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Tuesday, 30 November 1965


Mr HAYDEN (Oxley) .- The Bill now before the House is a proposal for legislation to control certain restrictive practices which have been developed in the trading activities of Australia over the years. We on this side of the House feel that the Bill is somewhat short of what we would have introduced had we been in a position to do so. Nevertheless, after quite a long and, at times, quite a hard struggle the Bill has been introduced. To the extent that it covers certain restrictive practices, I suppose we should be joyful. I shall come a little later to a discussion of what I feel are the deficiencies of the Bill. At this point I want to make some observations about the way in which the debate has been approached by some honorable members on the Government side. The defence of business interests, represented by well briefed and not distinguished advocates from some sections of the Government back benches proceeded on the basis that the proposed legislation will cause unwarranted interference with, and prying into and snooping about, the confidential affairs of business. In short, their argument postulates the cardinal sin against the capitalist system, as seen by these vigorous and professionally briefed advocates; that is, the doubting of the motives of business. If one accepts the handy homily, "What is good for business is good for you ", I dare say the arguments of these spokesmen are convincing. However, I am considerably doubtful of the success of their powers of persuasion in the community today.

There have been too many instances of the classical rags to riches progress of capitalist enterprises crashing from the heights of success and crushing a lot of little people who had invested with hope and honesty in these enterprises. Balzac has said - and the more I turn the sentence over in my mind when reading of the latest of many of multi-million pounds enterprises crashes the more I marvel at his perspicacity - that behind every large fortune there is a crime.

It used to be the crime of sweated labour and cruel exploitation of workers. It is now apparently more fashionable and eminently more successful to perpetrate the offence by way of a glossy, inflated, and not altogether honest prospectus, often coupled with a careless disregard for bad debts in the balance sheet. One need hardly mention the names of International Vending Machines, the Korman organisation, Reid Murray, and now the " Five Million Furphy " of H. G. Palmer Pty. Ltd. These are only the more notable of numerous progeny from wedlock in the " get rick quick unscrupulously " set. This kind of progeny seems to arrive too frequently in business circles to be ignored in this country today. Obviously, in these instances, what was good for business was not good for anyone else.

When one reads in the Press a plea, in a struggling, faint little voice, for a fair go in business competition, when one reads that the voice of protest is being snuffed out, not by competition but by trade associations which wield the power of life or death in a field of business endeavour, without accountability to the public in any democratic sense, can one be blamed for feeling that the so called " fifth estate " has arrived? The fifth estate of baronial economic power in the realm of capitalism has been created. When one sees the gobbling up of enterprises in empire building sorties by capitalist institutions and consequently the agglomeration of capitalist power in fewer and fewer hands, surely one is justified in wondering - as many do wonder today - whether these things are occurring in the public interest.

This is a good point at which to commence some detailed inspection of the Government's trade practices law. The AttorneyGeneral's recent address to the House is interesting for the way in which he emphasises two basic precepts - firstly, the promotion of competition; secondly, the protection of the public interest. The Minister has said, and his predecessor expressed a similar sentiment - the Government is conscious that the lessening of competition may, in some aspects of the economy, be unavoidable; indeed, it may be not only consistent with, but a proper ingredient of, a truly free enterprise system.

If, by this, the Minister means that it can be in the public interest for a lessening of competition to take place in some certain instances, I would agree that some justifiable instances could arise. For instance, this country with its small workforce of about four million persons is obliged to seek more efficient ways of using its resources for productive purposes. Hence, there is plenty of justification for industrial production in some spheres to be carried out by fewer, but larger, production units, even, in some cases, by monopoly, the purpose being to exploit the so-called internal, and, if there are any, external economies of scale. But this is a heavily qualified concept. Certainly it gives no carte blanche voucher for mergers and takeovers.

A case can be made for mergers and takeovers where economies of scale are to be beneficially exploited and the savings passed on to the community. But for the life of me I cannot agree to those vertical mergers or takeovers where a manufacturing and a retailing unit are combined in such a way that a situation of monopsony is presented in the factor market, and monopoly is created in the consumer market. I have grave concern for the public interest in such cases. In such a situation of virtual economic dictatorship, first I would be concerned about the effect on income distribution, and about profit margins and prices charged, as well as the disbursement of dividends by income groups in comparison with wages and salaries paid in the economy. The effect on resources allocation is most likely to be undesirable. Where the commodity is sold at prices about marginal cost and factors are purchased below marginal value there will not be a maximum use of resources, and output will be below the level which the industry is competent of achieving and which is desirable in the public interest in those cases where margins are high. Where margins are low the opposite result occurs.

This also applies to a market situation of oligopsoly and oligopoly. In point of fact, one of the undesirable features of our hop and crash economy is the unrestricted economic and social power of the monopolies and oligopolies bidding resources away from what should be priority investment into less important fields, thus distorting our economic growth pattern. In this way they contribute largely to the ingredients of our milk shake economy. Where the entrenchment of oligopoly or monopoly is to be allowed it can only be said to be in the public interest where efficiency is maintained and improvement of it sought and where the savings so gained are passed on to the public as reduced costs. The Broken Hill Proprietary Co. Ltd. is a notable illustration of a monopoly which has allowed its efficiency to deteriorate because of the complacency infective from the security of monopoly power. Oligopoly is no better. The so called understandings between the elements of such an economic situation can be as bad a brake to efficiency as occurs under pure monopoly. Similarly, under the head of efficiency we can consider technological progress. Established monopoly and oligopoly are notorious for their resistence to technological change. For instance, the Aluminium Company of America would not invest in a new and efficient type of ore carrier until the arrival of a newcomer, Reynolds Metals Company, proved its advantages. Neither the Bell telephone company nor General Electric Co. (U.S.A.) were interested in the then new phenomenon of radio. Yet in spite of the very real problems of considerable magnitude which economic concentration can present, and in many cases is presenting, the Attorney-General has eliminated any rereference to registration of mergers; something significantly mentioned by his predecessor. The query on this subject obviously is: Does monopoly occur on any significant scale in Australia to justify government interest? Let me quote authoritative sources to show that it does. In an analysis of this sort of thing in the Australian context, Mr. E. Wheelwright, an economist with Sydney University, discovered -

In manufacturing 20 large firms owned one third of the total assets, 75 firms owned 45 per cent. In particular industries, concentration was even higher in sugar, rubber, steel, paper and glass, one to three firms controlled 80 per cent, to 100 per cent, of assets in each industry. For large numbers of individual products, e.g. certain types of paper, textiles, gypsum, tile pipes, chemicals, there was only one firm in each group.

These estimates, made in 1956, were based on 1953-54 data. Since then there has been a tremendous spate of consolidations, takeovers, mer gers, and the like, so that industrial concentration is now undoubtedly much higher. It seems clear that it will go on, for so far there is nothing to stop it

Professor Hunter, writing in a work "The Australian Economy " edited by Arndt and Corden, at page 281 displays dramatically a comparison of selected industries in this country and the United Kingdom and the United States of America by way of a table. Because of the difficulty involved I shall not ask that the table be incorporated in " Hansard ", but I draw the attention of the House to it and commend a study of it to honorable members. The learned Professor is moved to say at page 282 of the same work -

The U.S.A. index in the table shows that industry has a higher concentration ratio for all of the listed industries except cement, cars and petroleum refining.

He also says of the Australian indices -

.   . the indices considerably understate the degree of concentration in the industries in the upper half of the table.

That is, the position is worse than would appear from the tables - and they are dramatic enough as it is. Before leaving the Professor, let me quote one final word from him - . . concentration is in the oligopolised and monopolised industries in which we are primarily interested, on an average twice as great as in U.K.., and three times greater than in the U.S.A.

It seems that concentration in industry has gone very much further in Australia than in most countries. It has gone considerably further than in most countries that have found it desirable to institute legislative control of business. Further consolidation of the view that concentration is rampant in strategic sections of Australian industry is gleaned from Karmel and Brunt's "The Structure of the Australian Economy ". At pages 58 and 59 and 84 and 85 the writers give details of some of Australia's Goliaths in the realm of capital. With the concurrence of honorable members I incorporate in " Hansard " the table on pages 58 and 59 as an indication of the concentration of capital in monopolies.

 

That positions of economic power, referred to as monopoly and oligopoly, do arise from mergers can be gauged from the number of mergers which have occurred in this country of recent years. For the six years 1955-60 no fewer than 190 companies were delisted on the Melbourne Stock Exchange as a result of takeovers. In recent years mergers have occurred on a very large scale. Of 484 mergers in 1956-59, 45 were over £600,000 in value, and, according to Karmel and Brunt, two of the largest mergers in Australian history occurred in 1960 when two of the biggest retail firms made substantial acquisitions. Mergers involving amounts greater than £250,000 would have been registrable under Sir Garfield Barwick's proposals. There is no concern about them under Mr. Snedden's propositions. Admittedly there would be problems in investigating mergers, and the Minister has referred to some: But merely because there would be some machinery problems seems to be hardly sufficient reason to drop the idea completely, as the Minister has done. In fact when he speaks of the problems arising from a consideration of the proposal to make mergers and so on registrable under law, he quotes the differing attitudes between the British Conservatives and the British Labor Party. Having done this he seems to feel that he has presented sufficient evidence to justify no action from his own Government on mergers. What he conveniently neglects to face is the fact that in spite of the problems connected with supervising mergers in the public interest and certainly, regardless of the differing approaches, both parties in Great Britain are doing, or have done, something about the subject. Additionally, in spite of the problems connected with establishing such a regulatory law, both Canada and the United States of America have conducted such laws for some time. But, just as the Attorney-General has dropped registration of mergers, recommended by his predecessor, so too has he dropped other propositions put forward by his experienced predecessor.

I recollect how disappointed was the informed community with Sir Garfield Barwick's anaemic creature. But, oh my goodness, compared with the frail midget conceived by the casuistry of business pressures and delivered by the present AttorneyGeneral, Sir Garfield Barwick's creature was a Frankenstein. For instance, Sir Garfield Barwick made " persistent price cutting at a loss to drive .a competitor out of business " inexcusably unlawful. The new proposals do not specially define this practice. Perhaps, with some stretching, clauses 35 and 37 might get to the starting line, but there seems to be fairly formidable opinion that these sections will not last much of the course of challenge. If the Government is the keeper of free enterprise, which it claims to be, surely it would be specifically alert to this behaviour; for this is the behaviour symptomatic of concentration and accumulation of capital - a situation hardly in harmony with free enterprise. In this sort of situation we find big firms have an easier availability to capital than smaller ones. They are more likely to be successful in developing cost saving technological changes in production. Certainly their size, with their freer availability of capital, means they can afford technological change more easily than the small enterprise.

The growth of a firm and of an industry is determined, among other things, by the interaction of the rates of change of sales, profits, costs, technological progress and so on. This means that the bigger firms are institutionally more likely to succeed and grow larger than the smaller ones which are more likely to remain small at best, and quite possibly fail anyway. In other words the big firms will become richer by their greater capacity to accumulate capital. But like Alice, who could not stop growing once she ate the cake, the large units grow larger and larger on the inbuilt advantages derived from their size. In these cases the scale of enterprise grows faster than the rate of growth in the market. Consequently, marginal firms are squeezed out as the Goliaths seek outlets for their increased output. So economic concentration takes place.

Eventually the situation is reached where only a few large firms are left in the industry. Each has too much accumulated capital in reserve to allow another to attack its position by a price war, as was done against the small units. If any small units are left it is for business political reasons; perhaps the desire to deny the existence of restrictive trade practices, but in fact oligopoly can achieve equilibrium only through such practices - whether by price cutting wars snuffing out small competitors, or by restrictive agreement bringing about a mutually beneficial and satisfactory lull in price competition. Having reached the position where successful assault against the remaining large units of enterprise cannot be undertaken successfully by any of the other units, or in cases where there are no opponents left to conquer, diversification is sought to use up otherwise idle accumulated capital. Hence we see Colonial Sugar Refining Co. Ltd., as just one illustration, moving completely away from industries bearing any relation to sugar, and into fields like blue metal quarries, or bauxite extraction at Gove.

The full extent of capital accumulation and capital concentration, including diversification, by monopoly and oligopoly in Australia should have been established by the Government by a committee of inquiry as a necessary fundamental form of information from which to base its approach to a trade practices law. It is obvious, merely from reading the financial pages of the daily Press, that this concentration is quite large. What the Government needed was some form of concentration ratio index as a guideline for its deliberations. I have no objection to capital accumulation and concentration occuring if it does so fairly and not by wretchedly destroying embryo opposition by unfair means, as in the case of price slashing wars where price levels go below cost. Having achieved a dominant position by accumulation and concentration of capital, it is necessary that efficiency does not slip through indolent complacency. This would be against the public interest.

The responsibility of the Government is not towards business but towards the public interest. It is certainly not in the public interest for a monopoly or an oligopoly to retain dated, inefficient processes, confident in the knowledge that new competition can be destroyed by price cutting and falling back on accumulated reserves without introducing improved efficiency. Price cuts obtained in such a situation are short lived and do not come to the advantage of the consumer. I do not see where this legislation really bites into this sort of problem. There is no power to cause efficiency improvement. I can agree this would be a difficult instrument to operate, but the answer seems to be in the broader concept of a planned economy. Indeed, the endemic problems of our economy remain while the Government refuses to countenance this concept of a planned economy. Secondly, price cuts to defeat new competition may establish prices below cost for the new entrant, but include a profit for the established large units, notwithstanding their institutionalised inefficiency. I do not see where this sort of thing will be effectively prevented taking into consideration the sort of tactics that could be adopted.

Business interests have been maintaining that there is no need for this type of legislation. They seem to be saying that the laws of supply and demand always balance themselves by some miraculous cause - in some sort of perfect economy. This is rubbish. The equilibrium of the market is derived by determined interference with supply by business interests. Having discovered that if it can regulate supply it can manipulate demand, and thus determine price, and with it the return to the enterprise as profit, business does not want to relinquish its position as its own government of the economy of Australia. The 1 957 Western Australian Royal Commission identified 111 trade associations. It uncovered three forms of restrictive practices - first, price fixing arrangements and their enforcement; secondly, channeling and distribution through members of associations; and, thirdly, collusive or level tendering. Mr. R. D. Freeman has estimated that 58 per cent, of trade associations in Victoria support restrictive trade practices.

The Tasmanian Royal Commission this year uncovered 70 trade associations of which two-thirds practised restrictive activities. The report of the Royal Commission refers first to horizontal or multilateral arrangements. Under this heading are listed such arrangements as price fixing, uniform terms of dealing, market sharing and restrictions on entry to a trade or industry. The second matter referred to is vertical bilateral arrangements. Under this heading are listed such matters as resale price maintenance arrangements, discriminatory dealings, exclusive dealings, refusals to deal and price discrimination. The third matter referred to is vertical unilateral practices. Other matters referred to in the report are collusive tendering, mergers and monopolisation.

It is interesting to note the detrimental effect upon an enterprise where right to membership is withheld. In the case of sporting goods resellers operating in Tasmania, non-membership of the association meant that newcomers could not obtain supplies of goods to sell. The association rationalised trade rights for a zone on the basis of customer demand. I do not quibble with rationalisation to protect against what is virtually unnecessary and therefore wasteful capital investment, but I feel that it is manifestly wrong for a body, neither answerable nor responsible to the public, to make this form of decision, especially when the body is an interested party to the profit margins set. Sir Garfield Barwick especially dealt with trade association exclusion of membership as a registrable item. Professor Hunter has said, on the matter of restrictive practices -

However conservatively the position is stated, it is clear that Australia is well, even handsomely, endowed with trade associations and restrictive practices.

Professor Richardson, speaking on the same subject, has said -

The indicators are that there is more concentration of economic power in Australia than in most industrialised countries.

The professor also passed some comments recently on the quality of the legislation now before us. If the newspaper reports of his remarks were correct, he was hardly flattering to the legislation. The other point to which I refer is the Minister's change of heart which allows part time appointments to the tribunal. With our small business community I do not think this practice is desirable. It is difficult to accept the presence of disinterest among business appointees to the tribunal where the appointees are still active in business. Indeed, the nurturing of generations of Australian businessmen on the virtues of restrictive practices would seem to make them of doubtful value on the tribunal. Anyway, why do they have to be part-time officers? Undoubtedly this is a concession to political pressures. If, on the one hand, the Minister argues that there will be too much work for a more inclusive form of registration and on the other hand argues that there will not be enough work for full time officers, one can hardly be blamed for being confused or suspicious. From its failure to conduct a searching inquiry into the structure of Australian business trade practices before proceeding with this legislation it is obvious that the Government moves about with blinkers on. I support the amendment moved by the Deputy Leader of the Opposition.







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