A newspaper article last week said Finance Minister Nicola Willis was looking closely at a recent report from the Organisation for Economic Cooperation and Development (OECD) titled ‘Revamping Competition in NZ”.
Nicola Willis
I took a look at the report and I could see clearly why. Its analysis of the problems we have regarding competition and its recommendations on what the country needs to do to improve the situation were clear and understandable.
The report said that our size and geographic remoteness made having competitive markets difficult. They referred to it as a ‘tyranny of size and distance’ and said that these two factors may reduce per capita GDP by up to 10 per cent. We can do nothing about geographic isolation and we can’t do much about our small size. We could increase our population but even if we doubled our population, we would still be a small country.
Given these two major ‘handicaps’, we need to make sure we are near the top of the performance list on most other criteria that are important for competition. But the OECD report shows clearly that we aren’t.
Peter Nicholl
Productivity level remains markedly below the OECD frontier, entering the New Zealand market often proves unprofitable for foreign firms, and many markets here are characterised by a limited number of large firms that face weak competitive pressures to innovate and to provide better services and lower prices to consumers.
Many sectors have unusually high profits, foreign investment screening is one of the most restrictive regimes in the OECD, small businesses face difficulties in winning government procurement contracts and non-tariff barriers such as product standards are widespread.
One issue the OECD report stressed that surprised me was ‘lobbying’. It said New Zealand was well away from international best practice when it came to regulating lobbying. It said allowing short cooling off periods between work in the public and private sectors and allowing widespread lobbying “does not foster a level playing field”. It also carries risks of excessive politicisation, nimbyism, inaction and regulatory capture. The area the OECD report identified as having the highest risks was in land use.
The Commerce Commission is good at making studies and writing reports and this report recommended it keeps doing these market studies. But it also recommends the commission adopt a strategy of gradual escalation of interventions including reducing barriers to entry and structural solutions such as the break-up of dominant players.
In a polite way, the OECD is saying doing studies and writing reports isn’t enough. The Commerce Commission has to start taking actions to make key sectors more competitive.
Other strong recommendations included considering a fast-track process for approving foreign building supplies, considering forcing some of the major fuel suppliers to divest some assets, eliminating land use rules that impact on competition and analysing the policy option of national or local divestiture in retail grocery.
There is a lot in this report on competition for Nicola Willis and Commerce Commission to study. Let’s hope they do more than just read it and actually start taking actions in sectors where competition is clearly lacking.
Foreign investment: Photo: Cottonbro pexels.com
