From the soon to be installed Finance Minister Andrew Robb:
OPPOSITION finance spokesman Andrew Robb says Australians should not be opposed to creating national champions in key industries provided they comply with competition laws, claiming Australians need to accept that the nation is an “oligopoly economy”.
Mr Robb — an ex-Liberal Party director who had significant roles in the private sector, including working for the Packer family, before returning to politics — said it was important that Australian companies were allowed to expand to achieve “critical mass”.
“We are an oligopoly community. We shouldn’t fight it. We should make the most of it. It does provide us with the critical mass and the size and innovation and for that ability to compete with overseas countries,” he told the latest high-powered gathering of food industry executives and interest group leaders in Sydney as part of the The Australian and The Wall Street Journal’s Global Food Forum series.
“But governments of the day need to make sure that oligopoly power is not abused. So competition policy needs to be continually reviewed to ensure we are getting the best of both worlds.”
…Mr Robb also told the gathering — which included Visy Industries executive chairman Anthony Pratt, the chief executives of GrainCorp and Lion Nathan and the former chief of AACo — that Australia needed to act quickly to attract the trillions of dollars sitting in international money-market accounts to invest in Australian agriculture and food production.
“It is looking for secure returns. There is an opportunity for us to lock in. We need to create the circumstance where private sector opportunities come to fruition,” Mr Robb said.
Let’s take this at face value and assess what the value is of our “oligopoly economy”. Are our oligopolists national champions? Have they seized the nettle of globalistion and shifted to dominate their global niches? Let’s look at the top four sectors: mining, finance, manufacturing and services.
Our miners are certainly globally dominant and very active in far-flung corners of the earth. But are they national champions? In the sense that they have become large enough in some commodities to control price, yes they are. In the sense that they pay reasonable taxes on the rentier margins that they’ve engineered, obviously not. Iron ore is one example. If Rio Tinto can produce iron ore at $34 per tonne, with forecast falls to $24 per tonne, and iron ore is trading at $138, then the profitability is out of this world. It’s more than reasonable for the public, the ultimate owners of these non-renewable resources, to expect better returns than they currently get.
Our banks are a mortgage oligopoly with some of the highest rates of return in the world. Have they moved offshore and dominated their fields? Obviously not. Do they pay their fair share of taxes and charges? It would be a stretch to conclude so given they don’t pay for wholesale guarantees that offer a material two-notch ratings upgrade, as well as barely pay for liquidity support and deposit guarantees.
Are they national champions in any other sense? Yes, it might be argued that they fund some large slice of Australia’s current account deficit. But it would be far more accurate to say that they create said deficit.
Of course the macroeconomic settings that these two sectors constitute also prohibit us from developing anything even approaching a manufacturing base with the critical mass to be described as national champions. Ironically the closest candidates are probably the car manufacturers, which have from time-to-time managed quite high exports exploiting global brands with local innovation.
In broader manufacturing niches, revealingly, you will still find more global Australian firms than you will in finance. The very fact that they have to compete so hard to survive makes them much more adept to the global stage.
And in services? Can you think of a global national champion? I can’t. Do our supermarkets compete with Carrefour and Tesco in China? No. Do our transport firms compete with Fedex and UPS in the US? No. Do our IT firms compete with IBM and SAP? No. Do our energy and construction firms compete with Chevron, KBR and Brookfield? It’s better but only a little.
The fact is, for the most part, oligopoly firms don’t expand into the global economy. There is no need. The rents they extract at home are so fat that they’d be mad to try. It’s so much easier to take home a big bonus by trading assets with your mates, earning a couple of points of markets share and suppressing competition with a quick call to the sympathetic finance minister. If he doesn’t listen then put the heat on him with a bogan-baiting advertising campaign.
That’s not to say that the oligopoly economy is without value. Australia recent record of out-performance shows what it can do when underpinned by a glowing resource endowment. But let’s not kid ourselves about what it is. It’s not a private sector than adheres to rules for the benefit of the polity, whether government wants it to or not. It is a closed loop of profiteering firms with no real competition, no national champions, and a built-in inflationary pulse that will, sooner or later, run completely out of competitive puff.
