Government has gone soft on cartels: Greens

A recent article by Herald journalist Matt Nippert highlighting National’s dramatic U-turn on criminalising cartel behaviour is important for all New Zealanders because anti-competitive business practices are one of the reasons why we pay too much for some goods and services.

Prices are high in New Zealand. It’s a comment we all hear, especially from tourists and returning Kiwis. Many of them are surprised by prices that are far higher than overseas, even for goods made here like Anchor butter or New Zealand lamb.

There have been a series of research reports based on IMF, World Bank, and Deutsche Bank data showing that consumer prices have consistently been higher here than in most OECD countries, even when adjusted for exchange rates, GST and our distance from major markets. It is also evident in the long list of scandals over rip-off prices, including in the building materials, construction, real estate, telcos, electricity, petrol, supermarket, and banking sectors.

When businesses collude to keep prices high, we all suffer. The NZ Productivity Commission has investigated this and recommended that the Government does more to tackle unfair competition. In a small economy like ours, it is even more important to ensure that companies are playing fair.

However, our current Government has been dragging its feet on new measures to strengthen the powers of the Commerce Commission to tackle unfair competition. Nine years on and our competition watchdog still does not have the mandate and resources to undertake the market studies that it needs in order to work more effectively.

The Productivity Commission has also called for reform of the Commerce Act to make it easier to tackle market domination. On the third recommendation, the Government has introduced new cartel legislation but has been painfully slow to move it through Parliament. (It was introduced in 2011 and still isn’t law.)

In addition, the new Commerce (Cartels and Other Matters) Bill has hit an unexpected snag. A key part of the bill was to make company directors criminally liable for knowingly running cartels. Criminal liability is widely accepted as crucial to give the legislation teeth.

Late in 2015, Commerce Minister Paul Goldsmith suddenly did an about-turn and overruled his department and MPs by removing the criminal liability provisions. His U-turn significantly weakens the legislation and lets colluding big businesses off the hook. Fines, however big, are not as effective as time spent in jail, as fines can simply be treated as a cost of doing business.

Goldsmith’s shock reversal has also put New Zealand out of step with Australia, the UK, US, Canada, Japan, and other trading partners. Australian officials are particularly upset because it undermines progress on cross-Tasman harmonisation of regulation.

At the time, his rationale for the U-turn was unclear and the Cabinet paper on the decision was unconvincing. But information released under the Official Information Act to the Green Party has subsequently revealed that the change was not because of any change in advice from officials. It was a pure political decision. It appears that the Government was lobbied by some powerful business interests to remove the powers to send chief executives found guilty of collusion to prison.

There is a pattern here. National has been quick to cater to the wishes of big business and foreign interests, and to put their interests ahead of consumers and the public. This has been evident in its failure to properly regulate businesses in sectors like fisheries, prisons, banking, mining, and insurance; dragging its feet on acting on foreign trusts and closing tax loopholes for multinational companies; and sweetheart deals for companies like Sky City, Rio Tinto, and Warner Brothers.

This matters, especially to the growing numbers of families caught in the squeeze between rising prices and housing costs and stagnant wages. It also matters to the majority of small and medium-sized businesses in New Zealand, who are all too often disadvantaged by regulations that are tailored to meet the needs of the largest businesses.

There is now a new Commerce Minister, Jacqui Dean. The departmental briefing to her as incoming minister observed that, “When businesses vigorously compete and provide fair and accurate information, consumers benefit from better prices, quality and choice.” It’s time for Government ministers to heed this advice from officials.

We all benefit from fair competition. It is good for business and good for consumers. Politicians should not be swayed by big business.