Nine-Fairfax deal
ACCC chair Rod Sims.

Australian Competition and Consumer Commission chairman Rod Sims

For three decades, Australia was home to one of the world’s most successful variations of neoliberal economics: a strongly performing economy with plenty of worker protections, universal health care, good education and high productivity growth. But in 2017, it came crashing down, felled not by populism, not by a resurgent left or trade union militancy, but by one of its key characteristics: the corporations whose interests are central to neoliberal economics simply don’t know when to stop in their exploitation of the communities in which they operate.

That’s the message from the Australian Competition and Consumer Commission’s report on retail electricity pricing released today. Policy failures don’t come much more spectacular than this:

“There is a severe electricity affordability problem across the [National Electricity Market] and the price increases over the past ten years are putting Australian businesses and consumers under unacceptable pressure. Retail electricity prices have significantly increased in the past decade, and many households cannot absorb these increases. An increasing number of consumers are reporting difficulties meeting their electricity costs, and some consumers have been forced to minimise their spending on other essential services, including food and health services … Businesses across all sectors have faced even higher increases over the past 12 months … Many of these businesses cannot pass the increased costs on and are considering reducing staff or relocating overseas. Some businesses have even been forced to close.”

For all the higher living standards delivered by thirty years of market economics in Australia, the remarkable failure of the NEM in its design and its regulation — a failure for which successive generations of politicians, regulators and judges must bear some responsibility — is causing massive and wholly unnecessary dislocation.

The NEM was the ultimate neoliberal construct — not in terms of political ideology (that honour belongs to Workchoices), but in terms of policymaking. The concepts of competition policy would be applied to the provision of a utility, with the monopoly aspects of that utility tightly regulated, and an elaborate market established for service provision to consumers and businesses. It was the most complex policymaking task ever undertaken, and took a number of years from the Keating government into the Howard government to bed down.

And they stuffed it up.

The core problem, according to the ACCC, is the lack of competition in a market where competition is supposed to drive efficiency. “We have found that there is insufficient competition in the generation and retail markets, which both raises prices and increases barriers to entry,” the ACCC concludes. “Between 2007–08 and 2015–16, increases in residential bills were primarily driven by higher network costs… The wholesale (generation) market is highly concentrated and this is likely to be contributing to higher wholesale electricity prices.” 

And vertical integration has made the lack of competition worse. The ACCC is particularly concerned about what it terms “the big three vertically integrated retailers, AGL, Origin and EnergyAustralia.” And as been observed for years, network operators have routinely, and usually successfully, appealed the decisions of the Australian Energy Regulator to increase their prices, adding billions to their bottom lines.

In short, instead of a market delivering efficiency and price competition for consumers and businesses, the NEM delivered a highly concentrated market in which dominant incumbents weren’t properly regulated and were given a free hand in behaving how they liked.

Sound familiar? The string of major bank scandals of recent years and the relentless profiteering of the big four banks reflected exactly the same outcome: a highly concentrated market that was poorly regulated, allowing incumbents to do what they liked.

The neoliberal mantra is always deregulate, deregulate, deregulate. Regulation is just the dead hand of government preventing the market from operating as efficiently as possible, red tape to burden businesses competing to deliver better, cheaper services to consumers. But electricity and banking demonstrate how false that can be. In key services like finance or utilities, where consumers don’t have a lot of options about withdrawing from the market, monopolies and oligopolies aren’t interested in delivering cheaper, better services, but in maximising their returns. A lack of effective regulation — whether because policymakers drew up poor, easily appealed regulation, or because the regulator is a dud, like ASIC — lets them gorge on their customers rather than serve them.

And investors like companies that behave like that. Warren Buffett famously likes to invest in companies that can dominate their markets, that are what he describes as being protected by a “moat” that deters competitors. “We think in terms of that moat and the ability to keep its width and its impossibility of being crossed as the primary criterion of a great business,” he once said. “And we tell our managers we want the moat widened every year.” 

This is an intrinsic feature of neoliberalism — companies will always seek to gouge more, to exploit their dominant position more, to widen their moats. They have no sense whatsoever of when, strategically, it might be a good idea to pull their heads in. There are always more markets to exploit, more assets to secure, more customers to gouge.

And eventually, there’s a backlash, one that comes as a huge shock to them, but which was always inevitable. Even after three decades of neoliberal economics, people don’t like being played for suckers.