Professions Australia - A national organisation of professional associations

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PA Submission (2004)</a><br> <a href = "profoftheyear.html">Announcement of 2004 Professional of the Year</a><br> <a href = "membercodes.html">Examples of Member Codes</a><br> <a href = "codeprinciples.html">Code Principles</a><br> <br><B> <P align=center>The Professions, Public Interest and Competition Policy</P> <P align=justify> </P><U> <P align=justify>An Analysis and Commentary by The Australian Council of Professions</P></U> <P align=justify>Introduction and Background</P></B> <P align=justify>The Australian Council of Professions (ACP) defines a profession as:</P><I> <P align=justify>A disciplined group of individuals who adhere to high ethical standards and uphold themselves to, and are accepted by, the public as possessing special knowledge and skills in a widely recognised, organised body of learning derived from education and training at a high level, and who are prepared to exercise this knowledge and these skills in the interests of others.</P></I> <P align=justify>With this definition in mind, let’s go back to the 1995 Council of Australian Governments (COAG) meeting where<I> </I>"promoting greater competition and micro-economic reform" was set in train by the signing of competition policy agreements.</P> <P align=justify>According to the National Competition Council's document, Considering Public Interest under Competition Policy, "a central feature of the National Competition Policy is its focus on competition reform ‘in public interest’. In this respect, the guiding principle is that competition, in general, will promote community welfare by increasing national income through encouraging improvements in efficiency." </P><B> <P align=justify>Economic Efficiency</P></B> <P align=justify>The NCC and the Competition Principles Agreement (CPA) seek to make the case for an improvement to society's condition through greater economic efficiency. The underlying assumption of this argument is that regulation is very often anti-competitive in the economic sense, is against the interests of economic efficiency, and thus is against the public interest. Later we will consider the defences that the NCC and the CPA allow against this assumption.</P> <P align=justify>Essentially, the argument for the doctrine that has become known as "<I>economic rationalism"</I>, is directed towards de-regulation of the market place. The theory is that the less regulation there is in the market place, the more price competition there is for services, the more efficient the society is, and therefore the better off it is.</P><B> <P align=justify>Regulation Levels and Types</P></B> <P align=justify>The Australian Council of Professions rejects this view as being too narrow and not, in fact, necessarily in the public interest at all. We believe the better question to ask, is "what type or level of regulation is necessary to both protect the public interest and to promote competition?" We believe that the push for de-regulation has run off the rails and has lost the overall public interest perspective. </P> <P align=justify>In its conclusion to its policy document the NCC puts its position thus:</P> <P align=justify>"There is growing community consensus that, in general, a more competitive economy is in the public interest: not for its own sake, but because it enhances overall community welfare. Governments have explicitly recognised the benefits of greater competition by endorsing the pro-competitive reforms contained in the competition policy agreements."</P> <P align=justify>By contrast, the ACP would argue that in fact the community consensus about economic rationalism has long since evaporated, if indeed it existed at all. The most telling support for the ACP view is the federal and state election results, which show that the electorate has rejected the doctrine. But even if the population embraced economic rationalism, it would not be an unqualified embrace. </P><B> <P align=justify>Regulating Competition</P></B> <P align=justify>One problem for the view that informs competition policy as embodied in the CPA is contained in the supposed linkage between deregulation and competition (and hence economic efficiency). It is assumed that regulation necessarily stifles competition. That can be the case but the anti trust laws in the US demonstrate that quite the opposite can also be the case, as does the greater part of the Trade Practices Act in this country. It is unwise to let dogma blind us to practical reality.</P><B> <P align=justify>Goods versus Services</P></B> <P align=justify>The second problem with the usual argument for deregulation is that there is no distinction between the provision of goods or commodities and the provision of services. There often are, however, substantial and important differences, particularly with respect to professional services.</P> <P align=justify>With the vast majority of commodity items, the functionality expected and required is standardized and well understood by the purchaser. For example, the person who buys a toaster expects it to successfully toast bread and only to toast bread. By contrast, a professional service is generally specific to the time and particular circumstances of the individual who requires it. For example, each patient who visits a dentist gets a different service depending on his or her requirements at the time. The service provided by a dentist (or other professional) to different clients is not the "same" in the sense that two commodities like toasters are the same. It cannot, therefore, be uncritically assumed that deregulation applied to the provision of goods involves inherently the same benefits and problems as when applied to the provision of professional services.</P><B> <P align=justify>Lack of Consistency</P></B> <P align=justify>The third problem with the deregulation argument is that there has never been a set of national benchmarks or any consistent or coherent overview of the professions, individually or as a whole, in any of the more than 2000 State reviews conducted to date. These are so fragmented that it is doubtful if any of the same people or more importantly principles were used in any two of them, let alone across them all.</P> <P align=justify>Finally, the financial incentives for States to conduct the reviews biased the outcomes. The agreement between the Federal Government and the States to carry out the reviews actually assumed that existing law was anti-competitive and therefore inefficient and against the best interests of society. To reinforce this the Federal Government promised millions of dollars to the State Governments once they had done their reviews and removed the identified "inefficiencies". If a State government had not found and removed "inefficiencies" of the kind assumed and expected by the Federal Government then it would not have qualified for the financial grant and would have missed out on a large amount of revenue.</P> <P align=justify>The lack of national benchmarks and what amounted to bribes to State governments to conduct reviews severely distorted the whole process and damaged any potential for real objectivity. Indeed it is doubtful that the agreement to carry out the reviews ever envisaged any such objectivity, given the Federal Government’s biased and ideologically based picture of what does and does not promote competition.</P><B> <P align=justify>The Reasons for Regulation</P></B> <P align=justify>In a wide variety of areas governments consider it appropriate to regulate because lack of regulation is seen as dangerous, unfair, anti competitive, or not in the best interests of the public. This is why governments regulate the sale of goods ranging from tobacco and alcohol to food and pharmaceuticals. Similarly governments regulate the sale of services.</P> <P align=justify>For most trades and service providers other than the professions it is considered appropriate by most governments to provide a regulatory framework in which tradespeople and service providers operate. This includes such groups as plumbers and gasfitters, electricians, teachers and a whole range of other groups.</P> <P align=justify>Governments regulate this way "in the public interest" because they want to ensure that people undertaking certain tasks are qualified to do so; that they are trained sufficiently to do what they do with the least risk to public health and welfare. That is, the intention is to ensure that in fact these people behave competently and in the public interest. It would, for example, be ludicrous to allow an unqualified person to undertake gas repair or electrical work because of the risk they would pose to themselves and others.</P><B> <P align=justify>The Professions</P></B> <P align=justify>The professions have been regulated in different ways in different jurisdictions over the years, but for essentially the same reasons as the trades and services. That is, to maintain standards and protect the public. Generally speaking though, regulation of the professions has taken a different form from that applied to other service providers. Whereas the latter have mostly been subject to State regulation, the professions have progressed from a position of largely self-regulation to one of co-regulation.</P> <P align=justify>As has already been argued, provision of professional services differs qualitatively from the supply of goods or purely commercial services. In attempting to define the difference between professional services and services offered by other groups, the Monopolies Commission (United Kingdom) defined a professional service as:</P> <UL> <P align=justify> <LI>the application of specialised skills to offer the service;</LI> <P align=justify> <LI>the skills are acquired through defined and practical training in a well defined area of study;</LI> <P align=justify> <LI>the service calls for a high degree of detachment and integrity on the part of the practitioner in exercising personal judgement on behalf of the client; and</LI> <P align=justify> <LI>the service involves direct, personal and fiduciary relations with the client.</LI></UL> <P align=justify>As mentioned at the beginning of this article, the ACP characterises the professions by the setting of standards for entry, such as the requirement to adhere to an enforceable code of ethics, the requirement to commit to measurable ongoing professional development and sanctions for conduct that falls below the required standards.</P> <P align=justify>It should be noted that generally there is a significant information asymmetry between the suppliers and consumers of professional services. That is, the recipients of professional services do not, for the most part, have the expertise necessary to assess the quality of the service with which they have been provided. This makes the maintenance of high ethical standards within professions a much more significant Public Interest issue than with other services or goods provision where malpractice or incompetence are more readily evident and detectable.</P> <P align=justify>Under a co-regulation model the professions maintain the competence, skills, learning, and behavioural standards of their members, invariably backed up by some legislative requirements of the State. Experience has shown co-regulation to be generally effective as well as self-funding.</P><B> <P align=justify>Reviews</P></B> <P align=justify>A number of professions, in various states, have had their regulatory legislation (and therefore the profession) reviewed. These include engineers, architects, veterinarians, physiotherapists and others. </P> <P align=justify>The common thread underlying all reviews of the professions conducted to date is that somehow, if you have more individuals offering the service, there will be more competition, prices will come down, economic efficiency will have been served and the community as a whole will be better off. For this reason, the arguments that have been propounded in such reviews have centred around:</P> <UL> <P align=justify> <LI>deregulating the "brand" or title of the profession, thus allowing more people who don’t have the formal title to offer the service;</LI> <P align=justify> <LI>issues of standards or so-called "barriers to entry"; and</LI> <P align=justify> <LI>transparency of the requirements and methods for attaining professional membership</LI></UL> <P align=justify>Often a perceived lack of transparency or accountability in a profession is confused with a lack of price competitiveness. Perceived failings in either or both areas then typically provoke an argument for allowing others into the area. Such confusion has muddied the waters of the regulatory debate, all the more so when instances of lack of accountability or lack of transparency in one or a few professions are not true as a general rule across all or most professions.</P><B> <P align=justify>Exceptions to the Rule</P></B> <P align=justify>Even those in favour of general deregulation of the professions have had to acknowledge that in some cases competition within a particular profession is not necessarily beneficial to the public interest and must therefore be subordinated to other more important aims.</P> <P align=justify>Under the CPA (Competition Principles Agreement) the NCC sees some areas where pure commitment to economic efficiency may need to be sacrificed in favour of more overwhelming social goals. According to the NCC:</P> <P align=justify>"…while competition is generally consistent with economic efficiency goals and the interests of the community as a whole, there may be situations where there is conflict with certain social objectives. For example, governments may wish to confer benefits on a particular group for equity reasons. Governments also implement restrictions on competition for reasons of ‘market failure’. This occurs where special features of a market mean that unfettered competition reduces the welfare of the community. Governments argue that it is in the ‘public interest’ to restrict competitive outcomes in such instances."</P> <P align=justify>The NCC goes on to point out that "There are three processes by which governments can seek to exempt anti-competitive arrangements from reform in the public interest. Each requires consideration of public interest issues." These may occur in the following ways:</P> <UL> <P align=justify> <LI>Subclause 1(3) of the CPA provides a mechanism by which governments can examine the merits of proceeding with an agreed reform action by assessing whether the costs of reform are justified.</LI> <P align=justify> <LI>Authorisation of an anti-competitive practice otherwise prohibited by the TPA can be sought from the Australian Competition and Consumer Commission (ACCC) on the ground that there is a net public benefit from maintaining the practice.</LI> <P align=justify> <LI>Statutory exemption from certain prohibitions can be provided under section 51 of the TPA for conduct that is approved by a Commonwealth, State or Territory law that expressly refers to the TPA.</LI></UL> <P align=justify>Whether the NCC acknowledges it or not their paper makes it very clear that pure economic efficiency can often be in fundamental conflict with a variety of other highly desirable social outcomes. The ACP is fundamentally in agreement with this basic position. However, while such an acknowledgement (either implicit or explicit) of the limitations of economic arguments is gratifying, a problem remains. This is the presumption, given the absence of overriding social factors, in favour of economic rationalist arguments for deregulation, <I>neglecting other possible approaches</I>.</P><B> <P align=justify>The Compelling Case for Sensible Regulation</P></B> <P align=justify>The Australian Council of Professions believes that sensible regulation, of the co-regulation model, where the profession operates its own regulatory regime backed up by appropriate government legislation or regulation has considerable and tangible benefits.</P> <P align=justify>In the case of professional activities it is necessary to address:</P><U> <P align=justify>Standards</P></U> <P align=justify>Entry standards and standards for qualification ensure that professional practitioners possess the skills to perform the tasks and services asked of them. The successful maintenance of such standards protects public welfare.</P><U> <P align=justify>Ownership of Title</P></U> <P align=justify>Use of a professional title should be a clear and reliable indicator to the public of the competence of the practitioner using it, and thus form another facet of their protection against inadequate or inappropriate service.</P><U> <P align=justify>Professional Conduct</P></U> <P align=justify>Enforceable standards and codes exist to punish unsatisfactory or unacceptable behaviour by practitioners of a profession, and through their deterrent value again serve to protect the public. The more transparent these standards and codes are, the more effective they will be.</P><U> <P align=justify>Professional Development</P></U> <P align=justify>It is important to ensure that professional practitioners remain current and competent with recent developments and techniques in their field. This serves to reinforce competencies and practical skills as well as avoiding exposing the public to out-dated, superseded or invalidated professional practices.</P> <P align=justify>Of the possible regulatory approaches to maintaining satisfactory levels in the areas identified above:</P> <UL> <P align=justify> <LI>Deregulation clearly would leave the entire profession, and more importantly the public who depend upon their services, open to risk of unsatisfactory performance and results.</LI> <P align=justify> <LI>Self-regulation by the profession alone would leave the way potentially open to at least two equally unpalatable outcomes. Firstly, a profession could become exclusivist and unfairly exploit those who need and consume its services (this is the basic fear of those in favour of economic rationalist arguments for deregulation). Alternatively, the profession could become diluted because of inattention and laxity in its approach to the maintenance of quality standards.</LI> <P align=justify> <LI>Full legislative or governmental regulation would put a heavy load on the responsible bodies in terms of the expertise they must master in order to design and implement appropriate legislation or regulations, as well as in keeping abreast of developments with their inherent impact on the regulatory regime. Furthermore, the drafting of complete and comprehensive legislation and/or regulations for every profession would place an extensive extra and costly workload on already busy public organizations.</LI></UL> <P align=justify>Co-regulation in which the professions and government combine in their respectively appropriate ways to construct a regulatory regime gives the best combination of protection for the public consumers of professional services as well as timeliness and effectiveness in the production of the regulatory regime itself.</P><B> <P align=justify>Conclusion</P></B> <P align=justify>Professional regulation demonstrably reduces risks to public health and safety and, in financial areas, reduces the risk of financial loss. Proper standards reduce the risk to consumers because of their lack of technical knowledge. </P> <P align=justify>Good co-regulation actually saves governments and the community the cost of regulation and the cost of market failure in an unregulated system by being a user pays system. It is far less costly than a government run scheme or the loss of confidence (not to mention financial loss) caused by incompetent or unethical practitioners.</P> <P align=justify>A system of regulation is essential in a global economy where services are traded across borders, and offshore clients want some guarantee of the competency of the Australian service provider.</P> <P align=justify>In the fields where most professionals practice, the economic efficiencies and price levels are determined by a combination of supply and demand for the service combined with competition. Lowering standards, which is an undeniably significant risk with deregulation, does not enhance economic efficiency or competition. While deregulation may lower some prices for some services it will nonetheless inevitably lead to incompetent people delivering services, a consequent loss of public confidence in the reliability and quality of service providers and, finally, market financial loss.</P> <P align=justify>If deregulation is pursued uncritically there will also be a high cost in terms of financial harm done to individual consumers and the international trade in services. A proposal such as that to abolish the statutory protection of the title of architect is a classic example of shortsighted thinking that will undermine confidence in local and international markets.</P> <P align=justify>It is time for governments to end this review process and focus instead on better regulation that will deliver genuine benefits to both consumers and the professional practitioners on whom they depend.</P> <P align=justify></P> <P align=justify></P> <P align=justify></P> <P align=justify> </P> <P align=justify></P> <P align=justify></P> <P align=justify></P> </body>