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CHRIS FIELD[*]
Consumer policy is firmly in the spotlight in 2007. This year, the first comprehensive review of Australia’s consumer policy framework will be undertaken by the Productivity Commission.
The review is expected to consider the role of consumer advocacy.[1]
The Productivity Commission’s review closely follows a number of recent Australian developments in consumer advocacy and independent consumer research. Late last year the Victorian Government established a major new consumer advocacy centre, the Consumer Action Law Centre. Additionally, the Centre for Advanced Consumer Research, a scholarly research centre, was established by the Western Australian Government and the University of Western Australia.
It is in this context that debate within the Alternative Law Journal on matters of competition and consumer policy, and the role of consumer advocacy, is timely. This debate began with an article published in the Journal’s December 2006 edition by Andrea Sharam, in response to a report authored by me (and published by Consumer Affairs Victoria), Consumer Advocacy in Victoria, Research Paper No 7, March 2006 (‘the Report’).[2]
The Sharam article is critical of the Report in a number of respects. In particular, Sharam makes two significant criticisms: first, that the Report ignores certain consumer advocacy organisations; second, that the Report ignores critiques of neo-liberalism. Of these criticisms, the second by far occupies Sharam’s greatest attention. Accordingly, I will devote this short piece to responding to these two criticisms, focussing the bulk of my attention on the second.
The first criticism made by Sharam is that, in the Report’s history of consumer advocacy in Australia, it ‘inexplicably ignore[s]’ two organisations: the Energy Action Group (EAG) and the Centre for Urban Research and Action (CURA).[3] The Report sets out a brief history of consumer advocacy in Australia, including referring to a number of key consumer advocacy organisations. Sharam suggests that the Report is, first, selective in its literature review and, second, does not provide adequate reason for this (suggested) selectivity. I am in agreement with the first point, but not the second.
It is the case that the literature review for the Report, including the examination of consumer advocacy organisations, is selective. It is not true that the Report does not provide good reason for this.
In the Foreword to the Report (under the heading ‘An important note about the limitations of the Research Paper’) it is noted that:
The Research Paper has been prepared on request from the Director of Consumer Affairs Victoria. The budget for the Research Paper has allowed for a total of fifteen days’ work to be undertaken — inclusive of every aspect of the Research Paper. Given the complexity and scope of the topic, fifteen days of work is, in fact, a very limited amount of time. Accordingly, this report does not purport to be a definitive, nor even exhaustive, analysis of all the issues relevant to an account of consumer advocacy in Victoria … In preparing the Research Paper, I have applied a general rule that it is preferable to identify (and justify) what I consider to be the core issues for discussion and then examine these as comprehensively as possible within the obvious time constraints, rather than attempt to simply cast a less attentive eye to every conceivable aspect of the topic.[4]
Sharam does not bring the Alternative Law Journal reader’s attention to this critical caveat in the Report.
Of course, it could be argued that, while it was acceptable to undertake an examination of selected organisations (particularly on the basis that this was explained clearly to readers), the Report erred by selecting the wrong organisations. Is it ‘inexplicable’ that the Report failed to examine EAG and CURA as part of an examination of key Australian consumer advocacy organisations?
My view is that neither EAG nor CURA are key organisations in terms of the history of consumer advocacy in Australia, making their omission from the Report entirely explicable. My view is strongly supported by the only published comprehensive examination of consumer affairs of which I am aware, In the consumer interest: A selected history of consumer affairs in Australia 1945-2000.[5] As the title suggests, that book surveys consumer affairs and includes a chapter specifically examining the history of consumer advocacy in Australia. Neither that chapter, nor indeed any other part of the book, refers to either the EAG or CURA. By contrast, organisations examined in the Report are mentioned on a number of occasions in that publication. As a further contrast, a ‘Google’ search of CURA reveals 96 hits, of EAG, 482 hits and of the Australian Consumers’ Association (a key organisation examined in the Report), 78 500 hits.[6]
While Sharam indicates her association with Swinburne University (where CURA was formed), what is not disclosed to the reader is her involvement with the EAG, an organisation with which she was extensively involved, including as President.
It is possible that Sharam has inadvertently, through her own association, placed a level of importance on the role of these organisations in the development of Australian consumer advocacy that is not justified.
The second major criticism of the Report made by Sharam is that it fails to consider critiques of ‘neo-liberal’ frameworks. In fact, Sharam identifies a range of movements in her article including ‘old consumerism’, ‘new consumerism’ and ‘neo-liberalism’. ‘Old consumerism’, Sharam suggests, is based on a ‘social democratic view of citizenship’[7] and appears to be sceptical or unsupportive of deregulation, privatisation and competition. ‘Neo-liberalism’ is not explicitly defined, but Sharam associates it with the ‘radical right’ and appears to attach to it a commitment to privatisation, markets without regulatory controls, and removal of democratic accountability and citizenship rights.
‘New consumerism’, Sharam states, supports deregulation, privatisation, competitive markets and libertarian views generally. It diverges from ‘neo-liberalism’ on the understanding that ‘markets do not always serve customers as well as commentators such as Alan Moran from the Institute of Public Affairs would like us to believe’.[8] She appears also to locate ‘new consumerism’ alongside of ‘Third Way’ politics, perhaps best known as a description of the policy approach of the Blair Government, and a social phenomenon examined by academics such as Anthony Giddens.[9]
The Report does, as Sharam correctly identifies, strongly embrace the benefits of competitive markets for consumers and suggests that consumer advocates should advocate for competitive markets.[10] The Report also discusses however, that markets do not always serve the needs of consumers — markets can and do fail, and, by that failure, consumers can be harmed. In many cases it is appropriate to remedy those market failures by a range of interventions, including regulatory intervention.[11]
It is therefore surprising that Sharam suggests that ‘Field places himself in the current economic orthodoxy of neo-liberalism’ and, presumably, that the Report places consumer advocacy within a neo-liberal framework.[12] This conclusion seems at odds with Sharam’s own framework, where she distinguishes ‘new consumerism’ from ‘neo-liberalism’ on the basis that ‘new-consumerist’ accounts understand what ‘neo-liberals’ do not: that markets can fail.
The answer to why the Report does not undertake identification and rebuttal of theoretical neo-liberal critiques is simple — the Report does not represent a neo-liberal account of consumer advocacy. If it had, such an account may have been warranted. As it did not, Sharam’s criticism of the Report (and the central point to her article) is, by her own definition, misconceived.
As stated, the Report does reach the view that consumer advocates should argue for the benefits of competition and argues against the anti-competitive conduct that is harmful to consumers. Is it true that the Report fails to identify literature that contests that view?
The Report, in fact, notes the views of John Quiggan, perhaps Australia’s leading sceptic on the extent to which competition policy can be attributed to Australia’s unquestioned economic growth over the past fifteen years.[13] The Report also notes the work of Clive Hamilton, a well-known voice on questioning the link between greater economic wealth and happiness.[14] Once again, the Report makes it clear it is not intended to be an exhaustive compilation of the view of every writer on these issues.[15]
In her conclusion, Sharam sets out the central point of her article. She claims that:
The challenge for Field is to answer commentators such as Webber and Ernst who suggest that we should be concerned with recognising substantive as well as procedural rights, with ensuring that access rights are guaranteed and protected, with recognising collective as well as individual rights and responsibilities and locating strategic decision making within the domain of democratic accountability and public policy.[16]
To what extent are these issues, raised by commentators such as John Ernst and Michael Webber, problems for modern consumer advocacy, and more broadly, the argued benefits of competitive markets for consumers? Although such challenges were unnecessary to consider in the Report, a response to this central point of Sharam’s article seems necessary here. Accordingly, I will devote the remainder of the article to responding to the challenge issued by Sharam.
The ‘social-democratic’ critique of competition policy can largely be identified as containing four separate criticisms. First, scepticism about the benefits claimed for competition policy. Second, that competition policy distributes wealth unevenly, and in fact, makes the disadvantaged worse-off. Third, that competition policy (although here privatisation is most relevant) leads to a loss of accountability, and a removal of decision-making from traditional democratic frameworks. Fourth, that access rights in privatised and competitive markets are not guaranteed. I will examine each of these claims in turn.
Ernst and Webber suggest that ‘[c]ompetition — and its allegedly miraculous works — occupies a pivotal place in the political marketing of privatisation policy. Experience internationally shows that for the great bulk of consumers it remains a fiction’.[17]
Economic theory, however, tells us that competition is good for consumers.[18] The theory suggests that producers of goods and services, who compete vigorously among themselves, deliver the best price, quality and variety of goods and services for consumers. By contrast, markets characterised by a lack of competition result in higher prices for consumers, lower quality and less innovation. Former Chairman of the UK Office of Fair Trading John Vickers put it this way: ‘[c]ompetition is pro-consumer for the simple reason that rivalry among suppliers to serve consumers well is good for customers.’[19]
What evidence, however, do we have that competition is good for consumers? The benefit of competition to consumers can in part be evidenced by the fact that some businesses will lobby to be protected from competition. Do these businesses seek anti-competitive arrangements to benefit consumers? Or do they seek to avoid competition to increase their profit-taking at the expense of consumers?
These questions can be tested. In what has been described by the Financial Review as a ‘protectionist farce’, Australian pharmacists are given regulatory protection by the Commonwealth Government that prevents, among other things, geographical competition among pharmacists as well as competition from external providers, such as supermarkets.[20] So how do pharmacists perform in terms of price and service? Are the protections from competition they receive beneficial to consumers? In a 2004 survey undertaken by Choice magazine it was found that ‘the most expensive of each product in a supermarket was still cheaper than the cheapest pharmacy price for the same item’.[21] On quality of service, Choice magazine concluded that the ‘[a]dvice given in 58 out of the 87 pharmacies we visited was rated ‘poor’ by our experts.’[22] The survey found that only one time out of every five was quality of advice rated as ‘good’.
Indeed, in the context of consumer advocacy, it is for this reason that the Productivity Commission observed that:
it is the role of consumer advocates in providing a counterbalance to producer groups seeking to maintain anti-competitive arrangements that lead to higher prices, reduced service quality or less market innovation, that is most relevant.[23]
There is considerable reliable, independent empirical evidence that demonstrates the value of competition to consumers. In its 2005 report on the outcomes of Australian competition reform, the Productivity Commission set out a series of these benefits:
• National Competition Policy contributed to 13 years of uninterrupted output growth[24]
• a permanent 2.5 per cent increase in our Gross Domestic Product (GDP). This equates to an additional $20 billion for the Australian economy[25] and
• average real prices in the electricity sector, for example, have fallen by 19 per cent, in the telecommunications sector by 20 per cent, port charges fell by up to 50 per cent and milk by 5 per cent.[26]
The mid-1990s restructuring of the Victorian electricity industry saw electricity provision deregulated, the state-owned monopoly disaggregated and privatised, and the introduction of competition between the newly created private providers. The outcome of this restructuring process provides an opportunity to test the claims of writers such as Ernst and Webber, particularly as they were active commentators on the restructuring processes. Writing in 1996[27], Webber identified that the ‘ideology of competition and the market’ could work in ‘certain conditions’, but that
none of the ideologues who plague our newspapers and airwaves pay much attention to working out whether those conditions apply in the ‘markets’ for education, health, electricity, water, transport and the like. And, of course, the conditions do not apply [Emphasis added].[28]
In fact, the restructuring of the Victorian electricity industry has been beneficial. In 2006, a decade after the introduction of competition, evidence shows us that average prices for consumers have reduced, service standards have increased and product innovation (such as bundling of gas and electricity, affinity programs and ‘green’ power) has occurred.[29] More than half a million electricity customers in Victoria switched retailers in 2005/6, ‘providing competitive offers at a discount to the state government-regulated standing contract tariff, plus other benefits and customer inducements’.[30]
Competition creates economic efficiency, which in turn increases wealth in society, but it does not necessarily distribute it in a way that will accord with our collective notions of justice, fairness or opportunity. I agree with Sharam when she observes, ‘distribution of wealth is one of the most problematic philosophical areas the new consumerists need to deal with’.[31] Here, in my view, economic efficiency and social justice intersect. It is not enough to simply build prosperity; we should equally be concerned with the way that prosperity is distributed across all sections of society. In the words of noted law and economics scholar Michael Trebilcock:
For economists to claim that they are only concerned with maximising the total value of social resources, without being concerned about how gains in the value of social resources are to be distributed and whether these gains are in fact making the lives of individuals better … reflects a highly impoverished view of the world.[32]
It is for this reason that the Report extensively discusses the importance of distributive justice, measures to achieve redistribution and the difficulties in public policy decision-making of how and when to implement distributive policies to best balance distributive aspirations without distorting economic efficiency.[33]
Despite the importance of recognising the distributive effects of markets, those who criticise the distributive effects of competition policy generally fall into error in two significant ways.
First, in suggesting that the ‘most vulnerable and disadvantaged sectors of the community have been hit hardest’[34] is to suggest that competition policy actually worsens people’s position, and particularly so the vulnerable and disadvantaged. This view is simply not supported by the available evidence.[35] There is, of course, a fundamental difference between the suggestion that the poor and vulnerable benefit less than the wealthy, compared to the suggestion that the poor are worse-off under competition policy. In any event, there is evidence to suggest the even-sharing of gains brought about by enhanced productivity.[36]
Second, and perhaps more importantly, commentators who argue for distribution of wealth, but reject measures to create economic efficiency, ignore that economic efficiency creates, sustains and enhances the very prosperity they seek to redistribute. Again, in the words of Trebilcock:
theorists committed only to concepts of distributive justice … are largely engaging in idle chatter as long as the wealth creation function is simply assumed. Creating wealth is a necessary pre-condition to distributing it.[37]
Competition and economic efficiency are tools to create wealth. To abandon economic efficiency is to create less wealth and, therefore, have less capacity to direct resources to areas that make meaningful differences to addressing social inequality and opportunity, such as education, health care and tax relief.
Ernst and Webber suggest that ‘[s]ocial citizenship recognises substantive as well as procedural rights.’[38] They explain this to mean, ‘first and foremost’, that a ‘social citizenship approach’ would involve ‘public ownership of the natural monopoly elements of public utilities’,[39] and that ‘criteria about their future should be framed by notions of social as well as economic efficiency, and must consider the longer range public interest’.[40]
Decisions about these privatised entities, however,
are made against exactly these criteria. For example, the independent economic regulator of Victorian essential services, the Victorian Essential Services Commission, has a primary objective ‘to protect the long term interests of Victorian consumers with regard to the price, quality and reliability of essential services’[41] The Commission must further ‘ensure that users and consumers (including low-income and vulnerable consumers) benefit from the gains of competition and efficiency’[42]
In short, in response to Ernst and Webber, there is no reason why privately-owned monopolists, independently regulated, cannot accord both substantive and procedural rights.
Ernst and Webber also suggest ‘because social citizenship, in contrast to consumerism, recognises collective as well as individual rights and responsibilities, it firmly locates strategic decision-making on the utility industries firmly within the domain of democratic accountability and public policy.’[43]
Do the introduction of deregulation, privatisation and competition remove strategic decision-making from the domain of democratic accountability and public policy?
One of the leading scholars in this area, Graeme Hodge, has noted that following privatisation and ‘contractualisation’, ‘the accusation is often made that as far as citizens are concerned, accountability has decreased rather than improved’.[44] Indeed, privatisation means Government no longer directly supervises enterprises that were previously state-owned. Privatisation also means that other mechanisms, like Freedom of Information laws and administrative legal remedies may not be available. New mechanisms are created in their place, such as industry-ombudsman schemes, independent regulators and new remedies, such as industry-specific administrative appeals bodies. The outcome of this, Hodge argues, is that the accountability guardians change, not disappear. Indeed, Hodge finds that the changing of the guardians can in fact enhance accountability:
Looking at the empirical findings on accountability in a broader sense, my review of electricity privatisation in Victoria concluded that some dimensions of accountability have improved … the previous simple but soft mechanism of ministerial accountability was replaced with a more complex but stronger accountability system through the independent regulator.[45]
A final criticism of Ernst and Webber is that access to services, guaranteed in state-owned social citizenship models, are lost as ‘market forces expose the most vulnerable sections of the population to the chill winds of service access’.[46] Do citizens necessarily lose access rights to essential services as part of deregulation, privatisation and the introduction of competition?
An illustrative case study is provided by the deregulated, privatised and competitive Victorian electricity industry. The Victorian Government has recently introduced legislative amendment to provide capacity for consumers in financial hardship to remain connected to electricity and gas.[47] This right of access did not exist under the state-owned, monopoly provision of Victorian electricity (despite the fact consumers were disconnected from electricity because of their inability to pay). Indeed, this significant social justice initiative, enshrined as a citizenship right, has been created following the introduction of competition.
Sharam ends her article asking this question: ‘[H]ow should modern consumer advocacy also relate to democratic principles and practice, not just economic precepts?’[48]
The Report does not suggest that consumer advocacy should just focus on economic precepts — it identifies clearly that competition, and the economic efficiency it creates, are means, and not ends. Competition policy is a means to create better, more prosperous communities and to advance the interests of low-income and vulnerable consumers. Economic growth exists within a social and environmental context — it exists to serve not just the majority of Australians, but all of them.
Deregulation, privatisation and competition are public policy tools that are created by, and are accountable to, democratic institutions. In my view, modern consumer advocacy should reject a preoccupation with oppositional ideology or rhetoric based on political ‘fault-lines’[49] in favour of evidence-based public policy in the long-term interests of consumers.
Ultimately, I believe that social democracy, social cohesion and social justice are enhanced by economic success. At its most succinct, in the words of British Prime Minister Tony Blair, ‘…economic efficiency and social justice are not opposites but partners in progress.’[50]
[*] CHRIS FIELD is a member of the Economic Regulation Authority and Professor and Chair in Consumer Law and Policy at La Trobe University. The views in this article are his alone.
© 2007 Chris Field
[1] For a detailed discussion of the review see Chris Field, Current Issues in Consumer Law and Policy (2006).
[2] Andrea Sharam, ‘The future of consumer advocacy in Victoria: A reply to ‘Consumer Advocacy in Victoria’ (2006) 13(4) Alt LJ 221. The Report is available at <http://www.consumer.vic.gov.au/CA256902000FE154/Lookup/CAV-Publications_Reports_and_Guidelines/$file/consumer_advocacy.pdf> at 10 February 2007. I note that this article has been prepared by the author alone and, as such, does not necessarily reflect views held by Consumer Affairs Victoria on the issues discussed.
[3] Sharam, above n 2,221–2.
[4] Consumer Affairs Victoria, above n 2, v.
[5] Simon Smith (Ed), In the Consumer Interest: A selected history of consumer affairs in Australia 1945–2000 (2000).
[6] Undertaken on 19 January Australia, searching Google Australia.
[7] Sharam, above n 2, 222. Here Sharam notes that she is referring to terminology utilised by John Ernst, in particular, John Ernst, Whose Utility? The Social Impact of Public Utility Privatization and Regulation in Britain, (1994).
[8] Sharam, above n 2, 222.
[9] Anthony Giddens, The Third Way: The Renewal of Social Democracy (1998).
[10] Sharam, above n 2, 221.
[11] Consumer Affairs Victoria, above n 2, (eg) 1, 9, 10, 30, 31, 40 and 41.
[12] Sharam, above n 2, 225.
[13] Consumer Affairs Victoria, above n 2, footnote 37 and accompanying text.
[14] Ibid footnote 32 and accompanying text.
[15] Ibid, v.
[16] Sharam above n 2, 225.
[17] John Ernst and Michael Webber, ‘Ideology and Interests — Privatisation in Theory and Practice’ in Michael Webber with Mary Crooks (eds), Putting the People Last — Government, Services and Rights in Victoria (1996) 120.
[18] See, eg, Roger Waud and Anthony Hocking, Microeconomics (1986), 201–239.
[19] John Vickers, Economics for Consumer Policy, British Academy Keynes Lecture, 29 October 2003, 4 available at <http://www.oft.gov.uk/News/Speeches+and+articles/2003/spe04-03.htm> at 10 February 2007.
[20] Glenn Burge, ‘Pharmacists’ Deal a Protectionist Farce’, Financial Review, 22 November 2005, 70.
[21] See <http://www.choice.com.au/viewArticle.aspx?id=104436 & catld=100231 & tid=100008 & p=1> at 10 February 2007.
[22] Ibid.
[23] Productivity Commission, Review of National Competition Policy Reforms (February 2005) at 386. This report is available at <http://www.pc.gov.au/inquiry/ncp/finalreport/ncp.pdf> at 10 February 2007.
[24] Ibid, XVI.
[25] Ibid, XVIII.
[26] Ibid, XIX.
[27] Prior to there being virtually any empirical evidence to test the results of the restructuring in a considered way.
[28] Michael Webber, ‘Introduction’ in Michael Webber with Mary Crooks (eds), Putting the People Last – Government, Services and Rights in Victoria, (1996) VI.
[29] On average prices, see Productivity Commission, above n 23, XIX, on service standards, see the reports of service standards by the Victorian Essential Services Commission at <
http://www.esc.vic.gov.au/public/Energy/Regulation+and+Compliance/Performance+Reports/> and on innovation in products see Duncan Hughes, ‘Vic shines in electricity market’, Financial Review, 4 January 2007, 7.
[30] Hughes, above n 29, 7. The quote is that of the Victorian Essential Services Commission.
[31] Sharam, above n 2, 225.
[32] Michael Trebilcock ‘An Introduction to Law and Economics’ 23 MULR 157, 158.
[33] Consumer Affairs Victoria, above n 2 at (eg) 10, 31 and 41.
[34] Ernst and Webber, above n 17, 120.
[35] Dean Parham, ‘Productivity growth in Australia: Are we enjoying a miracle?’, Productivity Commission Staff Working Paper (2002) available at <http://www.pc.gov.au/research/swp/pgia/index.html> at 10 February 2007.
[36] Ibid, 20.
[37] Trebilcock above n 32, 158.
[38] Ernst and Webber, above n 17, 139.
[39] Ibid.
[40] Ibid.
[41] Essential Services Commission Act 2001, s 8(1). Certain Victorian essential services are now also regulated by the Australian Energy Regulator.
[42] Essential Services Commission Act 2001, s 8(2) (f).
[43] Ernst and Webber, above n 17, 139.
[44] Graeme Hodge, ‘Accountability in the privatised state — The changing of the guardians’, (2004) 29(1) Alt LJ 4.
[45] Ibid at 5 and 9.
[46] Ernst and Webber, above n 17, 120.
[47] These changes are set out in Essential Services Commission, Energy retailers’ financial hardship policies: Framework paper, (2006) at 3 available at <http://www.esc.vic.gov.au/NR/rdonlyers/00305964-314A-466D-91C5-8A572F229A69/0/EnergyRetailersFinancialHardshipPolicies.pdf> at 10 February 2007.
[48] Sharam, above n 2, 225.
[49] Ibid.
[50] Tony Blair, Speech to Labour Party Annual Conference, 26 September 2006 available at <http://www.labour.org.uk/index.php?id=news2005 & ux_news[id]=primeminister & cHash=7e84d2fbb8> at 10 February 2007.
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