So what’s the problem? “Making a market economy, where companies are motivated by profit, can only work as expected if there is enough competition, and now we do not have it. We currently have few companies competing to serve customers in many product markets; We need policies that promote competition, not slow it down, “says Sims.
Credit: Illustration: Dionne Gain
A market economy is one in which decisions about investment, production, and distribution to consumers are guided by price signals created by the forces of supply and demand, he explains.
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But here is the key condition on which the successful operation of this agreement is based: “An underlying hypothesis is that there are many suppliers competing to meet consumer demands.”
This hypothesis is not being fulfilled right now. Sims quotes Martin Wolf of the Financial Times as saying that “what has emerged over the last 40 years is not free market capitalism, but a predatory form of monopolistic capitalism. Capitalists, unfortunately, will always prefer monopoly. “The state can restore the competition we need.”
What? Is Wolf a kind of socialist? Of course not. Sims puts it more clearly: “A market economy also needs proper regulation for companies to pursue profits within clear railings.” We need some changes to Australian consumer law to offer these railings, especially a provision on unfair practices.
Market concentration, that is, only a few dominant companies seeking to meet the needs of consumers in many product markets, is high in Australia. “Think banking, beer, groceries, mobile service providers, aviation, rail freight, energy retail, internet search, mobile app stores, and more,” says Sims.
“What companies are looking for is market power where they can set the price or pay their suppliers as they please, without being limited by other competing companies.”
Rod Sims, former president of the ACCC
He cites Harvard economist Michael Porter, an expert in corporate strategy, who wrote back in 1979 that companies achieve commercial success by finding ways to reduce competition, increasing barriers to entry for new players, and reducing power. of suppliers, including their workforce. [No! he didn’t include screwing their own workers, did he?] and blocking consumers from their products and services.
“Companies don’t want markets. . . with many vendors, all with relatively equal bargaining power, “says Sims. competitors.
“They are looking for above-average profits based on the use of some form of market power.”
Aviation is a sector in Australia where there is a high degree of market concentration. Credit: Craig Abraham
This is not controversial, he says. “All entrepreneurs would agree. No one wants to work in a competitive market where they are simply looking to outperform their competitors. They want an advantage of some form of market power.”
Excess market power in our economy can cause a lot of damage to many Australians and to our society. “The most obvious damage is higher prices, which occur especially when supply is limited relative to demand.
“When supply is plentiful, however, market power means there is pressure on workers and other suppliers.”
Sims points out how the share of national income profits has increased at the expense of wage share. He also points out the concern about the lack of innovation in Australia, as well as our low productivity.
Guess what? When so many markets are dominated by a few large companies, the resulting lack of competitive pressure reduces the incentives to invest, create new products, and do other things that increase productivity.
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The message for the new government is clear: keep giving big companies what they want – weak merger and competition laws, as well as bans on trade union activity – and the economy will continue to malfunction. Profits will continue to grow as family incomes fall.
And it will show what the Liberals have always said: workers do not serve to run the economy.
Ross Gittins is the economics editor.
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