The House of Representatives Standing Committee on Economics today tabled a report on the implications of common ownership and capital concentration in Australia.
Committee Chair Jason Falinski said that ‘the magic source of free markets is competition. It is the element above all else that promotes and provokes innovation, invention and delight in customers. There is a misconception that free markets are efficient, but this is less than half the story, what they are really good at is being dynamic, and competition is the key to that dynamism.
‘The problem is that as capital markets become more concentrated, especially in Australia, that owners of capital have conflicting interests with consumers. There is an emerging field of study that is providing compelling evidence that concentrated capital is driving out competition.’
Capital concentration can occur when large institutional investors dominate equity markets and influence how firms behave in the marketplace. Common ownership refers to a situation in which an investor simultaneously owns shares in competing firms.
‘If financial markets are dominated by a small number of large investors, or if the same investor owns a significant stake in competing businesses, the evidence is piling up that competition suffers,’ Mr Falinski said. ‘That can lead to higher prices, lower quality goods and services, and lower relative wages—all of which are serious concerns.
‘Further, the concerns of capital are not necessarily the same as the concerns of people, it is not just as consumers that we suffer, but also as employees, investors, voters, citizens and human beings.’
The committee has recommended that measures be introduced to increase transparency in respect of the holdings and behaviours of institutional investors. The report also calls for Australia’s financial regulators to actively monitor capital concentration and common ownership.
Mr Falinski said that ‘this is an emerging issue, and some of the world’s top economic thinkers supported the committee in its inquiry. By taking steps now to empower our regulators to be proactive in monitoring and potentially responding to these phenomena, we can avoid having to deal with a larger issue in the future.’
A full copy of the committee’s report is available on the committee’s website.
