The Albanese Labor government is commissioning an inquiry into the monopolisation of various Australian sectors amid concerns productivity and economic growth are dwindling.
At a joint press conference in Canberra on Aug. 23, Treasurer Jim Chalmers officially announced the inquiry along with Assistant Minister for Competition and Treasury Andrew Leigh.
“In order to own the future, we need to make our economy more productive, dynamic and more competitive,” Treasurer Chalmers said.
“We will undertake a review of competition policy settings that help build that more dynamic, more competitive economy that we need to deliver higher living standards for our people well into the future,” he said.
“The decade to 2020 was the worst for productivity growth in 60 years or so that we’ve measured it in this way. It is a big pressing challenge that will take some time to turn around. We give ourselves the best chance of making our economy more productive and more dynamic if we make it more competitive at the same time.”
Productivity in Decline
The productivity indicator to which Treasurer Chalmers is referring is labour productivity (LP), which measures the output produced per unit of labour unit. Essentially, on average, how many goods are produced by an individual worker per day or hour.Labour productivity rates over the past two decades have experienced a downward linear trend, declining from 2.25 in 2003 to 0.75 in 2023.
Multifactor productivity (MFP) which measures the output produced per unit of combined inputs of labour and capital has also experienced a linear decline, dropping from one in 2003 to -0.25 in 2023.
It is ideal that productivity growth across Australia is not just maintained but improved.
According to Treasury’s annual Intergenerational Report (IGR) in 2021, labour productivity accounted for over 80 percent of the improvement in national living standards over the past three decades.
The intergenerational report measures productivity growth in gross national income (GNI) per person as opposed to gross domestic product (GDP) as it is a stronger reflection of the ability of individuals to contribute to the workforce. GNI also accounts for the distribution of income across the population.
Anti-Competitive Industry Behaviour
Minister Leigh suggested Australia’s floundering productivity is the result of a concentration of market share amongst too few competitors in too many sectors.“Over the last couple of decades, we’ve seen a rise in market concentration. We’ve seen an increase in markets, the gap between cost and prices. We’ve seen a fall in the share of Australians that switch jobs and get the benefits in higher earnings that come from moving to a new job,” the minister said.
“We’ve seen a decline too in the startup rate, as measured by the number of employing small businesses that start up each year as a share of the total business sector. All of this suggests the Australian economy may have become less dynamic. And that indeed may be the reason why, as Jim just pointed out, the last decade was the lousiest decade of productivity growth that we’ve mentioned in the post-war era.”
There is evidence to suggest a gradual consolidation of concentrated market power in Australian industries over the past couple of decades.
A report compiled by Australian law firm Gilbert + Tobin showcased the number of mergers and acquisitions (M&A) deals in Australia reaching an all-time high in 2021.
M&A statistics are typically the best indicator of monopolisation because they usually constitute larger industry competitors usurping and absorbing smaller ones. Although the number of deals stabilised in 2022 during a period of economic downturn spurred by an inevitable increase in interest rates.
Figures also suggest that this is not specific to Australia and is part of a broader trend across the globe. In 2021, there were 57,948 M&A deals reported worldwide, a 115 percent increase from the 26,901 reported in 2001.
The erosion of market competition accelerated throughout COVID-19 when many brick-and-mortar, small to medium-sized enterprises (SMEs) were outgunned by their more established competitors who were able to operate at scale online and who did not need government grants.
These issues have been exacerbated by the Ukraine War, which has seen Australian petroleum giants Woodside Energy and Santos reap record profits, while in the mining sector, independent coal miner Whitehaven also saw large revenues due to a lack of competition as the number of new coal-fired power station openings slow down.
Treasurer Chalmers and Minister Leigh, in chairing the inquiry, will be joined by Daniel Wood, CEO of the Grattan Institute, a Melbourne-based think tank, as well as economist Rod Sims, who previously served as chair of the Australian Competition and Consumer Commission (ACCC.)
The inquiry is expected to yield reforms in the industry through the preservation of startups, incentivisation of potential market entrants and a productivity boost in a variety of sectors.
