Anyway - by way of fleeting distraction from the charged hiatus - a quick update on the world's most dynamic capitalist economy (as our treasurer and primeminister-in-waiting Peter Costello likes to characterise it). Australia's telecommunications (OneTel, the third largest telco in the country, collapsed three months ago), insurance (HIH, the country's biggest insurer, collapsed two months ago), and airline (Ansett, with 43% of the market, collapsed this week) sectors have all pretty well hit the wall (oh, and our biggest ore processor, Pasminco, collapsed this morning), our foreign debt is at $311 billion, twice what it was when the fiscally responsible free marketeers came in in '96, our household debt is up 80% on that year, growth has fallen in two years from 4% to 1%, and unemployment is headed for 8%. So, with that bit of background in mind ... let's see where our vaunted competition policy has, in ten short years, got us in sectors where the fixed-versus-marginal cost ratio is such as to recommend monopoly, and monopoly such as to recommend public ownership and control.
Cheers, Rob.
Ansett: the price of Canberra's competition policy is mounting By KENNETH DAVIDSON Saturday 15 September 2001
"The market is the regulatory apparatus that takes the place of the state - of authority. If the market fails, so does the case against government intervention." - J. K. Galbraith
In Australia, competition policy has become an end in itself. The Coalition regulates for competition, rather than using competition as an instrument of policy to enhance consumer welfare or the national interest.
The policy is attractive to politicians who wish to avoid responsibility for outcomes in industries such as telecommunications and transport, which had been accepted as a government responsibility by successive post-war administrations until 1990.
Competition policy has failed to deliver long-term benefits to telephone users or airline passengers, benefits that may have been available from more sensible regulation.
Supporters of privatisation and deregulation may argue the failure to deliver is caused by inappropriate, competition policies. But the larger question raised by the recent history of both industries is whether they are in some sense natural monopolies (because of technology in the case of telecommunications, and, in the case of civil aviation, the size and shape of the Australian market) requiring regulation to replace the discipline of the market.
The two-airline policy was introduced in the 1950s at the behest of Reg Ansett after he successfully introduced a cut-price operation on the highly profitable Sydney-Melbourne route. His "cherry-picking" undermined the second major airline's ability to cross-subsidise its extensive network of less profitable routes around the nation.
To avoid Ansett suffering the same fate of bankruptcy from another "cherry-picking" competitor, Reg Ansett persuaded the Menzies government to introduce the two-airline policy, which was enforced by the government banning competitive aircraft imports.
The ending of the two-airline policy, by the Hawke government in 1990, allowed a series of competitors (Compass Mark 1 and Mark 11, Impulse and Virgin) to again "cherry-pick" the profitable routes. Ansett management responded to the competition by hollowing out the business, in particular by postponing replacement of its ageing aircraft fleet. Lower fuel efficiency and higher maintenance costs eventually made the airline operationally uncompetitive. This was capped by a loss of market share - particularly in the profitable business sector - to Qantas when Ansett's disputes with the air safety regulatory authority over aircraft maintenance became public.
Ansett lost 7 per cent of its market share, and 10 per cent of its revenues, to Qantas and Impulse/Virgin. Because two-thirds of airline costs are fixed, irrespective of market share, Ansett was set the impossible task of cutting its variable cost by 30 per cent, which meant reduced service and further revenue loss - a fatal spin that helps explain the unbelievable losses in recent weeks.
Even in the much larger US market, "cherry-picking" is a problem. The established airlines have responded by casualisation of baggage, booking and security staff, to minimise overhead costs. This contributed to the virtual absence of effective security on domestic flights and therefore to the creation of the conditions that allowed the four aircraft to be hijacked by suicide squads on Tuesday with such apparent ease.
Virgin is sitting pretty. Providing it is not too greedy for market share, it can indefinitely appropriate some of Qantas' monopoly profits opened by the demise of Ansett - even if the Australian Competition and Consumer Commission denies Virgin's request to regulate against predatory pricing by Qantas.
Australian telephone charges have come down since the birth of Optus in the 1990s. But the driver of lower prices has been technology, not competition, and the fall in charges here since the advent of competition has been less than in other OECD countries. In 1990 Australia ranked 14th out of 22 OECD countries in the cost of a representative basket of business calls, compared to 24th out of 29 countries in the latest survey.
The culprit is wasteful competition, which has placed an unnecessary burden on the nation's balance of payments and has undermined the efficiency of Australia's telecommunications equipment industry - as well as keeping charges higher than necessary.
Optus spent $12 billion rolling out a parallel, and largely redundant, network that provides no real competition. Because Optus must be kept alive as proof that competition works, Telstra managed to make a monopoly profit of $4.1 billion last year.
The cost of competition policy in telecommunications can be gauged from the fact that if Telstra had been maintained as a regulated monopoly, Australians could now be enjoying free local telephone calls without any diminution of service, with enhanced profits, and with a more stable and efficient equipment industry.
One way and another, Australians have paid a huge price for competition policy. They will continue to pay the price - which includes the level of overseas debt and the value of the $A as well as the more obvious costs to consumers, workers and investors - while these two strategic industries are regulated for the benefit of new entrants in the name of competition, rather than with the aim of providing an efficient service.
The cost of air travel will now increase.
Domestic civil aviation should be built around Qantas as a regulated monopoly in the larger context of a transport policy that takes into account the full possibilities of rail, supplemented by smaller specialist tourist, shuttle and regional airlines.
Even the competition true believers should be able to see the benefit of more frequent services on the main routes replacing the parallel scheduling that is the hallmark of the two-airline system.
Kenneth Davidson is a staff columnist. E-mail:dissent at iaa.com.au