Illusion of competition the sad Kiwi norm
OPINION: Every now and then, misgivings will be voiced in high places about the lack of genuine competition in sectors of the New Zealand economy.
Last week it was the turn of the Commerce Commission, as it released a 331-page report on the personal banking sector, which – who knew? – is apparently dominated by the four major Australianowned banks.
Remedies were floated. Perhaps the government could inject fresh capital – of the order of $10 billion – into Kiwibank, and thus enable it be an effective brake on the Aussie banks.
To put it mildly, that remedy seems unlikely to find much favour with the current government. Much media attention was also devoted to how by 2026, New Zealand might finally embrace the “open banking” already common overseas, and which enables customers to easily switch from one bank to another.
That response has a long pedigree. With telcos in the 1990s, there were simiilar delays in making “number portability” readily available, so that people could take their phone number with them from the dominant player (then called Telecom) to smaller companies.
Subsequently, New Zealanders have been urged to shop around between power companies, between supermarkets via “loyalty” cards, and soon between banks, via this imminent arrival of open banking.
Overall, it still looks more like a sop, than a genuine solution for unhealthy levels of market dominance.
The situation where our markets are effectively controlled by one, two or a small number of cosily co-operating players, has become the Kiwi norm.
Air New Zealand for example, reportedly controls 86% of the domestic airline market. As a result, there is little to stop Air New Zealand from recouping its costs (and maximising its profits) by hiking up prices and cutting its loss-making services to regions, without much fear of it ever being undercut, or supplanted, by a rival.
It shouldn’t be a surprise that virtual monopolies and cartels flourish so readily in New Zealand, which is too small a country for market forces to operate effectively.
As a consequence, the big players are relatively free to exploit consumers and reward their shareholders by not investing overly much in innovation, or in environmental protections.
During the 1980s, it didn’t help that state monopolies got turned into private sector monopolies, without adequate steps being taken beforehand, to protect consumers.
Arguably, it would now take major structural interventions to break up those dominant companies and allow genuine competition to take root.
However, in the supermarket sector such action may be a prerequisite before any foreign new entrant would risk the start-up costs involved in challenging the entrenched duopoly.
Neither Labour or National though, appear to have any appetite for taking on the supermarkets or the banks – or even for imposing windfall taxes on the annual profits that they pile up.
That’s where open banking comes in. As with the energy companies, banking’s customers are to be urged to scramble around for the incentives that are likely to be dropped from the top table from time to time.
In the absence of genuine competition, consumers will be encouraged to shuttle back and forth between their potential predators, thus keeping the illusion of competition alive.