This government takes a crush ’em and crate ’em approach to crime – unless that is, the offender happens to be wearing a tie. In which case, judging by the Ministry of Economic Development discussion paper on business cartels released yesterday, we need to be very, very worried about the Bill of Rights implications of unreasonable search and seizure, concerns that the government plainly does not see as mattering quite as much to its blue collar citizens. It is all very well, the document notes (at para 35) that ” some competition authorities, such as in the United States and Australia, can use covert surveillance to gather evidence about cartel activity (often in cooperation with law enforcement agencies).”
Here by contrast, our competition authorities allegedly don’t know how to do the same, and shouldn’t be asking the Police to help – because the Police are very, very busy. “The Commerce Commission does not currently have the specialised technical skills to undertake surveillance and would probably have to rely on the Police for assistance. This obviously leads to a trade-off with other Police priorities.” The recommended approach ? Wait for cartels to beg for leniency, and turn each other in.
Oh, and put your faith in the fact that many of the prospective white collar criminals involved have probably watched several seasons of the American TV series The Wire. That’s the only conclusion one can draw from the para 36-37 observations that in the US, informants have been ‘wired’ to gain evidence. Not that the Ministry thinks we should do the same. Deary me, no. What it expects instead is that offenders will know that it could happen, and will be so worried about it they’ll mend their ways. “The knowledge that covert surveillance can be used for investigation may however, alter cartelists’ assessments of the risks of prosecution, and so enhance deterrence.”
It is hard to know whether to laugh or to cry at this pathetic document. Cartel activity is predatory, price fixing collusion between companies that costs consumers big time, while reducing economic efficiency and performance. It rewards bad and lazy managers, and puts good ones at a comparative disadvantage. Here as elsewhere, the targets are not those companies that owe their market dominance to superior products or performance.
No, the real concerns with cartels are those firms that use market dominance to fix prices on captive consumers, to slow the uptake of new technologies, and to strangle and suppress healthy competition, for the sole benefit of their shareholders. Roughly, that’s what Telecom did in the 1990s – at major cost to consumers, business, and the entire country. A light handed approach to cartel behaviour will now put us offside with current best practice in Australia – where they take cartel detection and prosecution seriously – just when we are supposed to be pursuing a single Transtasman market.
In these circumstances, you’d think cartels would be a priority area for extra funding and wider powers of detection. But no – we’re doing fine thanks very much. Besides, it would cost money. Para 29 : “Increasing funding obviously has direct fiscal costs, or at least an opportunity cost if increased funding comes through re-prioritisation of other Government spending. The magnitude of the detection and deterrence effect of increased funding is uncertain as cartel enforcement is already a Commission priority. Increased funding is likely to exhibit diminishing marginal returns, as the strongest cases (those arising from leniency applications) are already being investigated.” No worries, then.
Essentially, the discussion paper is an exercise in tokenism. It meets a need to assure the Australians that we are doing something about cartels, while doing as little as possible. What is the point of criminalizing cartel behaviour – as this discussion paper recommends – if you are going to give yourself nothing in the way of extra funds or powers to detect it and prosecute it ? Should we be surprised that a National-led government is gung-ho about cracking down on boy racers, and yet so gun -shy about investigating the misdeeds of business, and cracking down on white collar predators?
In early November, I interviewed Justice Minister Simon Power about the likely approach that he planned to take towards cartel detection and criminalisation. The imperative for doing so was that the Rudd and Key governments are both saying they want to foster a single Transtasman market. During 2009, as I pointed out in the interview, Australia has given its Commerce Commission counterpart the powers to wiretap and enhanced powers of search and seizure, to go after cartels.
There is an ongoing debate in Australia about the degree of covert commitment to price fixing required to constitute criminal activity, and whether a simple disavowal of criminal intent should be enough to enable suspects to escape a successful prosecution for price fixing. Last April, the Business Council of Australia therefore indicated that phone taps might be acceptable as a trade-off against having explicit provisions in the legislation defining what constitutes cartel behaviour. The reason being – explicit wording on what is or isn’t a cartel could otherwise easily become a manual for avoiding prosecution, by clarifying for cartelists just exactly what steps they would need to take in order to drive around the law. Phone taps, on the other hand, throw light on the general context and intent, and thus provide crucial circumstantial evidence on how the relevant business decisions are to be judged.
Judging by the MED though, we don’t see a useful or necessary role here for phone taps to augment cartel investigations. Even so, a legal test needs to be devised – one that can clarify just how overt cartelists need to be about their intentions, in order to cross the line from altering prices in tandem ( for legitimate purposes of competition ) into cosy collusion and a criminal conspiracy to fix prices ? Would you be surprised that the MED discussion paper is more concerned ( para 77) about the “chilling” effects of deterring price arrangements that benefit business, than it is deterring the sort of price arrangements that screw consumers ?
In sum, this MED paper is one more exercise in pandering to a business culture in New Zealand prone to treating de-regulation as the cure for all our economic ills – past, current and future. Too bad the rest of the world has moved on. And too bad that a government zealous about cracking down on criminal behaviour in every other sector, should be so skittish about addressing the behaviour of the white collar criminals in our boardrooms. Crush ’em and crate ’em, I say.