The US is grappling with tech monopolies, but Australia has problems closer to home — and coronavirus could make it worse
Americans like to think of their country as the land of competition, where success boils down to individual drive and inventiveness — whether you fail or triumph depends solely on your own commitment.
Australians hold to a similar notion — the fair go. As Prime Minister Scott Morrison defined it: “If you have a go, you get a go.”
But analysts suggest both nations are increasingly less encouraging of competition, and that from supermarkets to social media to transport, monopolistic capitalism is on the rise.
Big is better — the Aussie way
ANU economist Adam Triggs says Australia is now riddled with non-competitive markets.
He and colleague Andrew Leigh surveyed concentration levels in 481 industries and found most sectors are now dominated by a small number of firms.
“Australia does seem to have a particular problem in this area,” he.
“When we looked across the economy, and collected data on every single industry, we found that more than half of Australia’s markets are concentrated. That means the four biggest players control at least a third of the market.”
Those concentration levels jump to 80 per cent in sectors like banking, supermarkets, internet service providers and health insurance.
That could explain why the World Economic Forum scores Australia low on the effectiveness of its anti-monopoly policies.
Dr Triggs warns that the impact of the COVID-19 pandemic is likely to make matters worse.
“It’s very hard to think that it’s going to have any effect other than a negative one,” he says.
“When you look at the businesses who are getting a lot of government support, they tend to be larger businesses.
“And businesses that are larger tend to have bigger buffers. They can get assistance from the debt markets, for example, or they can issue equity.”
Dr Triggs’s research indicates high market concentration eventually leads to an increase in income inequality, as wealth is transferred from the poor to the rich.
“It drives up savings and reduces aggregate demand in the economy, which is a reason that we see rising inequality, but also very weak inflation and very weak interest rates.”
That view is supported by a recent paper prepared for the US Federal Reserve Board, which also found a heightened risk of financial instability and increased household debt as a result of corporate market power.
Late last year the head of the Australian Competition and Consumer Commission, Rod Sims, issued a warning that key infrastructure points, such as airports and port facilities, were becoming monopolistic.
“It is bad for the economy when bottleneck infrastructure, at the end of a crucial value chain, is in the hands of a company with unfettered market power,” he said, calling for legislative reform to encourage greater competition.
“A monopolist that controls this type of bottleneck infrastructure, operating without any regulation, has a clear incentive to maximise profits by raising prices, even if this means reduced volumes or less of their service.”
But University of Queensland economist John Quiggin argues increased competition isn’t the answer to all market dominance issues.
Many large infrastructure facilities, he points out, were once publicly owned and only became profit-driven monopolies after being sold to the private sector. Prior to that, they operated to serve the public good.
What we understand by “competition”, he says, got skewed in the era of “small government” and the rush to privatise government assets.
“We have to go back to the 1980s and the emergence of a view, embodied in national competition policy, that the real problem wasn’t monopoly and exploitation by firms, it was governments doing anti-competitive things,” he says.
“National competition policy really relaxed controls on things like mergers while pretty much constraining the public sector from competing ‘unfairly’, as it was seen, with corporations.”
That change in thinking, Professor Quiggin argues, coincided with a rise in the belief that competition in sectors like electricity, aviation and telecommunications would axiomatically produce better outcomes and cheaper prices for consumers.
“In fact, what we’ve seen is that that competition hasn’t really emerged in the way that was hoped,” he says.
“We don’t really have the market to support more than a couple of airlines, for example. The market is so small, it’s hard to support a large number of competitors.
“If we look at electricity, the hope was that competition and choice would produce great outcomes. Clearly that didn’t happen.”
He says we now have to consider “whether we want to reverse the shift towards privatisation”.
“We have to accept that although, in some respects, we can promote competition as an alternative for a monopoly, the idea that those are the only choices available to us is just out of date.”
Big is better — the American way
Market concentration is also increasingly a feature of American economic and political debate.
But there, the overwhelming focus of public concern has been on the rise of the US tech titans.
In the late 1890s and into the early part of the 20th century, American politicians famously used what became known as “anti-trust” legislation to break up transport and energy monopolies and promote competition.
The word “trust” referred to firms that colluded to control prices and exert dominance.
But from the latter part of the 20th century, the effectiveness of anti-trust action has been called into question.
In July this year, the heads of four of the biggest and wealthiest corporations in the US — Amazon, Facebook, Apple and Alphabet, Google’s parent company — were called before a Congressional hearing in Washington.
It followed a familiar path: there were accusations of anti-competitive behaviour, there were denials, and then the Washington circus folded its tent.
However, anti-trust campaigner Hal Singer is largely upbeat about the result.
He says the hearings achieved rare bipartisan scrutiny of the digital giants, and unearthed evidence of possible anti-competitive motivations in their dealings with app developers, content providers and independent rivals.
“The final takeaway is that it’s crystalised what the damage is — they were trying to snuff-out competition in its nascent form,” he says.
A problem of definition
Economist Ryan Bourne says one of the difficulties in bringing an anti-competitive charge against the major digital players is that it’s hard to define the exact market they’re accused of dominating — or even who they are competing against.
Does Facebook, for example, compete in a social networking market, or in a digital advertising market?
“When you consider who their ‘paying customers’ are you are probably best placed saying that Facebook and Google operate in the digital advertising market,” Mr Bourne says.
“And, in that sense, it’s clear that they are not engaging in anything harmful to consumers. Digital advertising costs have fallen by 40 per cent over the last decade.”
An emphasis on consumer welfare has been the traditional way US regulators have judged whether a large company should be allowed to dominate a market.
But Professor Singer says that approach no longer has relevance in a digital environment where consumers aren’t directly charged for using a service.
“The problem here, and what the platforms have figured out as kind of an end-run around the anti-trust law, is that they are not exercising their power vis-a-vis consumers in a traditional sense of price-gouging,” he says.
“You can see that their money, and certainly their profits, are not coming from gouging consumers, but rather from squeezing input providers.
“That is the success of this business model. It’s that squeeze that’s somehow defied anti-trust law up until this point.”
Professor Singer says current thinking on competition law reform in the US largely falls into three camps:
- Those who want anti-trust law expanded beyond the focus on consumer welfare.
- Those seeking regulation outside of the anti-trust framework.
- A more interventionist approach involving structural separation, where legislation is used to specifically prescribe the sorts of business activities a platform can engage in.
But each of those measures require political will to be realised.
The major tech companies have shown great effectiveness in lobbying both in Washington and around the globe. They also make no secret of the fact that they have deep pockets.
Just after his Congressional appearance in Washington, Amazon’s CEO Jeff Bezo, broke a new record by becoming the first person in history to amass a personal fortune of more than $US200 billion.
Dr Triggs doubts American regulators will have the conviction to rein in the powers of the tech giants.
“These are huge US firms, and they are very important to the US economy,” he says, adding that any move to diminish their power would be seen by some as akin to killing “the golden goose”.
Instead, he says, there needs to be global cooperation on the issue.
Come November …
Some analysts, like Mr Bourne, who works for the libertarian think-tank the Cato Institute, believe the damage done to markets by monopolies and duopolies is overstated.
He points to the rise and fall of industry giants like Kodak, Nokia and Myspace as proof that, regardless of how dominant a company may appear, market forces will eventually open the door to innovative competitors.
Others believe intensive market dominance should be treated as an economic and societal problem, per se.
The next major chance for anti-trust reform in the US will come in early November when Americans cast their ballot for the presidency.
While Donald Trump has repeatedly shown his disdain for government regulation, the Biden campaign has talked of reducing inequality and making the US a fairer place in which to live and work.
But whether a Biden win would result in a new emphasis on anti-trust reform remains uncertain.
Professor Singer notes that many of the advisers on Mr Biden’s competition advisory committee currently work for big tech.
“I’m more optimistic at the margin. But I’m also scared about the influence that the platforms have over key people on Biden’s team,” he says.
“If you remember back to the Obama administration, there were reports of Google basically meeting at the White House on a daily basis.
“Don’t just think that because they’re Democratic they are naturally more inclined to intervene or want to push back on concentrations of economic power. Democrats get corrupted too, they can get bought off.”