HAS AUSTRALIA’S TRADE PRACTICES ACT BEEN WHITE-ANTED ??
The proposal of any new law or regulation of commerce which comes from this order [large corporations], ought always to be listened to with great precaution, and ought never to be adopted, till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it.
Adam Smith The Wealth of Nations, 1770 Book I Chapter XI
Its it important for all Australians and future Government Committees to understand the circumstances surrounding the repeal of Price Discrimination Laws in Australia, and to consider whether the repeal came as a result of sound economic policies for the benefit of the nation, or whether the so-called ‘Independent’ Committee was white-anted and policy was rorted to protect special interest groups, by enabling them to continue with their institutionalised policy of Price Discrimination, and to personally benefit a handful of powerful individuals – whom Adam Smith warned whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it
The Review of Price Discrimination Laws by the Independent Committee
Australia’s Price Discrimination Legislation, Section 49 of the Trade Practices Act did need an overhaul in 1995, as through a historical quirk, s49 only referred to Price Discrimination of ‘goods’ and not “services”.
In our view, in 1995 the “Independent Committee” should have amended section 49 of the Trade Practices Act to extent the prohibition on Price Discrimination to include “services” and not only “goods”, and it also should have strengthened the law as so it follow more closely the original Robinson-Patman Act.
American Price Discrimination Laws – how services were left out.
One of the first American Competition Laws was the Sherman Act 1890 however through the wording of the Act, it also was used as a ‘union buster’.
To prevent the unintended use of law to attack unions, The Clayton Act (15 U.S.C.A. § 12 et seq. [1914]) was enacted to exempt unions from the scope of antitrust laws by refusing to treat human labour as a commodity or an article of commerce. It famously declared;
“The labor of a human being is not a commodity or article of commerce”
Therefore the Clayton Act of 1914 and the later Robinson Patman Act 1936 had a prohibition on price discrimination in “commodities” only – and services where not included.
At the time of these acts were drafted, the most important “service” of the day that could given large corporations an unfair advantage was rail transport, however a separate law, the Interstate Commerce Act of 1887[1] prevented price discrimination in freight.
Therefore as US Price Discrimination Laws were drafted in the early 1900’s and as freight already had a separate law to prevent price discrimination, its authors could not have comprehended how the ‘services sector’ would dominate the economy at the end of century – and how price discrimination in services such as retail rents, and bank fees could have same or even more detrimental affects on competition as than price discrimination could have in just commodities.
Despite this - the term “commodities” in the Robinson Patman Act was later interpreted by the US Courts to exempt services, although ‘electricity’ was considered a commodity and not a service.
Australian Adaptation
As Australia’s section 49 was drafted to mirror US Price Discrimination Laws (although the Australian version was much watered down and weaker, and left out several important provisions) and as the Australian legislation was drafted in the early 1970’s, well before the growing importance of the services sector of the Australian economy, we assume that little thought was given to inclusion of ‘services’ in the legislation.
Therefore the wording of “commodity” in the American legislation was replaced with the wording of “goods” in the equivalent Australian Legislation. And therefore through an historical quirk, ‘services’ were exempt from Australia’s original price discrimination laws.
Bringing “Services” into Competition Laws
The fact that “services” were not included in the original US Price Discrimination Legislation has been recognised and overcome by state laws such the California Unfair Competition Law (UCL), better known as Section 17200 of the Business and Professions Code which extended the prohibition on price Discrimination from just ‘commodities’ to now include a prohibition on price discrimination for both ‘goods & services’.
The United Kingdom, and in all European countries, and also more recently Singapore - Price Discrimination was also extended to include both ‘goods’ and ‘services’.
Australian recognition that Services should not be exempt.
In the early 1980’s in Australia, there was a growing recognition, that the same laws that apply to ‘goods’ should be also be extended to ‘services’.
In, 1985 the Hawke Government, with Mr. Keating as Treasurer - held the infamous “Tax Summit”. At that time, sales tax was charged only on goods, and not on services. A White Paper on Tax Reform offered three options.
The famous “Option C”, was the preferred model favoured by Mr. Keating, which featured replacing the old sales tax, which applied to goods only, with a 12.5 per cent broad based tax on both goods and services.
However for political expediency the proposition was dropped, but the principle that services needed to be treated the same as goods in the economy was clearly recognised.
Bringing “Services” into Trade Practices Act
The 3 pricing strategy’s that large firms can use to reduce competition are; Exclusive Dealing, Re-sale Price Maintenance, and Price Discrimination. These were all outlawed in Australia by sections 47, 48 and 49 of the Trade Practices Act, but in the original Trade Practices Act all sections only applied to goods and not services.
It therefore was logical, that a review of the TPA in the mid 1990’s would extent prohibitions on anti-competitive conduct to ‘services’ exactly the same way as it applied to ‘goods’. To maintain such exclusion on services would have been illogical.
For ‘Resale Price Maintenance’ (Section 48) - section 96A was later added to TPA to extent the prohibition to include services, so today ‘Resale Price Maintenance’ is prohibited for both goods and services.
For ‘Exclusive Dealing’ (Section 47), the “Independent committee” recommended that Section 47 be extended to included services as well. This recommendation was accepted and today ‘Exclusive Dealing’ applies equally to both goods and services.
The non-Independence of the Committee Exposed
Then the “Independent Committee” then had to consider section 49 Price Discrimination.
It should have been a straight forward and simple change to introduce “services” into section 49, just as had been done for sections 47 and 48 - to make Price Discrimination illegal for both goods and services.
However, there was one potential problem - “services” could also apply to retail rents, and the head of the so-called “Independent committee” was Fred Hilmer – who at exactly the same time was also a director of the giant Westfield Corporation – the largest landlord in the country.
Therefore the ‘Independent Committee” was “independent” at all. With Fred Hilmer being a director of the largest landlord in the country and pocketing several hundred thousand a year from Westfield, in our view he clearly had a conflict of interests, as his recommendations had the potential to severely effect a company that he was a director of, from which he was pocketing several hundred thousand dollars in fees every year.
Westfield & Price Discrimination
Westfield are a corporation that earn billions through an entrenched policy of Price Discrimination of such massive proportions that it places small retailers at a competitive disadvantage. In any Westfield shopping centre some retailers may be paying a nett rent of only $100-$200 per 2– while their direct competitor’s may be paying $1,000 - $2,000 per m2.
If Section 49 was extended to included “services” to ensure equitable opportunities for all retailers and as so they were competing on a level playing field, increasing competition in the market to the benefit of consumers - it would have been a complete disaster for Westfield potentially costing them billions.
It also would have been a disaster for Woolworths/Coles who were the main beneficiaries of Westfield’s discriminatory low rents. These companies rely on small competitors being hopelessly handicapped as so they do not have the face the full competitive pressures of the market. A racket we estimate costs Australian consumers over $1.5 billion annually.
Therefore with a director of Westfield heading the committee, someone pocketing several hundred thousand a year from the biggest landlord in the country - the committees so called “Independence” was completely undermined and even possibly white-anted
Price Discrimination benefits large retailers – which “anchor” Westfields
Anti-Price Discrimination Legislation is an important legislation to keep a check on the power of large retailers; however it is in Westfield’s interests to ensure the long term viability of the large retailers that anchor each Westfield centre.
As is detailed in Frank Lowy’s autobiography;
“Lowy had compelling reason for wanting Myer to remain independent and financially strong………….the Myer group’s stores were an integral part of Westfield’s shopping centres.”[2]
If Myer could use Price Discrimination to force smaller competitors to pay a higher price for merchandise, Myer would remain financially strong, despite the inherent hopeless inefficiencies in the Myer business.
Westfield’s business model also relies on the dominance of a few major retailers - The Shopping Centre Council, (the propaganda arm of Westfield) stated in Submission to the Joint Select Senate Committee on the Retailing Sector in May 1999,
“Shopping centres are reliant on the customer traffic generated by the major stores and supermarkets and it is a fact of commercial life that without them, the shopping centre [Westfield’s business] simply won’t be as successful”[3]
Therefore in our view
it was clearly to Westfield’s benefit if competition laws could be distorted to
protect the major retailers and supermarkets – and this is exactly what the
repeal of section 49 would achieve.
If the prohibitions against Price Discrimination were lifted, major retailers would be able to shield themselves from competition from small retailers, and the major stores, the ones that “it’s a fact of commercial life that without Westfield simply won’t be as successful” through Price Discrimination would become invincible.
Australia becomes the only country in world history to repeal Price Discrimination Laws
Given the conflict of interests of some of the committee members, with the committee headed by a Westfield director it was little surprise as to what recommendations this Orwellian named “Independent Committee” came up with.
Rather than include ‘services’ into Price Discrimination laws, exactly as had been done elsewhere in the world, and exactly as had been done to sections 47 and 48 - or even leave section 49 unchanged – Westfield’s Fred Hilmer came up with a reason to recommend repealing the entire section altogether.
In the USA, their prohibition on price discrimination has often been called the “Magna Charta of Small Business” and the US High Courts have called price discrimination an “evil”. However at the recommendation of Westfield director Fred Hilmer - Australia’s prohibition on Price Discrimination section 49 was abolished by Prime Minister Paul Keating in The Competition Reform Act 1995.
Australia then became the only developed country in the world to repeal such important legislation to maintain the level playing field between large and small corporations. In Australia large corporations are now free to benefit from the rorted policies of Price Discrimination, and the equality of opportunity for small business was destroyed.
In our view Westfield’s Fred Hilmer’s final report sums up his ideological bias against small business which he stated;
“the Committee does not consider that competition policy should be distorted to provide special protection to any interest group, including small business, ……”
However competition policy was distorted to provide special protection to one interest group (that of Westfield, Woolworths/Coles Myer) – one of whom Hilmer had being pocketing several hundred thousand a year from - and Hilmer provided this group with special protection by allowing them to operate free from the restrictions of any effective Price Discrimination legislation.
In our view, to avoid criticism, Hilmer then argued that other sections of the Trade Practices Act were adequate to prevent the anti-competitive affects of Price Discrimination - but a decade of evidence has shown these ‘other sections’ as effective as an “ashtray on a motorbike” to prevent the anti-competitive affects and the harm to the nation from Price Discrimination.
In Australia today Price Discrimination is an entrenched policy which has titled the playing field in favour in big business, allowing them to destroy thousands of small businesses.
Effects of the Policy : Billions to Westfield, Woolworths & Coles – The Destruction of Thousands of Small Businesses
Since the introduction of Competition Act Reform Act 1995, which repealed section 49; throughout many industries we are seeing increasing concentration, with large, often inefficient corporations dominating – and small business in decline.
The trio of Westfield, Woolworths and Coles have continued to increased their market dominance, each company has increased their profits by billions, a small handful of individuals have been able to skim off the wealth of the nation, and consumers are paying higher prices through diminished competition, thousands of small family businesses have been wiped out, and the equitable opportunity for future generations of small business has been destroyed.
The Profits to Few Individuals
With the competitive pressures in the market reduced through price discrimination and small competitors being hopelessly handicapped, a handful of senior executives of the large corporations that have benefited from the repeal of section 49 have been able to award themselves millions.
It is estimated that from 2001-2006 at Coles just 3 executives and pocketed over $111 million[4], while at Woolworths, just one executive is estimated to have pocketed over $100 million during the same period.
Meanwhile employee wages have stagnated. Meanwhile a government study of small business shows 800,000 small businesses owe the Australian Tax Office nearly $6.7 billion in tax debt. [5]
The Cost to Consumers
Australia, the only developed country without Price Discrimination Laws, has seen Woolworths and Coles control 80% of the market, the world’s high concentration of market dominance from 2 firms – and their profit margins are between 2 to 3 times international averages. For Westfield retail rents in Australia are now 125% higher than the USA.
Every consumer is the nation is paying higher prices due to Keating and Hilmer’s elimination of Price Discrimination laws.
In the decade since the repeal of Price Discrimination Laws, Food inflation in Australia has been substantially higher in Australia than the USA, Canada and the UK.
Shielded from competition through Price Discrimination Woolworths/Coles have increased their profits so far above international averages that today Australian consumers pay over $1.5 billion extra annually for groceries. Due to Price Discrimination denying small business equality of opportunity, in the Australian retail market consumers suffer as the market has less innovation and diversity.
As Westfield have been able to increase retail rents forcing up occupancy costs to small retailers, everyday articles such as clothing are today 45% higher in Australia.
The policies of Westfield director Fred Hilmer by recommending the repeal of Anti-Price Discrimination laws, by has been an unmitigated disaster for the nation.
Personal Rewards to the Architects
Although the policy has been a disaster for the nation, a few individuals have profited handsomely.
Since leaving The Lodge, Mr. Keating has acted as a paid consultant to the Westfield group; his former office in Bligh Street re-opened as the new home of the Lowy Institute for International Policy (financed by Westfield chairman, Mr Lowy), former Keating international affairs adviser Allan Gyngell is now executive director of the Lowy Institute and former Keating adviser Michael Fullilove is its program director. Former senior Keating advisor Mark Ryan also now works for Westfield as a senior executive.
Professor Fred Himler has continued as a director of Westfield and has gone on to personally receive millions from the company.
All evidence indicates that statement attributed to Westfield’s Joint Chief operation officer in Kirella Pty Ltd v Hooper in the Federal Court of Australia – that;
“Westfield always looks after its friends”
certainly appears to be true.
A Stinking Kettle of Fish
These are the circumstances under which Australia became the only country in the world to repeal its Price Discrimination Laws – and they are as smelly as bucket of stinking fish heads – and these circumstances need to be fully understood by the next government committee that reviews the Trade Practices Act and scratches it’s head in confusion, wondering why Australia is the only developed economy in the world today without any specific price discrimination laws.
Back in 1770 when Adam Smith warned that such legislative changes may comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it – we must have had a crystal ball, as
Westfield are an organisation that have been exposed on many previous occasions as deceiving and oppressing the public.
Therefore as it was a Westfield director that recommended changes to our competition laws, the Australian public can rightfully ask;
Have our competition laws been amended based on sound economic policies for the benefit of all Australians – or were they white-anted for the benefit Westfield - and was Adam Smith right yet again ???
[1 http://www.historicaldocuments.com/InterstateCommerceAct.htm
[2]Margo, Jill. Frank Lowy: Pushing the Limits p193 Harper Collins Publishers 2001
[3]Shopping Centre Council Submission to the Joint Select Committee on the Retailing Sector May 1999 http://www.propertyoz.com.au/scca_old/advoc/subs/0599.pdf
[4]The Australian, 21st Sept 2006 ‘Coles Called to Account’ p.21
[5]http://www.bluestone.com.au/page.aspx?id=297