NCP: an outsider's view of some implementation issues

ACCC expressed some concerns about implementation at a recent national conference.

Difficulties emerge because: substantial government intervention is needed to achieve a free, competitive and efficient market, and especially (in the early stages) incumbent firms possess considerable market power. Substantial issues regarding property rights are involved. Challenges also arise because: issues are technically complex; there are conflicts of interest between businesses themselves; there are conflicts of interest between economic efficiency objectives, and government's revenue raising concerns, and social objectives (which result in desire to retain cross subsidies); and very significant procedural requirements are brought about by due process needs, constitutional requirements, federal State balancing, and the need for timely informed decisions. Where ACCC operates there is an established legal framework. But in wider area of competition policy (and particularly for regulation review) there is little precedent. [Note: These difficulties may arise because NCP mainly deals with situations where 'free' markets were previous seen to have failed].

Competition policy is a solution to a problem which too few really understand, which erodes public support for initiatives which have any short term adverse effects.

Might a Government 'Statement on Productivity' help increase public understanding of the problem (ie what productivity means, and why it is important to the economy and to the public sector)?

Some of the requirements for competition policy are likely to be 'mind numbing' initially to persons without a background in the area or knowledge of the complex jargon.

'For the record, the extension of the Trade Practices Act and the requirements for legislative review are not one and the same. This has been the cause of some confusion over recent months ... Essentially the extension of the restrictive trade practices provisions of the TPA to all business activities means that the business undertakings of Government departments .... will in future be subject to Part IV of the Act (ie the section of the act dealing with restrictive trade practices such as price fixing, market sharing and anti-competitive exclusive dealings). However the TPA does not cover the full range of measures that could be described as restricting competition. For example, the TPA does not prevent the establishment of legislated monopolies for public utilities .... or for the regulated marketing of certain agricultural commodities (such as sugar). Nor does it prevent the enactment of other regulatory measures that might affect competition, such as occupational licensing, production control (quota) schemes, mandatory quality or technical standards and the imposition of restrictions on business conduct (such as restrictions on hours of operation'. [Such informative explanations (NCP News Edition #3) are clear to persons involved full time with NCP issues who know the jargon, but challenging to those for whom NCP is only 5% of their job, and for whom the explanations are intended. Might staff be motivated to make the effort, by increased understanding of the benefits?]

Competition is not the primary goal in any sector - rather actually 'doing their job' is. If a 'uni-dimensional' competition-oriented approach were taken to reform, this could be seen by affected entities as being opposed to, rather than consistent with, 'doing their real job'.

For example, the Australian Gas Association indicated this concern about developments to date in the gas sector at the above national conference - ie that competition seemed to be the sole concern of regulators whereas the firms affected had to deal with: gaining market share; satisfying customer requirements; safety; etc. [Though many industry concerns are not the responsibility of regulators some are (eg safety). A uni-dimensional approach to reform, could be inadequate in dealing with those broader requirements. Thus perhaps a regulator needs a range of skills appropriate to the function being regulated].

Competition policy must reduce total constraints on operational activities, because more autonomy to respond to customer requirements is the main source from which the increased productivity needed to succeed in a competitive environment can be gained.

However comments at the above conference about the electricity code suggest that procedures for system enhancement involve administrative 'planning' rather than creating scope for initiative, and are considered commercially impractical. Likewise complex controls appear to be emerging in other areas to ensure that there is 'competition', though the objective of seeking competitive market mechanisms is to replace the need for such external monitoring and control with commercial disciplines (ie does it pay?). [Such problems arise (perhaps) because some persons involved in implementation are unfamiliar with the working of a market economy, and still think in terms of administrative processes. This might be addresses by training]

Competition policy should not adversely affect social or other goals. There is a NCP requirement for non-economic issues to be considered, but meeting that requirement is only possible if agencies maintain a strong ability to do so (eg have the motivation and ability to actually do a public benefit test or calculate a CSO).

Social problems have accompanied a strong deregulatory approach in other countries; and agencies in some governments have become less able to focus on the non-economic responsibilities of government while emphasising the skills needed to promote competition. Also while a public benefit test is to be applied to specific competition issues, the side-effects of competition policy as a whole have not been evaluated [Could this be addressed by considering government's ability to perform its non-economic roles with NCP?]

Extensive change is needed in many organisations to give effect to competition policy. Methods for achieving this need to be reliable.

The example of CSIRO over the past decade illustrates difficulties which can arise from poor methods for commercialisation (eg changing structures / management and seeking to force commercial outcomes, rather than providing the autonomy and incentive for them to emerge from customer demands in self regulating manner).

Entities subjected to competition must actually gain the ability to succeed in a competitive environment. There is a gap between the incentive to compete, and the capability to do so. This issue relates to the State Economic Development Strategy.

In other countries major adjustments have had to be made by enterprises newly subject to competition (eg in electricity sector). Such adjustments include (say) emphasising innovation to increase competitiveness - which Queensland's economy has had limited capability to support. Despite this, Queensland's public corporations will in future be subjected to competition by entities from stronger economic environments. There are also constraints on corporatised entities (eg FOI) which might not be removed by competitive neutrality. Competitiveness is more difficult to ensure in the international environment. NCP was designed to create integrated national markets, and did not evaluate whether these would be successful parts of global markets, some of which (eg in East Asia) operate on very different principles. [Such issues could be considered].

Competition policy appears to have a life of its own, which makes it difficult to assess and act on concerns such as those outlined above, some of which are very complex.

Overall NCP seems risky. NCP is driven by a national agreement with deadlines, and is linked to the funding given to states. However there are significant side issues, which were not considered in forming that agreement. Also guidelines for NCP implementation (eg for competitive neutrality) seem to be emerging from received interstate / international wisdom and local theory, and to be being applied across the board rather than given practical tests.

The national process for undertaking NCP appears to distort Queensland's ability to be straightforward in its approach to this subject.

In particular, the National Competition Council (intended as an adviser to CoAG) appears to want a much stronger role, thus leading to difficulty for Queensland in clearly stating goals for competition policy.

There is a public administration literature which suggests that implementation is the major problem with any policy.

One classic analysis of this was Implementation: How Great Expectations in Washington are Dashed in Oakland (Pressman and Wildarvsky, 1973). In this it was suggested that: if there is a complex of different reform programs each becomes an obstacle to achieving the others; and that grass roots staff who face a difficult environment simply do whatever makes sense locally (and cannot be made to do anything else). [The relationship between various different reform pressures on agencies could be considered].

5/9/96