Many people who criticise big business may not realise how much they enjoy the benefits delivered by those very same businesses.
Many people who criticise big business may not realise how much they enjoy the benefits delivered by those very same businesses.
NOT far from my house, opposite Swanbourne train station, there is an old-fashioned strip of shops facing the street.
There is usually a steady flow of people patronising the small supermarket, the local hardware store, the barber, the butcher, the electrician, the bookshop and the newly opened cafe, among others.
Not many suburbs can boast this kind of local shopping strip. It doesn’t have any big-brand chain stores, but instead has independently owned shops, each with its own character, which adds to the charm of the area.
One mile down the tracks is Claremont Quarter, a shopping mall with a giant supermarket and numerous company-owned or franchised stories of the kind that can be seen in just about any modern city around the globe.
And that, of course, is where most of the shoppers go; more shops, bigger range, air-conditioned comfort, familiar brands.
Shoppers vote with their feet, just like the customers of any other industry.
That’s the market at work, sending us signals about what is really important to the community at large.
Markets aren’t perfect, especially when there is an oligopoly structure, with two or three big players that dominate.
That is the situation facing many industries in Australia, including supermarkets, hardware, air travel, brewing, and banking, with its four big groups – ANZ, Commonwealth (and its WA subsidiary Bankwest), National and Westpac (including its subsidiary St George).
The banks have copped a pasting over the past week after some of them lifted their standard housing loan rate independently of the Reserve Bank’s move on the official cash rate.
The rationale – which the banks seem to be struggling to explain to the wider community – is that their funding costs do not always move in tandem with the official rate.
Instead, a big chunk of their funding comes from international markets, and the cost of those wholesale deposits has risen.
The headlines, and the political reaction, would leave many people with the impression that the big banks have simply used their muscle to jack up rates and bolster profits.
Looking beyond the headlines, as we always should, the situation is a little more nuanced.
The standard housing loan rates advertised by the big banks last weekend ranged from 7.22 per cent to a high of 7.46 per cent.
Is that an oligopoly moving in unison, or is it healthy price competition? I’d say it’s the latter, and it presents an opportunity to people who are prepared to make the effort and shop around, as Treasurer Wayne Swan is urging.
These are the same banks that are among the strongest financially anywhere in the world, operate secure electronic banking networks we all take for granted, and offer a safe home for lour deposits.
If people really want an alternative, there are plenty on offer – credit unions, community banks and mortgage originators are a good starting point, yet despite all the grizzling, the banks still dominate. That’s the market talking.
There are similar themes in other industries. Many people bemoan the loss of the neighbourhood hardware store, yet most people vote with their feet, travelling to Bunnings to take advantage of the wide product range, low prices and extended trading hours.
Similarly, Coles was heavily criticised last year for its milk pricing strategy; yet at my local Coles it’s the cheap milk that dominates the shelf space.
That will encourage Coles and Woolworths to continue their aggressive procurement strategy, which undoubtedly puts pressure on growers and other suppliers, forcing them to adapt to the market reality.
Regulators have a role to ensure the big players do not abuse their market power – that is always a risk, and is why we need well-resourced regulators.
Brewing is another interesting example. The market is dominated by Lion Nathan and Fosters, yet they continue to compete on price, product innovation and branding.
If they don’t deliver what the market wants, market share can quickly suffer.
That is one reason they also invest in boutique brewers, such as Gage Roads and Little World Beverages, which actually adds to market choice.
Long live the market.
