Australia isn’t dominated by big businesses that gouge customers: Grattan report

 Some sectors, like supermarkets, are not 
natural monopolies, but have significant economies of scale. Sam Mooy/AAP

When we see excessive spikes in fuel prices, rapid annual increases in health insurance premiums, and a confusing array of electricity options to choose from, it is easy to conclude that big companies are using their market power to gouge their customers.

But the latest report from the Grattan Institute finds claims about Australia being dominated by oligopolies are overblown. Only about 15% of the economy is dominated by large firms.

In the “natural monopolies”, such as electricity distribution, a single firm typically serves the market. And where the largest firms enjoy strong scale advantages, such as in mobile telecoms, just a handful of options are available to consumers.

Then there are sectors where competition is constrained by regulation, such as banking and pharmacies. In such sectors, the largest four firms earn more than two-thirds of revenue, on average.

Australians have long been concerned about oligopoly power. But in the largest sectors with barriers to entry, markets are not much more concentrated in Australia than they are in other economies of a similar size. Supermarkets in Australia are the exception to this rule.

While the United States is less concentrated at a national level, much of this is explained by its larger population. In Florida, for example, a state with a population of 21 million, its sectors are typically just as concentrated as Australia’s, if not more so.

The report also finds no clear trend toward higher concentration in Australia, unlike the case in the US. The revenue of the top 100 Australian listed firms relative to GDP has changed little since the early 1990s.

While the market share of Australia’s big four banks increased through mergers and acquisitions, Coles’ and Woolworths’ dominance appears to be in decline with the rise of Aldi and Costco.

Whether high concentration in Australia is a problem depends on its impact on consumers. Our report finds that sectors with high barriers to entry are about 20% more profitable than sectors with no significant barriers, although there is plenty of variation.

The most profitable sectors include supermarkets, telecommunications (wireless and fixed-line), internet publishing, electricity distribution and transmission, airports and gambling. The banks’ profitability has fallen since the global financial crisis, while their cost of equity has risen due to increased risk.

In some regulated sectors, consumers could clearly do better. Banking regulations push up costs and can weigh heavily on smaller firms as well as on consumers. In the pharmacy sector, competition is directly restricted.

In natural monopoly sectors, where super-profits account for 10% of what consumers pay, on average, it’s also difficult to conclude that consumers benefit.

But less concentrated markets may not make consumers better off. Many profitable big firms must have lower costs than smaller ones; otherwise they would lose market share.

For example, average prices at Coles and Woolworths are lower than IGA, even while profits are higher: it seems that some of the large chains’ scale economies are passed on to consumers. Regulation that limits the size of the largest firms might reduce profits, but could push costs and prices up.

What can policymakers do to get better outcomes for consumers? In the natural monopolies, regulators need to get tougher. For example, they could start regulating prices at airports, rather than just monitoring them.

Across the economy, regulators should continue to focus on protecting competition and preventing the misuse of market power. Government should increase the penalties for cartels and other concerted practices.

Governments could help cut entry barriers, for example by harmonising product standards to reduce trade costs, or freeing up zoning to make it easy for competing supermarkets to expand. And they should make it easier for consumers to switch between providers and control their own data in sectors like banking and even social networks.

There is also much that can be done where retail competition is not working well, such as in superannuation and in retail electricity.

But overall, Australia’s oligopoly problem is a lot smaller than many believe. It’s also not getting worse; our competition policy and regulation is broadly working well.

This article was co-written by:
Image of Jim MinifieJim Minifie – [Productivity Growth Program Director, Grattan Institute];
Image of Cameron ChisholmCameron Chisholm – [Senior Associate, Productivity Growth, Grattan Institute]
Image of Lucy PercivalLucy Percival – [Associate, Grattan Institute]





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Why big projects like the Adani coal mine won’t transform regional Queensland

 Most of the jobs in regional Queensland’s 
mega projects are only temporary. AAP

Queensland election campaigns often focus on big projects for the regions, such as for roads, power plants and mines. But research suggests that mega projects, such as in gas and coal, have not transformed skills or improved employment prospects in regional Queensland.

Take away the temporary booms from construction and other short-term jobs, and employment growth overall is no better than before the global financial crisis. Certainly Queensland’s regions are no more resilient. Instead of these mega projects, what’s needed are new sources of economic value in knowledge, services, and technology.

Between 2010 and 2013 investment in coal mining surged 400% in the Bowen Basin. Further south, in the Surat Basin and at Gladstone, four international consortia spent more than A$70 billion fast-tracking a coal seam and liquid natural gas industry.

These projects fell far short of generating new skills and enduring businesses in the regions. Continuing dependence on resources and agriculture also creates its own vulnerabilities, as both are challenged by market and investment volatility, and increased climate risk.

Overall the focus on mega projects has weakened social and economic resilience in communities across Queensland. Resilience refers to the capacity of regional communities to handle risks and manage change. Resilient regions deepen and diversify their economies.

Megaproject sugar highs

Annual construction spending in the resources sector peaked at A$36.6 billion in Queensland in 2013-14, and has dropped by 70% since. Unemployment has doubled in Queensland’s northern, central and outback regions.

The impact is seen in Townsville, Rockhampton, and Gladstone, who are now pitching to become bases for “Fly In Fly Out” workers. Rather than drive their own local economic development, these cities are punting on the next big mining project.

Gladstone is already the pin-up of the construction boom-bust development model. The port city boasts a highly trained workforce in alumina and aluminium processing, cement, liquid natural gas and chemical manufacturing. Still, it waits on the next big mining construction boom.

What regional Queensland really needs is politicians to abandon short-term economic fixes, in favour of a sustainable long term vision. Policies would have greater impact if they focused on skills and enterprise training. Stronger regional collaboration to broker opportunities for smart businesses is essential.

Just north of Brisbane, Moreton Regional Council is showing the way by transforming a former industrial site into a university campus. Tertiary education will come to the fast growing region along with a research and technology park, creating the jobs of the future.

Regional Queensland can also learn from the European Commission’s “smart specialisation” structural assistance programs that help regions build knowledge-based competitive industries through strategic public funding and support for research and development etc.

By 2020, smart specialisation in Europe is expected to deliver 15,000 new products to market, 140,000 new startups and 350,000 new jobs.

Integral to the European strategy is strong collaboration between the research and university sectors, and regional industries. Strong cooperation between levels of government is key to the success. The industries are as varied as cheese manufacturing in Spain, new transport systems in Finland, and materials manufacturing in France.

The Europeans have found that changing business culture and boosting entrepreneurship are just as important to creating opportunity as large infrastructure projects.

What Queensland should do

Queensland should rethink its big projects for a big country approach. Regional jobs that depend on project investment without generating local income are not sustainable. Small business and community must be restored to centre stage in development strategy.

Small and medium businesses collectively account for more than 99% of all business in Queensland, and three times as many people work in the state’s A$20 billion manufacturing sector (169,000) as work directly in the resources sector (48,000).

But small and medium businesses lack the profile of the “big end of town”, and the large resources companies have been effective at selling the narrative that they are central to the A$300 billion Queensland economy.

The priority for developing Queensland’s regions should be investment that generates small business growth, local income, new skills and communities. Particular emphasis has to be given to attracting and retaining talented people.

The state government can best help regional Queensland by heeding the Productivity Commission’s call to help regional Australia adapt and exploit the opportunities of ever present change. This requires greater local initiative, making the most of competitive strengths, and training people to better engage with the world.

The global services sector is a $US47 trillion industry. For regional Queensland to tap into this sector will require skills in fields as diverse as big data, biotechnology, genetics, robotics, communications, and digital manufacturing.

A good start has been made in the Advance Queensland Regional Innovation Programs which have challenged regions to think outside the box, collaborate, and come up with their own strategies. It complements the federal government’s Building Better Regions Fund.

This approach challenges the current politically dominated top down model of regional development. It’s a vision for regional Queensland that extends beyond resources, agriculture, tourism and construction to the people themselves.

This article was written by:
Image of John Cole John Cole – [Executive Director, Institute for Resilient Regions, University of Southern Queensland]






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Explainer: what exactly is a living wage?

 The ACTU has launched a campaign to 
create a living wage. AAP

Australia’s national minimum wage should become a “living wage”, according to a new campaign from the Australian Council of Trade Unions (ACTU). But what exactly is a living wage?

In theory, a living wage is no different to a minimum wage. Both set a binding “floor” on wages, below which no employee can (legally) be paid. But in practice there are several differences between minimum and living wages, in their value, purpose, and adjustment.

A living wage is set higher than a minimum wage and may be “pegged” to (fixed as a percentage of) some other measure of living standards, such as average weekly earnings. This ensures that the living wage holds its relative value over time.

Essentially, while the minimum wage sets a bare minimum, the living wage aspires to be a socially acceptable minimum. Typically, this is seen as a level that keeps workers out of poverty.

But the point at which workers fall into poverty varies widely, due to differences in family responsibilities, and complex interactions between low wages and welfare payments. These factors necessarily affect how the level of the living wage would be set and adjusted.

The idea to shift to a living wage follows a string of bad news about pay. Many vulnerable workers have been denied their minimum entitlements by employers. Wage growth is so slow that even the Reserve Bank Governor has encouraged workers to demand pay increases. And workers are getting less of the national income, as capital owners increase their share.

Living vs. minimum wages

Australia’s national minimum wage is set each year by an expert panel of the Fair Work Commission (FWC). The panel receives submissions from a wide range of organisations and conducts research to inform its decisions.

Increases to the minimum wage are based on objectives enshrined in law. These refer to different factors, including business competitiveness, employment growth, and the needs of the low paid. There is no specific mention of poverty in the current objectives. Nor is there a fixed relationship with any other measure of living standards.

In other countries, minimum wages and living wages co-exist. In the United States, long periods can pass without increases in the federal minimum wage, as there is no mechanism for its regular adjustment. This has led many local governments to set their own mandatory living wage ordinances, above the federal (and state-level) minimum wages.

The situation is different in the United Kingdom, where the Low Pay Commissionrecommends a national minimum wage increase each year. Even there, the movement for a voluntary “real living wage” has strong support from employers.

If the ACTU plan became law, Australia’s living wage would differ from the US and UK models. It would replace, rather than complement, our national minimum wage, substantially raising the wage floor. This would require the FWC’s expert panel to have different wage-setting objectives, with its primary goal being to eliminate working poverty.

Would a living wage help the poor?

Regrettably, poverty is the reality for many of Australia’s lowest-paid workers. Some struggle to make ends meet and go without basic necessities, such as meals and heating – particularly those in single-income families.

Neither our current minimum wage, nor the proposed living wage, is a pure “anti-poverty” tool. This is because the poorest people do not have paid jobs – often due to serious socioeconomic disadvantage. A living wage only helps those who rely on paid work (their own or someone else’s) for an income.

The intention of a living wage is therefore not to eradicate all poverty, but to end poverty among those who work – “the working poor”.

This laudable ambition is complicated by differences in personal and family circumstances. A living wage cannot vary from person to person, yet low-paid workers are not all alike: some live alone, some have children, and many are in dual-income families.

Who should a living wage be set for? The income needed to prevent poverty is inevitably much higher for workers with families than for those who live alone.

The Social Policy Research Centre (SPRC) produces “budget standards” that show the minimum income required by different types of families to reach a healthy living standard. Their evidence has been widely used by the ACTU and other advocacy groups in submissions to the Fair Work Commission.

According to their analysis, an employed single adult currently needs A$597 per week (before tax, and including housing costs) to live healthily. A couple with two young children needs almost twice as much: A$1,173.

The national minimum wage is currently A$695 for a full-time worker. So, according to the SPRC’s research, that worker already earns enough for a healthy life if they live alone, but not nearly enough if they have a family. This highlights the difficulty of setting a single living wage that would universally prevent working poverty.

Families with children also receive other government assistance through targeted welfare payments. This further complicates the task of setting a living wage.

What are the alternatives?

There are other ways to tackle working poverty. In the US, an “earned income tax credit” reduces the taxes of low-paid workers, so their wages stretch further. Such a scheme has been recommended for Australia.

Another very different approach to welfare is a universal basic income (UBI). This would provide a guaranteed minimum income, regardless of whether someone works, and without eligibility tests like those behind Centrelink’s recent “robo-debt” debacle.

Supporters of UBI also see it as a solution to job losses caused by rapid automation.

Living wages and UBI are radically different ways of tackling poverty. Work remains vital for a living wage, but is optional for a UBI. A living wage would raise the value of paid work, but might make life harder for some jobseekers whose labour becomes more expensive. A UBI would provide income without work, which might encourage more people to drop out of the labour force altogether.

In pushing to “make work pay”, the ACTU is hoping to capture both the public imagination and, for workers, a larger slice of the economic pie.

This article was co-written by:
Image of Joshua HealyJoshua Healy – [Senior Research Fellow, Centre for Workplace Leadership, University of Melbourne]
Image of Andreas Pekarek Andreas Pekarek – [Lecturer in Management, University of Melbourne]





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Four things the Paradise Papers tell us about global business and political elites

 Trouble in paradise: Bermuda is at the 
centre of the Paradise Papers leak

The so-called Paradise Papers may sound familiar – leaked documents from a law firm that specialises in offshore services reveal how the global elite avoids paying taxes. Even the name has the same ring to it as last year’s Panama Papers expose. But the Paradise Papers are different, reflecting the complexity of the global offshore tax system.

Panama is generally considered among tax haven experts as one of the least reformed corners of the offshore world. International rules regarding tax evasion and avoidance are intended to help national governments to pursue their own offenders, but the Panama Papers revealed that the country was being used primarily by the business and political elites of countries like Russia, China and many more in Latin America and Asia; countries where the governments are closely linked to business and which are less likely to use tools provided by new international rules to pursue offenders. Hence, relatively few Americans or Europeans were caught in the Panama story. And Mossack Fonseca, the law firm at the centre of the leak has since been discredited.

The Paradise Papers reveal the goings on of the elites of the offshore world – this time in the supposedly highly-regulated havens of the Cayman Islands, Bermuda, Singapore and the like. All places that received a fairly clean bill of health during the OECD peer review process only a few years ago. The law firm at the centre of this new leak, Appleby, insiststhere is “no evidence of wrongdoing” in any of the revelations.

Nonetheless, the Paradise Papers will tell us a lot about the activities of business and political elites of well-regulated countries like the US and UK – implicating big multinationals such as Nike and Apple, and individuals including the British Queen.

Picture of Queen Elizabeth
The Queen’s private estate invested millions offshore. The Commonwealth, CC BY-NC-ND

1. Tax avoidance is a booming industry

Clearly, jurisdictions such as the Caymans Islands and Bermuda that levy no income tax, capital gains tax, VAT, sales, wealth or corporate tax, still attract a great deal of businesses. Why, for instance, has the Duchy of Lancaster, the Queen’s private portfolio, invested in two offshore funds, in Cayman and Bermuda? After all, the Queen pays tax only voluntarily.

A more charitable interpretation is that any big investor who is seeking to diversify their portfolio would inevitably end up using offshore funds. The papers show that about £10m (US$13m) of the Queen’s private money was invested offshore – a very small percentage of her wealth. There is nothing illegal about this but the ethics of it have been questioned.

Practically, the entire wealth investment industry – the industry that invests for the rich and the wealthy of our world – operates through the offshore world. And the reason why is simple. Each fund or transaction, or aeroplane or yacht, or whatever that one cares to register in the Caymans or Bermuda, is not subject to tax. And it’s hidden from public view.

2. Secrecy prevails through trusts

Despite a spate of new regulations, the Paradise Papers show that anyone who wishes to conceal their affairs from competitors, allies, governments or the public can still do so with great ease. And they can do so through the facilities of a “trust”, an archaic Anglo-Saxon instrument that serves as a foolproof shield from scrutiny.

We have learned, for instance, that Wilbur Ross, the US secretary of commerce, had commercial links to Vladimir Putin’s family, which operated through a system of linked trusts located in various offshore jurisdictions. I do not think that even the Mueller inquiry in the US into the Trump administration’s links with Russia could have pierced the veil of secrecy offered by offshore trusts.

But the leaked documents from law firm Appleby reveal that any complex business deals that would involve concealment and subterfuge would work their way through trusts. It is high time we do something about these trusts.

3. Highly complex tools are used

The Paradise Papers show how complex financial innovations such as the use of derivatives and financial swaps arrangements, can be used for tax avoidance. This is an area of avoidance that is normally not well understood and scantily studied.

New research colleagues and I are conducting, however, has found that cross-currency interest rate swaps are used pervasively in tax minimisation mechanisms. It is difficult to detect and involves a parent and subsidiary companies swapping a loan in one currency to another. This swaps the risks and the interest rate of the original currency for the subsidiary’s – a legitimate risk minimisation instrument. At the same time, this facilitates moving funds offshore to low tax jurisdictions.

4. The law needs to change

Many professional service firms operate through offshore jurisdictions. They all claim to be highly professional, following not only the letter, but also the spirit of the law.

But if these firms are not directly liable for the activities of their clients, the offshore world will continue to thrive. These firms take advantage of regulatory loopholes to arbitrate between different rules and jurisdictions in order to minimise taxation. The question is for how long such practices are going to be considered legitimate.

The Paradise Papers reveal how little the world really knows about the level of tax avoidance that takes place. UK citizens, for instance, can legally invest in offshore funds and set up companies in those havens. But they must reveal these holdings to the tax man. We do not know whether those named in the papers did, and we do not know whether the tax authorities will do something about those who did not. We only know that a lot is going through offshore. The Paradise Papers show that, despite promises of the opposite, opacity is still pervasive in the offshore world.

This article was written by:
Image of Ronen PalanRonen Palan – [Professor of International Politics, University of London]






Forcing the banks to hand over our credit history might help with a home loan but it has risk


New credit information-sharing rules promise to 
open up the consumer credit market to increased competition. Tracey Nearmy/AAP

The federal government will be forcing banks to hand over half their credit data ready for reporting by mid-2018 (with the remainder available in 2019).

It seems rather quaint in the age of big data that the big four banks have been able to hold onto their treasure troves of loan data for so long. This data reveals how reliable we are at repaying our loans. This information is gold to a lender.

For the government’s proposed legislation to work well, it would need to ensure effective regulatory systems are in place to protect our data and avoid more mortgage stress. To achieve this, lessons need to be learned from the US experience.

The new legislation on credit data promises to open up the consumer credit market to increased competition. This may in turn lead to cheaper loans.

Nimble competitors using new technologies could offer consumers innovative loan products at competitive interest rates. Non-traditional lenders could aggressively expand their market share at the expense of the banks. Consumers would seem to be the beneficiaries.

Lessons from the global financial crisis

Australia has long maintained one of the most restrictive credit reporting systems amongst OECD countries. Australia’s reporting system had only allowed credit reporting agencies such as Equifax and Dun and Bradstreet to report on consumers’ bad credit histories. These histories include things such as bankruptcies, and late loan and rental repayments.

The US system already has required reporting of the positive aspects of a consumer’s credit behaviour, including their timely loan repayments. This has enabled companies to develop statistical scoring models to estimate a consumer’s loan default risk with remarkable accuracy. Credit scoring became the cornerstone for underwriting decisions for consumer loans.

Unsurprisingly, this led to intense competition. With more accurate data, lenders no longer had to assume that low income consumers represented a higher risk of defaulting on their loans.

With customer loan histories being made available to competitors, low income consumers with a history of being reliable repayers were offered loans. As competition intensified, an ever-expanding sub-prime loan mortgage market developed. Shoddy loan practices became rife, setting the stage for the 2008 global financial crisis.

Australian households overall are already heavily in debt. Intense competition resulting from the proposed new legislation risks pushing households deeper into debt. Low income consumers risk becoming more vulnerable to falling into debt traps.

Partly in response to the global financial crisis, Australia introduced responsible lending obligations on lenders, which are designed to stop loans to consumers who lack the capacity to repay them. However, the US subprime experience showed that lenders became adept at dodging the rules, and regulators appeared to lack the will to enforce them. The regulators will need to be particularly vigilant to avoid this occurring in Australia.

Compelling the big banks to release loan histories to third parties, such as credit reporting agencies, raises further risks that need to be closely attended to. Lenders will either create their own credit scoring models from the data provided by the banks, or rely on the scores produced by credit reporting agencies.

A bad or inaccurate score will have serious implications for a consumer. They may either be refused loans, or only be offered interest rates that are higher than if their score had been accurate.

There needs to be effective systems in place to ensure consumers have ready access to their score, and that they be able to challenge any inaccuracies. Informational transparency should apply for the benefit of both lenders and consumers.

Yet another risk is that our personal loan information will be stolen by criminals. Earlier this year, credit rating agency Equifax was subjected to a cyber attack affecting over 143 million Americans and over 600,000 Brits. Australia’s largest credit reporting agency, Equifax Pty Ltd, is a wholly owned subsidiary of Equifax Inc.

The data breach is subjecting US and UK consumers to increased risks of identity fraud and targeted scams. Requiring the banks to release our loan data to third parties increases the risk of data breaches.

Increased competition can offer considerable benefits for consumers. However, overheated competition risks damaging the interests of individual consumers, and the economy as a whole.

Consumers also face the increased likelihood of data breaches. The federal government and its regulatory agencies will need to be highly alert to these dangers, and ever vigilant.

This article was written by:
Image of Justin MalbonJustin Malbon – [Professor of Law, Monash University]







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History says department stores will struggle in the future

 Once proud, department stores are   
just a shell of their former selves. Rousel Studios. 
Collection: Museum of Applied Arts and Sciences
 Explanations for the poor performance of Australian department stores vary broadly. They have focused on the challenges of online competitionweak consumer sentiment and the influx of international retailers.

A few years ago, it was poor service, botched online strategies, and a host of other operational and marketing issues. These critiques are valid, but they are also part of a much longer story.

Department stores began as retail innovators. They arose within a changing consumer environment distributing mass produced goods. The scale of their operations, and the breadth of their product ranges helped establish retail dominance. Bit by bit, their competitive advantage has eroded.

The latest results from Myer and David Jones don’t inspire confidence. Myer experienced an 80% drop in profits over the past year, while for David Jones it was 25%.

Myer chief executive Richard Umbers pointed to “heightened competition, subdued consumer sentiment and discount fatigue”.

David Jones chief executive John Dixon blamed the costs involved in turning around a business that he said had been “in a form of managed decline” prior to being acquired by the South African Woolworths company in 2014.

Changing cities

Department stores emerged in Britain and France in the 19th century. They introduced several new innovations, including set prices rather than allowing haggling, a move away from credit to cash sales, off-the rack clothing, improvements in stock control and a high turnover sales model.

In the second half of the century, large-scale, purpose-built stores that stocked goods meeting a full range of needs for the home, as well as ready-made clothing, were constructed in major cities across Europe, North America and Australasia. These included Harrods in London, Le Bon Marché in Paris, Macy’s and Alexander Turney Stewart’s “Marble Palace” in New York and David Jones in Australia.

These stores reached their height in the interwar years, and despite setbacks during the Great Depression and World War II, dominated consumer imaginations and urban skylines until the late-1950s.

Picture of Mark Foy's in Sydney
Mark Foy’s Limited, Sydney – the new ‘Piazza’ store at Liverpool, Castlereagh & Elizabeth Streets, circa 1930. Artist unknown, Caroline Simpson Library & Research Collection, Sydney Living Museums, Record No. 37955

Their retail preeminence was based on urban environments built around public transport. The rise of the automobile posed an existential threat. The great city stores that survived longest in Australia – David Jones, Myer and Grace Bros – were those that embraced suburban expansion through shopping centre development.

Firms that were once household names – Farmers, Anthony Hordern & Sons, Foy & Gibson, Buckley & Nunn and a host of others – have all disappeared.

However, by developing and taking tenancies in shopping centres – an innovation that sustained and prolonged their lifespan – department stores created a powerful competitor. With more efficient, specialist retailers serving as its departments, what is a shopping centre but a department store on a larger scale?

Until the 1970s, department stores were also able to buy customer loyalty by offering exclusive credit provisions. This occurred through store cards that customers could use to make purchases at that store and its branches.

The bankcard rollout, beginning in 1974, and the bank credit cards that followed, helped to democratise credit provision, freeing customers to shop wherever they liked.

Picture of Anthony Hordern and Sons department store
Exteriors of the Anthony Hordern and Sons department store, 1901-1938. State Library of New South Wales, ID No. IE1001822

Discounters and category killers

The next existential threat emerged from a retail innovation that took the United States by storm in the 1950s: discount department stores that used the self-service supermarket retail model to sell department store merchandise.

In Australia, Coles saw an expansion opportunity and launched Kmart in 1969. Myer, observing the impact of discount department stores on traditional department stores in the US, rolled out Target. Woolworths lagged, but introduced Big W in the mid-1970s.

Over time, these stores took a heavy toll on the sales of traditional department stores. Figures provided by Urbis show that in 1974, traditional department stores accounted for 27% of sales of department store-type merchandise such as home furnishings, apparel and cosmetics, with discount stores making just 2% of such sales. By 1991, the figures were 12% and 11% respectively.

Since then, both have had trouble competing, not only with each other, but with “category killers” that took the self-service model and applied it to specific categories of goods.

This allowed them to achieve efficiencies of scale and brand recognition, while providing deep product ranges, specialist service and cheap prices. Think Toys-R-Us, Rebel, Lincraft, The Good Guys, Harvey Norman, Freedom and Officeworks.

You can still buy toys in Myer, but who does? You can buy a fridge if are happy to pay a significant premium. This is niche retailing – a complete inversion of the mass-market retail principles that underscored the original department store business model.

International fast fashion is just the latest category killer for a product segment sold by department stores. If department stores lose fashion, they are gone. And the retailers they are competing with – Zara, H&M, Uniqlo and others – operate on a scale that eclipses national department store chains.

What’s next?

Department stores may well extend their lifespan. There are plenty of pundits offering solutions, both here and overseas.

Nevertheless, it’s likely Australia will see further market rationalisation. Three chains are likely to be left: David Jones or Myer at the top, Myer or Target in the middle, and Kmart at the bottom. This is not definitive – innovative management can turn around a brand within a few years as Guy Russo did with Kmart recently and Paul Simons did with Woolworths in the late-1980s.

But rationalisation will continue. Time has brought department stores back to the pack. The weakest will merge or fall.

This article was written by:
Image of Matthew BaileyMatthew Bailey – [Lecturer, Retail History, Macquarie University]






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Australian consumer law is failing beer drinkers

 Do you know where your beer comes from?

If you’ve bought a “foreign” beer lately you might have noticed it wasn’t actually brewed in the country associated with the brand. Instead, it may have been brewed “under supervision of” or “under license from” the original creator, often using “imported and local ingredients”.

Yet, the branding often emphasises the link to other countries and traditions, such as the famous “Anno 1366” on a bottle of Stella Artois. This means very little when it is brewed and bottled in Australia. In fact, such references can be rather misleading.

This is more than a little quibble about branding, as major ingredients like yeast and water taste differently in different places. Can beer truly taste the same when it is brewed in Australian instead of, for example, Germany, Belgium or Japan?

How do you know what you are buying?

When you buy beer in a shop, you can theoretically see where it has been brewed. But this is not always clear, and is often overwhelmed by branding.

For instance, some years ago I bought a carton of Asahi beer. The text “Japan’s No. 1 Beer” appeared prominently on the box, and at two different locations was written: “Imported by Asahi Premium Beverages a division of Independent Distillers (Aust) Pty Ltd”.

Taken together, these two statements will most likely lead an ordinary consumer to believe the beer in question was brewed in Japan. But a quick check of the Asahi website shows the company has breweries in numerous countries, including Thailand, Malaysia and China.

Once the box had been opened, the fine print on the bottles revealed that the beer was brewed in Thailand under licence from Asahi. So, yes, it was imported as the box promised. But not quite from the place I expected.

The problem is worse when it comes to ordering beers at a restaurant or pub. The likes of PeroniHeineken and Carlsberg are often listed as “imported beers”, even when they are brewed in Australia.

When the beer is on tap, where is the fine print to read?

What about consumer law?

In theory, Australian law contains several provisions that should resolve the issues described above. Most importantly Section 18 of the Australian Consumer Law states that a “person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.

And section 29 of the Australian Consumer Law seeks to tackle, among other things, situations where a person “make[s] a false or misleading representation concerning the place of origin of goods”.

In addition to these classical provisions, Australia’s Country of Origin Food Labelling Information Standard commenced in 2016. These are meant to give consumers more information about where products are manufactured and where the ingredients are sourced from.

But in practice, these rules don’t always work so well. And the country of origin labelling standards do not apply to restaurants and cafes.

I even lodged a complaint with the Australian Competition & Consumer Commission (ACCC) in relation to my Asahi experience. I argued that the labelling on the box was misleading and deceptive (Australian Consumer Law s. 18) and constitutes a misrepresentation under the Australian Consumer Law (section 29). The result? Nothing whatsoever.

What to do about it

It is of course possible to argue that the foreign beer brands that have their products brewed in Australia take sufficient steps to make their beer taste similar enough to the original product. And if the beer tastes the same to the average beer drinker, what is the big deal?

However, even if the taste is the same, the place of origin still matters. If you buy an expensive Swiss watch, surely it matters that it was made in Switzerland and not in China. Can’t we feel the same about beer?

On a practical level, the answer may be to only drink the beers of Australian brands as you essentially will be drinking Australian beer anyhow. But as far as the law goes, we need clearer guidance and stronger enforcement of consumer rights. To achieve that, those charged with enforcing our consumer rights may need more resources.

The difficulty is to design regulatory responses that actual help consumers make informed decisions, without unnecessarily burdening the industry.

One idea would be to insist on clearer labelling – such as a prominent standardised sticker – indicating when beer is brewed under license. This could be combined with requiring similar markings on drinks menus. Such an approach seems to fit nicely with the move towards a clearer Country of Origin Food Labelling Information Standard applied to food in some circumstances.

This article was written by:
Image of Dan Jerker B. SvantessonDan Jerker B. Svantesson – [Co-Director Centre for Commercial Law, Bond University]





This article is part of a syndicated news program via

What economics has to say about same-sex marriage

Image of a same sex couple If people want commodities like:  
love, company, doing tasks together, they are better off if marriage 
is permitted. David Crosling/AAP

Love and companionship make most people happy and generally represent two of the key reasons why couples marry.

In the economists’ view, love and companionship are a particular type of commodity: they cannot be purchased or traded on a market, but they can be produced by a household to generate happiness for its members.

There are potentially many other of these “household-produced” commodities, including raising children, preparing meals, caring for each other, and achieving economic stability.

The question is then how to produce these commodities more efficiently so that people are happier.

Efficiency in this case does not just mean “more”, but also “better quality” commodities. For instance, the happiness of a person is not just determined by the number of meals prepared and consumed, but also by their quality.

Economists look at marriage in this context. Examining the commodities marriage can produce helps us understand why people marry, how individuals sort each other into married couples, and what this means for society as a whole.

It turns out that economics does a pretty good job at explaining and predicting patterns in marriage that would otherwise appear irrational. For example economics can help explain why there is a difference between married and non-married people when it comes to if, and eventually how much, they want to work.

We marry because…

The fundamental economic view of marriage goes back to the theory of Nobel Laureate Gary Becker.

People can produce household commodities in some amount without necessarily having to marry. However, when people marry, they pool their resources together (the most important one being time) and can specialise in certain tasks. This allows them to produce more and better quality household commodities.

For instance, by sharing tasks such as shopping and cleaning, a married couple can produce better quality meals than two individuals that shop, clean and cook separately.

In principle, the same productivity gains could arise from a co-habitation or de facto relationship. However, in this case, the two people in the relationship would also have to set up contracts to figure out important arrangements like household finance and inheritance (among other things).

There also is some significant costs, not only in money but in time, in working all of this out. Whereas a marriage contract already embeds some of these aspects. That in itself is an efficiency gain associated with marriage over cohabitation or de facto relationship.

So, if people want the commodities we mentioned: love, company, doing tasks together, they are better off (i.e. happier) if marriage is permitted.

This whole framework doesn’t require people to be of the same or different sex. Heterosexual and homosexual couples will generate different patterns in terms of what commodities they produce. Still, marriage will generate some productivity and efficiency gains for couples, irrespective of their gender.

What economics has to say about the effect on the rest of society

From an economic perspective, the fact that same-sex marriage allows people to achieve some productivity and efficiency gains (which some of us might call happiness!) does not automatically mean that it should be established by law. For example, if same-sex marriage were to produce some negative effects on the rest of the society.

In this regard, the public debate has focused on how permitting same-sex marriage would (or would not) reduce overall marriage in society, increase divorce rates, or lessen the importance of having children in marriage.

In fact, there’s now a growing body of empirical research, published across various fields (from economics, to demography, sociology, and public policy), that estimates the impact of permitting same-sex marriage on marriage, abortion, and divorce rates (or couple stability).

A study in 2009, using US data, found no statistically significant adverse effect from allowing gay marriage. Another US study in 2014 found no evidence that allowing same-sex couples to marry reduces the opposite-sex marriage rate.

One more study indicated that same-sex couples experience levels of stability similar to heterosexual couples. That study also found that for couples (both same-sex and different-sex) living in a state with a ban against same-sex marriage there was an associated instability.

To some extent, findings from this line of research are still preliminary and have to be taken with caution. This is because same-sex marriage, even where permitted, has been introduced only recently. Therefore only a relatively short time span is available to observe its effects. So the jury is still out.

However, my own reading of the research produced so far is that there is generally little evidence of significant negative societal effects of same-sex marriage.

Going forward, as more data becomes available, empirical research will allow for a more refined assessment of the impact of same-sex marriage on society and the extent to which permitting same-sex marriage could (or not) weaken the social purpose of traditional marriage.

This article was written by:
Image of Fabrizio CarmignaniFabrizio Carmignani – [Professor, Griffith Business School, Griffith University]







This article is part of a syndicated news program via

5 House Buying Tips to Ensure You Don’t End up With a Lemon

home buying disasters

Buying a house is probably the biggest purchase you’ll ever make. This is one area of life where it is essential you make the right choice. With the Australian property market starting to cool as a combination of new regulations and moves by the banks edge out investors, now may be a great time for first-time homebuyers to enter the market. 

When looking for a new home, it’s easy to let your emotions take over and fall for a house because you love the way it looks. However, it’s vital you take some practical steps to ensure you won’t end up regretting the sale later.

1.   Location, Location, Location

guy trying to get a mobile signal

Houses in less desirable areas are a lot cheaper. It can be tempting to make your money stretch further by looking at houses in an area you wouldn’t normally consider if your budget was unlimited.

Take some time to really consider if you’ll be happy living in this area. It’s not much good buying your dream home if you’ll be uncomfortable walking around once the sun goes down because the crime rate is so high, or you don’t drive and you’re stuck somewhere with no public transportation.

Houses in sought after areas are also much easier to sell again later and are usually a better investment choice, even if the property itself isn’t perfect.

2. Look Beyond the Surface

Don’t allow yourself to be wowed by fancy furniture or appealing decoration. You can change these things easily. What you may not realise is that there’s a whole “staging” industry set up to make houses temporarily more attractive to buyers.

Instead, you should make sure that the house you’re considering has good “bones” – it’s structurally secure, in good condition, has a practical layout, decent-sized rooms, and potential for expansion or renovation which could increase the investment potential.

3. Follow an Inspection Checklist

While it’s perfectly natural for you to use your initial gut reaction when you first view a house, it’s important to arrange a second viewing and base your assessment on hard facts, rather than just picturing yourself in the Instagram-worthy kitchen.

Your checklist should include your basic criteria such as the number of bedrooms and parking requirements as well as things to check to get an idea if the building is in good structural condition. These might include:

  • Cracks in the foundation and walls
  • Signs of mould or damp
  • Spots on ceilings that may indicate leaks
  • Checking the taps and toilet work correctly

If there are any major red flags, you might want to discount the property or investigate further. If everything looks ok, it’s still worth investing in a professional building inspection to pick up anything you might have missed.

4. Arrange a Professional Building Inspection

professional home inspection

While you can spot some potential problems from your own inspection, it’s recommended to use the services of a professional building inspection company. Professionals are trained in finding issues that aren’t immediately obvious.

By using the services of a professional building inspector you can have peace of mind that you’re choosing a good investment, back out of a purchase before final sale, or use the findings of a report to negotiate a lower price or insist that any issues are resolved pre-sale.

Robert Woodward from Casey Building Inspections says, “When hiring a pre-purchase building inspector make sure they check for pest infestations, structural defects, plumbing leaks, mould and damp. These problems may be difficult and expensive to resolve in the future”.

5. Don’t Buy out of Desperation

Looking for the right house for a long time can be very frustrating. The temptation is to buy a house that you’re not really happy with, just because you’re fed up of searching. This is especially true in a booming housing market when prices are rising rapidly.

While it’s equally not the best idea to wait forever for the “perfect” house, don’t buy a house that doesn’t meet your needs, as you’re likely to end up regretting it.

Instead, you might want to look at tweaking your requirements or extending your search area. You should also make sure you have a good estate agent who really understands your needs – don’t rely on internet searches as you could miss out on some great properties that aren’t listed or aren’t coming up in your search filters.

Getting rid of plastic bags: a windfall for supermarkets but it won’t do much for the environment


Image of people carrying plastic bagsSelling these new bags at 15 cents 
 each effectively creates another revenue stream with nearly A$71 million in
gross profit. Paul Miller/AAP

Moves by major supermarkets to stop providing free plastic bags could earn these businesses more than A$1 million a year, but may only have a small impact on the environment.

Australia’s two supermarket giants, Woolworths and Coles, have announced that their stores will stop offering their regular plastic bags within 12 months. Instead, customers will be able to buy a more durable plastic bag at 15 cents apiece, or simply bring their own.

These bags are factored into the cost of doing business for these supermarkets. There are costs beyond just the bags themselves, such as the costs associated with sourcing and negotiating with packaging suppliers, procuring them, shipping and warehousing them, and distributing them to stores only to then give them away.

Supermarket margins are already feeling the strain of price deflation. These businesses are generally making less than 6c in the dollar, so the opportunity to phase out this cost certainly makes good business sense. The table below provides an estimate of current costs.

Estimated current costs

While retailers stand to pocket this saving, the switch to stronger, multi-use plastic bag brings with it its own costs. To begin with, the bags alone cost more (9c each) and also have associated procurement costs.

However, the new scheme will immediately reduce customers’ bag usage. Being optimistic, it would be reasonable to see an 80% decline in plastic bag use as shoppers actively search for alternatives to free bags.

Most shoppers will probably reuse the 15c bag, or look to other options like canvas bags, polyethylene bags or cardboard boxes. In turn, while the new re-usable bag may cost more than the thinner single-use bag, fewer will be used and therefore ordered. Retailers can expect to see a reduction in these packaging costs.

Estimated costs under new scheme

It’s estimated that Australian retailers give away 6 billion plastic bags each year. Woolworths alone say they provide 3.2 billion each year. Coles has not provided an estimate of bag use, but claim to process 21 million transactions each week. With fewer stores than Woolworths, I estimate that Coles may give away up to 2.7 billion bags annually.

With each bag costing almost 3c, retailers stand to save more than A$170 million a year in direct costs. Selling these new bags at 15c each effectively creates another revenue stream potentially adding up to A$71 million in gross profit (6c x 1.18 billion units).

It might not actually reduce bags

In 2013, Target reverted back to providing free plastic bags after three years of charging 10c per bag. Other than hardware retailer Bunnings, no other large retailer has initiated a voluntary ban on single-use plastic bags.

Some Australian state and federal governments have been pushing for single-use plastic bag ban for almost 10 years. South Australia was the first to ban plastic bags from supermarkets in 2009, followed by the ACT in 2010, Northern Territory in 2011 and Tasmania in 2012.

In 2016 the Queensland Government released a discussion paper on the proposed ban. It is predicted all states will fall into line by mid-2018.

The past impact of applying a charge to the use of plastic bags has provided positive, but mixed results. In Australia, Bunnings reported an 80% reduction after implementing a charge for plastic bags, while a 2008 trial undertaken in three Victorian regional towns by Coles, Woolworths and IGA resulted in a 79% reduction.

In 2002, Ireland applied a 15 pence (22c) charge to single-use plastic bags, claiming a 90% reduction within 6 months (this was before the transition to the euro currency in the same year). Then in 2007 it increased the charge to 22 euro cents (32c) in response to increased bag usage. Sadly, shoppers had become conditioned to the 15p charge and returned to their old habits.

The UK government likewise reported an 85% reduction in single-use plastic bags in the first 6 months after a 5p charge (8c) was implemented in 2015. Similar results have been reported in the US, with a 94% reduction in Los Angeles County from the introduction of a charge for bags.

In the above cases (excluding Australian examples), single-use bags were still available, however a levy was applied, creating revenue for governments to channel back into environmental programs. This model is not the planned approach for Australia, were all single-use bags will be replaced with either the heavy duty (>35 micron, LDPE) option at 15c or the “green” polyethylene bag.

Charging for bags has minimal impact on the environment

Unfortunately, introducing a charge for bags doesn’t help the environment in isolation. While plastic bags represent only about 2% of landfill, there is certainly sufficient scientific evidence that plastic bags do present risks to marine life and clog waterways.

However, simply charging for a plastic bag, without directing these funds into environmental programs, does not necessarily resolve the problem. Shoppers slowly return to old habits, governments and retailers stop educating consumers and re-usable bags soon make their way into water ways and landfill.

Some shoppers simply forget to bring re-usable bags with them. The UK Department for Environment, Food and Rural Affairs found that the average UK household had 40 plastic bags stashed away around the home. Also a South Australian parliamentary review found that only about 30% of shoppers actually recycled their re-usable bags.

In the US, studies indicated 40% of shoppers continued to use disposable bags, despite a 5 cent levy

Moving to a reusable option also doesn’t stop people discarding these new bags either. Another US study found many people still threw away reusable bags.

Ultimately, “banning the bag” is only the beginning. Retailers will need to remedy customer complaints as the phasing out of plastic bags begins.

Like UK retailers, Australian supermarkets could choose to funnel some of the profits derived from the 15c reusable bag into community programs or environmental groups. Australian governments will also need fund ongoing education campaigns to draw attention to bans, alternatives and outcomes.

This article was written by:
Image of Gary MortimerGary Mortimer – [Associate Professor, Queensland University of Technology]






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