At one level it’s not surprising that the pro-business think tank, the Centre for Independent Studies (the CIS) would be opposed to Rudd government laws, which come into force on 24 July, to allow courts to send business people convicted of operating cartels to be sent to jail. After all, the CIS board includes some of Australia’s biggest corporate names such as Macquarie’s Nicholas Moore, Michael Chaney, Allco Equity’s Peter Yates and Lucy Turnbull.

But isn’t the CIS the advocate for free and open markets? If it is, why is it publishing a paper last month by Visiting Fellow Jason Soon — The Folly of Criminalising Cartels — that argues that cartels are not that bad anyway.

Cartels, of the type we saw in the Visy-Amcor case involving Dick Pratt are the antithesis of a free and open market. They involve businesses getting together to rip off consumers by lessening completion through price fixing. It is as simple as that. And those who participate knowingly in price fixing cartels can rightly be classed in the same category of criminal conduct as those who commit fraud or steal from their customers or clients. Cartel type conduct is rife in Australia. It is not only big business that indulges in the practice on occasions, but the medical profession and lawyers have been known to keep prices fixed.

According to Soon, cartels don’t last all that long, some research shows when they are broken up prices don’t drop much anyway, and if business fears they might go to jail for indulging in cartel behaviour it will have a chilling effect.

About the new jail term laws Soon writes: “ [I]t is not obvious that such laws can be justified given the costs of enforcing such laws, both in terms of the administrative, judicial and regulatory resources that they consume, and the increase in risk faced by businesses legitimately trying to compete and innovate and may erroneously become the target of such provisions. The latter may have significant flow-on effects, for instance, in distorting business conduct by ‘chilling’ competitive conduct or innovative cooperative agreements between firms that would otherwise capture efficiencies, especially given the increased penalties that the ACCC would be able to levy,” Soon argues.

Soon’s paper underestimates the problem of cartel type behaviour in a small economy like Australia, where there are often a limited number of market participants. In the past eight months there have been no less than 13 cartel cases in which decisions have been handed down in the Federal Court. Industries like air travel, soft drinks and taxis have been involved. Obviously the ACCC does not win them all, but the amount of litigation is testament to a problem in our economy.

And Soon appears to be ignoring the long running cartel arrangements that exist for example in the medical profession in Australia. Australian medical consumers have little or no choice in the provision of medical services because medical colleges keep out competition from overseas, and from paramedical providers like nurses. The cost to the Australian taxpayer and consumer of these cosy arrangements runs into the billions.

Organisations like the CIS have been at the forefront over the years in backing tough measures to break the stranglehold of unions in the workplace, but in not backing strong laws to prevent anti-competitive conduct of the most sinister kind, they could rightly be accused of being just a touch hypocritical.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey