What a ripping interview the chairman of the Australian Competition and Consumer Commission chairman Rod Sims gives at the AFR today. It’s very brief but gives an insight into what a fair dinkum policy-maker looks like. First on his supermarkets investigation:
“The allegations we’re looking at are basically about deductions from prices in previously agreed contracts. If those allegations turn out to be right then you could say that will make it very hard for those businesses to plan to invest. That has an efficiency cost and that’s what we are here to protect.”
Sims acknowledged that some prices may actually rise as a result. Yes, that’s right, sometimes cheaper prices are a false economy if they are costing elsewhere. The case of the banks is another classic example, where by not charging an insurance premium for guarantees we create a false economy of cheaper services but a higher likelihood of a financial crisis, not to mention higher house prices and dollar that costs national industry.
Sims then turned to the NBN and argued the opposite:
“We are going to have these price caps and if something doesn’t work out, then the price caps bite and [NBN Co] won’t be able earn [it’s] rate of return,” he declares. But if NBN roughly gets built according to the price they expect, and if usage goes up as they project it will, they should be able to earn their weighted average cost of capital.”
Price capping the monopoly, you beaut. This is what is needed in the electricity sector where the guaranteed rate of return in public utilities is contributing to over-investment. Sims is making that much harder for NBN Co.
Two arguments that appear contradictory but are in fact perfectly consistent in terms of markets that function to boost efficiency. And Sims closed with a credo that every regulator should print on his tee-shirt. When the AFR, defender of interests over markets, sneakily asked Sims how failure in these cases will affect his career he replied:
“I’m 62 years old; frankly I couldn’t give a toss.”
