Which do you want, corporate profits or competition? Think carefully

by novellagabb

The argument over the possible break-up of Coles and Woolworths, as proposed by the Greens and backed by the Nationals (the latter on the basis they’d prefer farmers to overcharge consumers, not the supermarkets) is at the idiot fringe of a much bigger discussion to be had about our economy. That is: how invested are we in the power of large corporations to use their oligopolistic position to rip us off, and how much do we stand to lose if we establish break-up powers to impose competition where little currently exists?

In the first place, the focus on Coles and Woolies is misleading. There are two other supermarket chains: Metcash, which supplies and sponsors the IGA chain of independents, and the German giant Aldi. Woolies had annual sales in 2022-23 of $48 billion in its Australian supermarkets and food business, Coles had $40.5 billion, Metcash had around $9.7 billion through supermarkets and food, and Aldi, a private company, is estimated at around $12 billion. In other words, out of the roughly $110 billion in revenue, nearly 20% goes to Aldi and Metcash — but both have been conspicuous absentees from the discussion about price gouging and breaking up supermarket chains.

Nor does the bill proposed by the Greens address a key problem in supermarket price gouging: the role of multinational suppliers in deliberately pushing up prices to increase profits (the reverse of the farmer problem).

Let’s pull out even further: price gouging and lack of competition is of course not merely a supermarket problem but one that’s endemic across the economy. And divestiture powers are part of the solution, along with much tougher competition laws and better regulation. Prime Minister Albanese has wilfully mischaracterised divestiture powers as representative of “a command and control economy”, insisting “we’re not the old Soviet Union”. Divestiture powers, he said, amounted to “walk[ing] into Woolworths and Coles, which is a concentration of power, and say ‘you’re going to shut your business here’”.

That’s patently false, as Albanese surely knows. Divestiture powers are about forcing the divestment of assets, not destroying them. The Soviet Union quip is rubbish — the United States has had federal divestiture powers for well over a century, with the first power to break up trusts passing Congress in 1890. The Sherman Antitrust Act was crucial in President Teddy Roosevelt (a Republican), having grown tired of trying to regulate giant corporations, initiating trust-busting actions that would break up the likes of Standard Oil in 1911. The European Union also has a divestiture power for when companies abuse market power.

Why a one-time left-wing firebrand should not merely reject such basic tools of capitalist regulation but purposefully misrepresent them is a mystery, but perhaps the prime minister has a broader view of the economy than one focused merely on competition. Perhaps he’s thinking of who would be affected if we started breaking up companies that have exploited their market power to gouge consumers: superannuation funds and, therefore, consumers and workers.

Super funds are estimated to own around 38% of the Australian sharemarket (industry super funds holding up to 15-18%), most of which is concentrated in the top end of the ASX 200. That means our biggest funds like AustralianSuper, Hostplus, Aware, Just and Cbus are, along with the big retail funds, and foreign investment funds, on the share registers of big firms that have engaged in often egregious price gouging. So far, they’ve declined to use their ownership role to discourage corporations from abusing their market power to price gouge their own members.

Those funds are charged with operating in the best interests of their members. But what’s the best interest of a typical working member of a large industry super fund? The slightly higher retirement income they’ll enjoy courtesy of higher profits from large corporations abusing their power, or the lower prices and lower inflation they’ll enjoy if the Australian government got serious about competition? Good luck working that one out.

As a result of our superannuation system, workers are both victims and beneficiaries of the gouging behaviour of large corporations (taxpayers also benefit from higher company tax paid by more profitable companies) — a complication that hasn’t received any attention in the course of the railing against Coles and Woolworths. Perhaps large super funds can become more activist in reining in the abuse of market power of the companies they own so much of?

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