Friday, April 24, 2009

Does the Australian Labor Party hate competition?

"It acts that way.

The last Labor government merged the OTC with Telstra to create a dominant megaommunications company, merged Qantas with Australia Airlines to create a dominant mega-airline (specifically leglislating to block ACCC scrutiny) and began the process of privatising the Commonwealth Bank (think how much more interest-rate competition we would have now if the Commonwealth Bank had remained outside of the NAB-ANZ-Westpac cartel).

This Labor government seems hell-bent on destroying what banking competition was left.

In recent months it has waved through takeovers by the cartel of St George, Bank West, Aussie and RAMS.

The head of the ACCC said the other day he would look dimly on future requests for bank mergers. Brave of him.  He'll lie down on a track to prevent the moping up now that the horses have bolted.

So what is the government doing to protect what little competition is left?...

Bugger all.  It's euthaniasing it.

1. The big four can raise as much money as they like, government-guaranteed. The smaller banks and non-banks can too - in theory. But the government threatens to charge them so much to do that none have taken up its "offer".

2. The big four also need to hold much less capital as backing for each mortgage, which as Stephen Bartholomeusz explains, "forces down their returns on equity relative to the majors and therefore forces up their cost of equity. So, their debt funding is more expensive, where they can raise it, and their equity is more expensive."

3. And now Rudd's getting together with the big four (only) in the RuddBank, to help Westpac-Commonwealth-ANZ-NAB out of tight spots.

Great for them; appalling for credit unions, the Bank of Queensland, Bendigo Bank and whatever competition is left, and as a result appalling for us - something the Rudd government would recognise if it understood the benefits of competition.

Here's a good idea (from Christopher Joye) - stop offering the big banks government guarantees and guarantee instead the underlying assets - mortgages and commercial loans - whichever institution takes them up.

It'd establish a level playing field. Surely Labor doesn't want the playing field tilted?  Surely Labor doesn't want to stifle the benefits of competion?  Surely Labor can see that there are benefits?

And guess what? Britain has just adopted the Joye model in this week's Budget. Britain has a Labor government - one that understands and welcomes the miracle of competition.

Ever the optimist, I'm looking forward to Australia's Budget.  Perhaps it'll prove my observations premature.