Friday, April 15, 2011

The Rule of Law

I don't know why I read the columns of Henry Ergas in the Oz, because I know they will just make me cranky.

Today he opines that what we need from regulators is "rules, not roulettes".

He lost me though in the rest of that para when he says;

Nowhere is that need greater than at the Australian Competition & Consumer Commission. With Graeme Samuel's departure, it's time to bring to the ACCC disciplines the Rule of Law Association of Australia has long called for. (emphasis added)

The Rule of Law Association of Australia which also calls itself an Institute) was founded in September 2009! I've never thought nineteen months "long" especially in policy terms.

Strangely his first complaint is that the ACCC under Graeme Samuel hasn't been a particularly active litigant. He dismisses the ACCC argument about the way judicial interpretation has hamstrung the operation of the act by citing cases that were mostly determined before the relevant High Court decisions.

He criticises the ACCC over the delays in the A&R/Borders merger saying " the ACCC initially claiming those booksellers, since destroyed by internet shopping, faced little competitive constraint." As I've written previously the ACCC actually erred in permitting the takeover because the Borders business model was "category killer" which is another word for "monopolising". Competition in bookselling would have been stronger letting Borders fail than by letting A&R buy it.

{One could go on a diversion about the ACCC decision to block the Foxtel acquisition of Australis, the latter then collapsed, the outcome was probably better than the merger as the assets of Australia then got distributed between Foxtel, Austar, Optus and TARBS).

The criticism though of Samuel that follows has nothing to do with the "rule of law". He is actually criticised for his role as a "policy player" - where he goes along with policies that Ergas happens to disagree with (FuelWatch, GroceryWatch, the NBN). And here there is a really interesting distinction - because I guess if Samuel was opposing policies that Ergas agreed with he'd be criticised for straying from the "regulator" box.

The ACCC is subject to the rule of law, all decisions are reviewable under the provisions of the ADJR and a large subset fall into the Australian Competition Tribunal.

There are, however, many problems with the law Samuel is responsible for. Misleading and deceptive conduct is one classic area where the concept of a "reasonable man" is at the fore and one judge recently concluded that something in advertising is unlikely to be misleading because the customer is required to enter into a one year agreement and a reasonable person would read that agreement.

(at para 19
It also needs to be remembered that ordinary and reasonable consumers, who might be expected to take some care of their own interests, are likely to do more than simply rely upon these particular television commercials in deciding whether or not to sign up to the respondent’s plan. These types of plans typically involve a contractual commitment of a year or more in duration and are invariably the subject of terms and conditions which relate to matters of detail of the kind that the applicant’s complaints focus upon.

The concept of "competition" in competition law depends on a judicial interpretation that is the complete opposite of the concept in economics, it thinks of competition as rivalry between firms rather than for customers. As more like tennis than golf. The definition specifically allows for the kind of "strategic interaction" assumed away in the theory of competition in the orthodox mindset.

The problem with competition law is the law, not its implementation.

That said I mostly agree with Ergas' conclusion;

Rather, we need effective checks and balances, including chairs appointed for a single term only, consistent disclosure of financial interests, more stringent parliamentary scrutiny, periodic Productivity Commission audits, and merits review of major decisions.

That there are important choices Australians would rather vest in independent regulators than in politicians is fully understandable. But the trend to government by the unelected is itself fraught with dangers.

Unaddressed, those dangers could lead all too readily to the rule not of laws but of political convenience. Leaving our regulators unregulated should no longer be an option.

But this was a ball the Howard Government badly dropped in the Uhrig review that lumped regulators in with other agencies in consideration of governance. Hence when the ACMA was formed the debate was whether it was governed by the CAC Act or the FMA Act. What is missing is the "Independent Regulators Act" that establishes all the principles that Ergas refers to (though I might use someone other than the PC - technically the Commonwealth Ombudsman brief is better suited to oversight of administrative action).

Novae Meridianae Demetae Dexter delenda est

No comments: