Australians have become less competitive – and we’re paying the price

BY Millie Muroi

 

Australians have long been accused of “tall poppy syndrome”: a tendency to cut down people who are “too” successful – especially if they’re being overly loud and obnoxious about it.

It’s not completely a bad thing. The concept reflects values such as equality, humility and the “fair go” – the idea that everyone deserves an equal opportunity to succeed regardless of their background or who they are.

But it can also be stifling, discouraging people from being ambitious, pursuing innovation and working as hard as they might otherwise like to.

It’s something most Australians have probably experienced in their day-to-day lives, but it’s also reflected in our economy and in our politics.

Our leaders, especially over the past few decades, have lacked ambition. And because of this, our economic system (including many of the laws, tax settings and incentives shaping our behaviour) have stayed stuck – or changed only in very small, politically safe ways.

This hasn’t always been the case, though.

Some of the most ambitious economic reform happened in the 1980s and early 1990s before I was born (I wasn’t writing commentary back then, so I’m not sure what I did to scare our lawmakers as we entered the 21st century).

After a period of mediocre economic growth, the Hawke-Keating government kicked into gear with a raft of changes widely credited with getting the economy growing faster.

They slashed tariffs, granted 23 new banking licences to break up the dominance of a handful of domestic banks, and offered financial incentives – known as National Competition Policy payments – to state and territories for getting on with reform aimed at boosting competition across the economy.

The latter was important because, as we continue to see today, state governments like to do their own thing.

Without a carrot being dangled in front of them, states tend to be too busy looking out for themselves. It’s part of the reason why competition policy recommendations in 2014 and 2015 under the “Hilmer review” weren’t as successful as the reforms in the 1980s and 1990s: there wasn’t a strong financial incentive to motivate the states.

Of course, some of the reforms in the 1980s and 1990s did more harm than good. Easing regulation on banks, for example, made those businesses more competitive, but also gave the banks more leeway to misbehave, which eventually led to scandals and the banking royal commission.

As we’ve seen, these periods of economic transformation often include mistakes.

But without taking risks, thinking more ambitiously and kindling our competitive drive – especially during periods of economic stagnation – Australia risks missing out on higher living standards and falling behind our peers.

The bad news is that we’ve already tumbled down the podium.

The Organisation for Economic Co-operation and Development in its most recent report says Australia was “formerly a leader among OECD countries in pro-competitive policies” but that it has “fallen behind with the last major reform effort being the successful implementation of its National Competition Policy.”

The message from the organisation is that Australia needs to pick up its game.

One of the biggest drags on Australia’s ranking against other countries is our licensing and permitting requirements, many of which are excessive and inconsistent across state borders, increasing barriers for people who want to set up shop or move around.

For instance, hairdressers across several Australian states need a certificate in hairdressing – which usually requires a three- to four-year apprenticeship – as well as a licence. In some states, a hairdressing business also needs to be licensed, meaning there are two layers of licensing to navigate.

And if that wasn’t enough, a Melbourne hairdresser hoping to cut hair in Sydney, for example, will need to meet specific NSW requirements before they can start lopping hair in the harbour city. Perhaps Sydneysiders are worried about walking out of the salon with an unexpected mullet?

By contrast, countries such as New Zealand and the United Kingdom have no mandatory licence for hairdressers. They instead rely on voluntary accreditation and consumer law. And countries such as the US often have less cumbersome rules, with most states only requiring hairdressers to train for nine to 12 months.

Whether Australians have better haircuts on average as a result is unclear. But it’s largely thanks to us failing to cut back on some of these regulatory requirements that we’ve slipped from a top five country to below average when it comes to making it easier for entrepreneurs to thrive.

Making it easier for people to work and set up businesses is important for boosting competition because it allows new workers and businesses to challenge existing ones, and to move to jobs and places they are better suited to.

This allows for the more productive firms to grow and the less productive to be pushed aside. That’s a good thing because it means our overall productivity (our ability to produce more with the same amount of resources, or produce the same amount with less resources) rises, pushing down the prices we pay and boosting our standard of living.

Without taking risks, thinking more ambitiously and kindling our competitive drive – especially during periods of economic stagnation – Australia risks missing out on higher living standards and falling behind our peers.

Over the past two decades, though, we’ve been seeing less movement. Instead of new firms coming in and challenging the big ones – which can become lazy when they’re not being pushed – we’ve seen a handful of giants dominating many of our sectors including supermarkets, banks and airlines. It’s no coincidence that a lot of these big businesses have been pocketing bigger profits as the pressure they face from newer firms has fallen.

To be fair, Australia faces some unique challenges because of its geographical distance from other countries and the fact that our population is so spread out.

Because we’re so far away from most countries, it’s expensive for overseas companies to sell their products here, meaning they often don’t bother. That means domestic companies don’t have to work as hard to keep their prices low and keep customers happy.

Having small populations spread out around the country also means that in many parts of Australia, it’s simply not possible to have many businesses competing (because none of them would have enough customers or make enough money to continue running).

The organisation’s report notes about 45 per cent of the gap in productivity between workers in Australia and the US is because of our geographic remoteness – both from other countries, and within our own country.

But these barriers also make it especially crucial for Australia to boost competition where possible.

To be fair, the Albanese government has taken some steps to boost competition including banning non-compete clauses (which restrict workers from quitting and moving to a rival) and introducing a $900 million National Productivity Fund to pay states that put in place productivity-boosting reform.

But the organisation flags plenty of other suggestions, including slashing some of the inconsistent licensing and permit processes, and giving the competition watchdog more teeth, strengthening its ability to investigate and gather data. That includes allowing the ACCC to launch its own inquiries into pricing rather than having to wait to be directed by the treasurer, and giving it the power to extract things like pricing information from businesses.

Back in 2005, the organisation praised Australia for creating a deep-seated “competition culture” and “serving as a model for other countries seeking to improve their economic performance”. While Australia may be hamstrung by natural barriers such as geographic distance – and perhaps some tall poppy syndrome – it hasn’t stopped us from hitting the global podium in the past. We know what to do: we just need to find our competitive streak.

https://www.smh.com.au/business/the-economy/australians-have-become-less-competitive-and-we-re-paying-the-price-20260122-p5nw33.html

 

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