Australian Democrat Corporate Affairs and Accountability spokesperson Senator Andrew Murray responds to our item yesterday on the Government’s proposed new media cross ownership legislation:

One excellent way to help restrain the over-mighty is through strengthening the Trade Practices Act. Divestiture powers are sadly lacking in our law (apart from a restrained s81). The speech below (on 13 August 2003) gives the argument. Plus see the recommendations and arguments of the Senate Economics References Committee: The effectiveness of the Trade Practices Act 1974 in protecting small business March 2004. The Government even agreed with half of those recommendations – but still has failed to implement them.

Workplace, tax, corporations, finance and trade practices laws are the main laws affecting the functioning of the market and the regulation of the behaviour of corporations. In matters of competition and consumer interest, all over the world the law restrains great commercial power because of the known abuse of power that often accompanies it. When it comes to the size and behaviour of corporations, the Trade Practices Act 1974 is Australia’s prime protective device. Yet the act is weaker and deficient in its protective capabilities in comparison to countries like the United Kingdom and the United States.

The Democrats, Labor and the coalition have been of one mind in key areas of tax reform, such as the consolidation measures, and Corporations Law reform, such as the merger and takeover provisions. They have recognised that a dynamic, modern market economy means that the efficiency and competitiveness of the market should be facilitated and that mergers, acquisitions and takeovers should be made easier. The flip side of easing the market for mergers, takeovers and acquisitions is a need to ensure that the over mighty and abusive are properly constrained. I have said before that big business roars approval at the dynamism of the American market but fiercely condemns a major contributor to that dynamism – that is, the effects of antitrust or divestiture laws. We need those regulatory tools in Australia. Balanced divestiture laws are the corollary of balanced merger laws. We do not have effective divestiture laws. It is a strange and illogical policy that can prevent mergers to maintain effective competition but cannot require divestiture also to maintain effective competition.

Section 50 of the Trade Practices Act currently prohibits corporations from making acquisitions that would have the effect of substantially lessening competition. Divestiture can be ordered to remedy a breach of section 50. However, this provision is limited in scope. One limitation is the difficulty of applying it to creeping acquisitions. It is difficult to establish that a smaller, more recent acquisition finally tips the balance to create a substantial lessening of competition. Creeping acquisitions can allow large corporations to achieve a market size that might have been prohibited by the ACCC if those acquisitions had been aggregated into one purchase, which could therefore have fallen foul of the existing merger provisions in the Trade Practices Act.

In Australia, many markets are experiencing oligopolisation – a concentration of power in the hands of a small number of competitors. This is partly a natural result of economies of scale: the big get bigger and as they do they develop the ability to operate more cheaply and efficiently. Over time, the smaller players are forced out of the market. That is the way of the market, and it is valuable while it promotes efficiency, innovation and competition – but only up to a point. Eventually, the destruction of competitors results in the destruction of competition, or the predatory intimidation of competitors reduces effective competition. Where that has occurred or will occur, the state must intervene to save the market from eating itself…

The full text of the adjournment speech is available here.