same basic vehicle was sold by several companies under different names’. You see, this is what you get when government meddles in industry. You get a product engineered to meet production targets but not consumer wants. As Winston Churchill wrote, ‘However beautiful the strategy, you should occasionally look at the results.’ And the result is Australia no longer has a car manufacturing industry.

This active industrial policy nonsense continues to this day, no more blatantly than through the conduct of APRA.

APRA is Australia’s prudential regulator and oversees banks, insurance companies and large superannuation funds (but not SMSFs). For a number of years, APRA has been pushing health insurers to consolidate. Take this speech last year by APRA executive board member Geoff Summerhayes where he said, ‘… we asked all insurers to submit a robust, proactive recovery plan, including a “Plan B”, with “at risk” PHIs asked to sound out a potential merger partner in case their plan isn’t successful.’

To the casual observer, that would sound like the government telling businesses to merge. So much for competition.

Such APRA demands for industry consolidation are not limited to health insurance funds. More concerning, it extends to superannuation funds. At the same time the left hand of the government is complaining about the power of large industry super funds, the right hand is trying to make even more large industry super funds.

According to KPMG, the superannuation industry will become dominated by fewer but larger funds. This is due in large part to APRA but also the government’s Your Super, Your Future legislation. According to APRA chairman Wayne Byers, consolidation ‘has helped drive better governance, strong performance and lower costs’. By this he probably means it improves the governance, performance and costs of APRA.

One can only imagine how wealthy and prosperous Australia would be if we had competent government. For twenty years from the early 1980s, Australian governments (generally) got the hell out of the way creating 30 years plus of unbroken economic growth. Since then, we have had a procession of governments of increasingly lesser capability pursuing policies of increasingly greater ambition validating the words of Groucho Marx that ‘Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly and applying the wrong remedies’.

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