National Competition Policy (NCP): Some Observations
Why?
NCP was introduced to bring the public sector into line with pressure for stronger performance imposed on private sector by (eg financial) deregulation, and by tariff reduction. Firms were concerned that public infrastructure accounted for a substantial portion of their costs, and that productivity levels were low by international standards. Creating national and competitive markets was the best option to reduce this constraint.
What?
Competition policy is a means to create opportunities by exposing enterprises to competitive pressure, both to prevent abuse of market power, and to remove the unintended protective effect of some government action.
Competition policy has been applied for decades by the Trade Practices Commission to inhibit harming competitor by use of market power. Coverage was extended to public sectors by 1995 NCP Agreement. Also six other procedures were to identify / eliminate unintended protection from government action (3rd party access to infrastructure; prices oversight if competition is limited; structural reforms to ensure competition; competitive neutrality of government businesses; and review of anti-competitive legislation).
Competition policy was also the basis of major recommendations by Commission of Audit.
Basis of Review
Uncertainty about the effectiveness with which NCP was being implemented, and about agencies' ability to operate in the competitive environment being created.
Some Unresolved Issues
· NCP implementation as administrative 'compliance', rather than technical optimisation
· competition does not ensure competitiveness - the difference being capabilities.
· microeconomics (the basis of competition policy) contains defects from business viewpoint in ensuring competitive advantages (ie systemic and evolutionary aspects).
· uncertainties about 'public benefit tests' for legislation and competitive neutrality (eg value of institutional factors relative to value of economic transactions).
· NCP compliance issues facing Queensland (eg water)
· large potential costs of CSOs
· dubious ability of GOEs (ie nationalised industries) to prospect under competition
· relationship between competition and government's non economic goals (an unstudied corollary of Report of Queensland Commission of Audit)
· different competition goals in East Asia - ie increasing, not constraining, market power
· attempt at 'internationalisation' of competition policy, as better means to promote market access than liberalisation of border controls (such as tariffs)
Other Emerging Issues
· Asian financial crisis raises issues about universality of competitive micro-economy
· Multilateral Agreement on Investment proposal from OECD
· expected large future current account deficits - requiring new emphasis on productivity
16 March, 1998