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<P><FONT color=#000080>Competition Policy is one of the policy priorities of Professions Australia. This issues paper attempts to air some basic issues and seek feedback. <BR><BR></FONT></P>
<P align=center><B><A name=_Toc40679407></A><A name=_Toc37838918></A><A name=_Toc36961516></A><A name=_Toc36961346><SPAN><FONT color=#000080>Professionalism, competition policy and the public interest</FONT></A><SPAN><FONT color=#000080>: Issues paper</FONT></B><FONT color=#000080> <BR></FONT><B><A name=_Toc40679408></A><BR><A name=_Toc37838919><SPAN><FONT color=#000080>Contents</FONT></A></B><FONT color=#000080> </FONT></P>
<P><A href="#_Toc40679409"><FONT color=#000080>Introduction</FONT></A></P>
<P><A href="#_Toc40679410"><FONT color=#000080>Professionals’ argument summarised</FONT></A></P>
<P><A href="#_Toc40679411"><FONT color=#000080>Regulating professional services</FONT></A></P>
<P><A href="#_Toc40679412"><FONT color=#000080>Standards</FONT></A></P>
<P><A href="#_Toc40679413"><FONT color=#000080>Ownership of title</FONT></A></P>
<P><A href="#_Toc40679414"><FONT color=#000080>Professional conduct</FONT></A></P>
<P><A href="#_Toc40679415"><FONT color=#000080>Professional development</FONT></A></P>
<P><A href="#_Toc40679416"><FONT color=#000080>Co-regulation preferred</FONT></A></P>
<P><A href="#_Toc40679417"><FONT color=#000080>Types of competition</FONT></A></P>
<P><A href="#_Toc40679418"><FONT color=#000080>One possible approach</FONT></A></P>
<P><A href="#_Toc40679419"><FONT color=#000080>Professionalism and business</FONT></A><BR><BR><A href="#_Toc40679420"><FONT color=#000080>Conclusion</FONT></A></P>
<P><A href="#_Toc40679421"><FONT color=#000080>Questions for discussion</FONT></A></P><B><A name=_Toc40679409><FONT color=#000080>Introduction</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080>Professions Australia (PA) has this definition of what a profession is: </FONT></P>
<P><FONT color=#000080>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 <I>in the interests of others</I>.</FONT></P>
<P><FONT color=#000080>The key is the final five words – ‘in the interests of others’ – the public interest. Professionals exercise their knowledge and skills in the interests of the community.</FONT></P>
<P><FONT color=#000080>National Competition Policy (NCP) is also meant to serve the public interest. The guiding principle is that competition will promote community welfare by increasing national income through encouraging improvements in efficiency. NCP assumes that regulation is very often anti-competitive and thus is against the public interest. </FONT></P>
<P><FONT color=#000080>Professionals believe the key public policy question is: ‘What mix of co-regulation and competition best serves the public interest’? This short paper addresses some of the issues that need to be addressed if a sensible balance is to be struck between competition policy, on the one hand, and the principles of professionalism, expressed in judicious co-regulation, on the other. (Co-regulation is regulation that involves both government and the profession.)</FONT></P><B><A name=_Toc40679410><FONT color=#000080>Professionals’ argument summarised</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080>Professionals argue that:</FONT></P>
<UL style="MARGIN-TOP: 0cm" type=disc>
<LI style="MARGIN-TOP: 6pt; MARGIN-BOTTOM: 3pt; tab-stops: list 36.0pt"><FONT color=#000080>professionalism serves the public interest; </FONT></LI>
<LI style="MARGIN-TOP: 6pt; MARGIN-BOTTOM: 3pt; tab-stops: list 36.0pt"><FONT color=#000080>soundly-based co-regulation – regulation that enshrines and supports the principles of professionalism but that also allows for competition – also serves the public interest; and </FONT></LI>
<LI style="MARGIN-TOP: 6pt; MARGIN-BOTTOM: 3pt; tab-stops: list 36.0pt"><FONT color=#000080>competition on the basis of price alone is often destructive of the public interest.</FONT></LI></UL><B><A name=_Toc40679411><FONT color=#000080>Regulating professional services</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080>Services, including professional services, are not goods. Yet competition policy tends to gloss over the distinction. </FONT></P>
<P><FONT color=#000080>Buyers of goods expect them to do certain things. The person who buys a toaster expects it to successfully toast bread and only to toast bread. Every toaster buyer has similar expectations. </FONT></P>
<P><FONT color=#000080>In contrast, a professional service is 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 the patient’s needs and the nature of his or her teeth. The professional service is tailored to suit the consumer and the consumer relies on the expertise of the professional to tailor the service appropriately. </FONT></P>
<P><FONT color=#000080>This is what ‘the public interest’ means for the individual consumer: there needs to be enough regulation to ensure that consumers benefit to the maximum extent possible from the exercise of professional services based on expertise. </FONT></P>
<P><FONT color=#000080>Regulation in the professions is doubly necessary because professionals know more than do the consumers of their services about the professional service being performed. (This is known technically as ‘information asymmetry’.) A dentist’s patient is not usually competent to decide upon, oversight and carry out appropriate dental procedures on herself, whereas the toaster buyer will have much the same idea of what constitutes a good toaster as will the salesperson. </FONT></P>
<P><FONT color=#000080>Governments have regulated ‘in the public interest’ because they want to ensure that people undertaking certain tasks are properly qualified and trained. Professions have had similar motivations in self-regulation schemes. Co-regulation involves a mix of government legislation and, on the other hand, training, discipline, registration and ethics regimes administered by the professions. How much is done by government and how much by the profession varies between professions and between jurisdictions.</FONT></P>
<P><FONT color=#000080>Professionals believe that sensible co-regulation (where the profession operates its own regulatory regime backed up by appropriate government legislation) has considerable and tangible benefits. The following paragraphs touch on some areas where co-regulation can apply.</FONT></P><B><A name=_Toc40679412><FONT color=#000080>Standards</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080>Proper standards reduce the risk that consumers may carry because of their lack of technical knowledge. Entry standards and standards for qualification ensure that professional practitioners possess the skills to perform the tasks and services asked of them. Successfully maintaining such standards protects public welfare. </FONT></P>
<P><FONT color=#000080>For example, the power of the Board of Architects of New South Wales to conduct examinations (<I>Architects Act (NSW) 1921</I> s. 24A) helps assure the public that people calling themselves ‘architects’ have qualified in relevant areas. Professional Standards Acts in New South Wales and Western Australia support high professional standards and risk management schemes.</FONT></P><B><A name=_Toc40679413><FONT color=#000080>Ownership of title</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080>Use of a professional title should be a clear and reliable indicator to the public of the competence of the practitioner using it. Regulating the use of professional titles is another way of protecting the public against inadequate or inappropriate service. For example, the <I>Legal Practice Act (Vic.) 1996</I> defines the term ‘legal practitioner’, provides for the administration of practising certificates, and covers a range of areas where the public should have particular expectations of legal practitioners.</FONT></P><B><A name=_Toc40679414><FONT color=#000080>Professional conduct</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080>Enforceable standards and codes exist to punish unsatisfactory or unacceptable behaviour by professionals. They also have a deterrent value. The more transparent these standards and codes are, the more effective they will be. </FONT></P>
<P><FONT color=#000080>One recent publication on codes of ethics says that </FONT></P>
<P><FONT color=#000080>codes of ethics – and their associated codes of practice – need to exist in an occupational environment in which the systems of reward and of punishment are perceived to be fair and reasonable. Moreover, codes of ethics need to exist in an occupational environment in which they are “owned” by the members of the occupation in question.’</FONT><A title="" href="#_edn1" name=_ednref1>[1]</A></P>
<P><FONT color=#000080>Further work at Professions Australia will collect some sample extracts from codes of ethics to show how they serve the public interest. Meanwhile, Professions Australia has commissioned a White Paper on <I>Professionalism in the 21<SUP>st</SUP> Century</I> which briefly describes mainly overseas sources on this subject. You can access it </FONT><A href="http://www.professions.com.au/KBWP.html"><FONT color=#0000ff>here</FONT></A><FONT color=#000080>. </FONT></P><B><A name=_Toc40679415><FONT color=#000080>Professional development</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080>Professionals should remain up-to-date and familiar with recent developments and techniques in their field. This serves to reinforce competencies and practical skills as well as avoiding exposing the public to superseded practices. </FONT></P>
<P><FONT color=#000080>The websites of, for example, </FONT><A href="http://www.cpaaustralia.com.au/">CPA Australia</A><FONT color=#0000ff> </FONT><FONT color=#000080>and the </FONT><A href="http://www.psa.org.au/">Pharmaceutical Society of Australia</A><FONT color=#0000ff> </FONT><FONT color=#000080>have comprehensive information about the range of professional development opportunities open to CPAs and pharmacists.</FONT></P><B><A name=_Toc40679416><FONT color=#000080>Co-regulation preferred</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080><I>Complete deregulation</I> would leave professionals and, more importantly, the public at risk of unsatisfactory performance and results. Even competition fanatics rarely propose it. <I>Partial</I> deregulation may be appropriate, depending on the circumstances. </FONT></P>
<P><FONT color=#000080>But who should regulate? <I>Self-regulation</I> by a profession risks two equally unpalatable outcomes. First, the profession could erect barriers to new practitioners and unfairly exploit consumers. This is the fear of the deregulators. On the other hand, the profession could become lax in maintaining quality standards. </FONT></P>
<P><FONT color=#000080><I>Regulation entirely by government</I> requires regulatory bodies to develop and keep expertise to design regulation and keep it up to date. The more professions that are subject to regulation the more work there is for regulators, with corresponding burdens on taxpayers. </FONT></P>
<P><FONT color=#000080><I>Co-regulation</I>, where the professions supply the expertise and government the authority, best protects consumers and ensures that regimes are kept relevant. Government can ensure that there are no inappropriate barriers to new people entering the profession. The profession can establish and maintain practice standards. Tertiary institutions can provide professional training in cooperation with professional associations. </FONT></P><B><A name=_Toc40679417><FONT color=#000080>Types of competition</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080>NCP stresses the importance of lowest-price competition. The theory is that the less regulation there is, the more price competition there is, the more efficient the society is, and therefore the better off it is.</FONT></P>
<P><FONT color=#000080>Professionals recognise the importance of price comparisons for consumers who are choosing between alternative providers. Price will be an issue even where professionals are subject to government schemes like Medicare and the Pharmaceutical Benefits Scheme which tend to push prices to a common level. Professionals subject to these schemes may be able to send price signals to consumers through varying mark-ups. </FONT></P>
<P><FONT color=#000080>Other professionals will have more freedom to compete on price. They will also compete on quality of service, varying their hours of opening, offering some services online or via telephone, providing free advice, home deliveries, and so on, with the elements of service quality differing widely from profession to profession.</FONT></P>
<P><FONT color=#000080>However, an important element of the relationship between professionals and consumers is trust. This is especially important because of the information asymmetry mentioned previously. Consumers of professional services, whether they be provided by a doctor, pharmacist, accountant, engineer or architect, put themselves in the hands of the professional and trust them to apply their professional expertise in the best interests of the consumer. </FONT></P>
<P><FONT color=#000080>Price is often the furthest thing from the consumer’s mind. The relationship will often, perhaps almost always, exist independent of price and may continue for many years, even when the consumer knows that competing providers are cheaper, provided trust continues and outcomes are satisfactory. If the relationship ends it may be for reasons other than price, perhaps a change in personnel on either side or a change of location. </FONT></P>
<P><FONT color=#000080>Competition policy that sees consumers only as price-takers misses a large part of the relationship between professionals and consumers. Price-based competition is only part of the picture. Competition based only on price does not serve the public interest because it leaves trust out of the equation.</FONT></P><B><A name=_Toc40679418><FONT color=#000080>One possible approach</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080>Part VII of the Commonwealth <I>Trade Practices Act 1974</I> provides for the authorisation of restrictive trade practices, which otherwise would contravene Part IV of the Act, where it can be shown that there are offsetting public benefits in such conduct. In a recent example, the Australian Competition and Consumer Commission announced that it proposed, subject to conditions, to grant authorisation to the Royal Australasian College of Surgeons in relation to the training of surgeons, on the grounds ‘that the College's training and assessment processes generate important public benefits’.</FONT><A title="" href="#_edn2" name=_ednref2>[2]</A><FONT color=#0000ff> </FONT></P>
<P><FONT color=#0000ff><FONT color=#000080>In 2001, the National Competition Council said that ‘[s]ome professional regulation ... has broader objectives of ensuring the sound functioning of important social institutions’.</FONT><A title="" href="#_edn3" name=_ednref3>[3]</A> </FONT><FONT color=#000080>The authorisation process is intended as a means of meeting these broader objectives by balancing competition with co-regulation. </FONT></P>
<P><FONT color=#0000ff><FONT color=#000080>Authorisation is not an ideal process. It ‘is based on the assumption that any prohibited conduct is necessarily bad and requires the person intending to engage in it to establish the positive public benefits of such conduct’</FONT>.</FONT><A title="" href="#_edn4" name=_ednref4><FONT color=#0000ff>[4]</FONT></A><FONT color=#0000ff> </FONT></P>
<P><FONT color=#000080>Nevertheless, the authorisation process provides an avenue for the professions to test the capacity of competition regulators to show that the objective of competition policy is indeed ‘the public interest’ rather than competition for its own sake. It also provides an opportunity to place co-regulation on a sounder basis, for the benefit of both professionals and the people they serve. Professional associations might well consider the authorisation route in relation to codes of practice, training arrangements and other underpinnings of professionalism.</FONT></P><B><A name=_Toc40679419><FONT color=#000080>Professionalism and business</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080>Competition policy tends to see professionals solely as business people. This implies that competition policy should apply to professionals in the same way that it applies to providers of goods or other services. Yet it is possible to be <I>both</I> a business and something else. </FONT></P>
<P><FONT color=#000080>Chief Justice Spigelman of the New South Wales Supreme Court recently described lawyers in terms which can be applied to all professions:</FONT></P>
<P><FONT color=#000080>There is a broad consensus that the legal profession relevantly has two quite distinct characteristics. In many respects the practice of law is a business with economic effects. However, it is not <I>only</I> a business. There is a public interest and professional dimension of a significance which prevents the profession being treated <I>only</I> as a business….</FONT></P>
<P><FONT color=#0000ff><FONT color=#000080>The characterisation of the legal profession as a provider of services to consumers contains a substantial element of truth. There is a legal services market. For that reason competition principles are and must be accepted to be relevant to the regulation of the profession. However, that characterisation does not represent a complete description of the legal profession. For that reason alone the application of competition principles must be tempered and qualified in a manner not pertinent to other areas of commercial activity</FONT>.</FONT><A title="" href="#_edn5" name=_ednref5>[5]</A></P><B><A name=_Toc40679420><FONT color=#000080>Conclusion</FONT></A></B><FONT color=#000080> </FONT>
<P><FONT color=#000080>Tempering and qualifying competition principles when dealing with the professions does <I>not</I> mean that the public interest suffers. Professionalism itself serves the public interest and works in a complementary fashion with competition policy. NCP and professionalism <I>together</I> serve the community.</FONT></P>
<P><FONT color=#000080>National Office</FONT></P>
<P><FONT color=#000080>Professions Australia</FONT></P>
<P><FONT color=#000080>May 2003 </FONT></P>
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<P><FONT color=#0000ff><FONT color=#000080>Access our White Paper on </FONT><I><A href="http://www.professions.com.au/KBWP.html">Professionalism in the 21<SUP>st</SUP> Century</A></I>. </FONT></P></DIV>
<P><FONT color=#0000ff></FONT></P>
<P><FONT color=#0000ff></FONT></P><B><A name=_Toc40679421><FONT color=#000080>Questions for discussion</FONT></A></B><FONT color=#000080> </FONT>
<OL style="MARGIN-TOP: 0cm" type=1>
<LI style="tab-stops: list 36.0pt"><FONT color=#000080>How does your professional association’s code of ethics recognise the public interest?</FONT></LI>
<LI style="tab-stops: list 36.0pt"><FONT color=#000080>How do the underpinnings of your profession (training and qualification arrangements, standards, continuing professional development, etc.) serve the public interest?</FONT></LI>
<LI style="tab-stops: list 36.0pt"><FONT color=#000080>How does co-regulation apply in your profession?</FONT></LI>
<LI style="tab-stops: list 36.0pt"><FONT color=#000080>When consumers choose between alternative providers in your profession, what do you think determines their choice? Have you any evidence for this?</FONT></LI>
<LI style="tab-stops: list 36.0pt"><FONT color=#000080>Has your professional association or profession considered seeking authorisation under the Trade Practices Act for one or other of the underpinnings of the profession? Should it do so?</FONT></LI></OL>
<P><FONT color=#000080></FONT></P>
<DIV><BR clear=all>
<DIV id=edn1><A title="" href="#_ednref1" name=_edn1></A><FONT color=#000080>Endnotes </FONT>
<P><FONT color=#000080>[1] Professor Seumas Miller for Professional Standards Council (PSC) of NSW, <I>Model code of ethics Principles</I>, PSC, June 2002, p 54. </FONT></P></DIV>
<DIV id=edn2>
<P><A title="" href="#_ednref2" name=_edn2><FONT color=#000080>[2]</FONT></A><FONT color=#000080> <I>ACCC proposes surgical college reform to help address surgeons shortage: ACCC media release MR 16/03, </I><I>6 February 2003</I>: </FONT><A href="http://www.accc.gov.au/media/mediar.htm">http://www.accc.gov.au/media/mediar.htm</A><FONT color=#0000ff>, </FONT><FONT color=#000080>accessed 1 April 2003.</FONT></P></DIV>
<DIV id=edn3>
<P><A title="" href="#_ednref3" name=_edn3><FONT color=#000080>[3]</FONT></A><FONT color=#000080> National Competition Council, <I>Assessment of governments’ progress in implementing the National Competition Policy and related reforms, </I>June 2001, cited in JJ Spigelman, <I>Are lawyers lemons? Competition principles and professional regulation: The 2002 Lawyers’ Lecture, St James Ethics Centre, </I><I>29 October 2002</I>: </FONT><A href="http://www.lawlink.nsw.gov.au/sc/sc.nsf/pages/spigelman_041102">http://www.lawlink.nsw.gov.au/sc/sc.nsf/pages/spigelman_041102</A><FONT color=#0000ff>, </FONT><FONT color=#000080>accessed 1 April 2003.</FONT></P></DIV>
<DIV id=edn4>
<P><A title="" href="#_ednref4" name=_edn4><FONT color=#000080>[4]</FONT></A><FONT color=#000080> Spigelman.</FONT></P></DIV>
<DIV id=edn5>
<P><A title="" href="#_ednref5" name=_edn5><FONT color=#000080>[5]</FONT></A><FONT color=#000080> Spigelman.</FONT></P>
<P><FONT color=#000080></FONT></P></DIV></DIV>
<P><FONT color=#000080><BR><BR></FONT></P><A name=_Toc40679407></A><A name=_Toc37838918></A><A name=_Toc36961516></A><SPAN><SPAN><SPAN><FONT color=#000080>Process </FONT>
<P><FONT color=#000080>You are invited to download the above material and resubmit it with</FONT></P>
<P><SPAN><FONT color=#000080> (1) your suggested revisions clearly marked (e.g. send us an email with a Word document attached, showing revision markings) </FONT></P>
<P><FONT color=#000080>(2) any comments you have addressing the questions above or other issues.</FONT></P>
<P><FONT color=#000080>Proposed amendments and comments should be submitted to </FONT><A href="mailtpolicy.consultant@professions.com.au">policy.consultant@professions.com.au</A><FONT color=#0000ff> </FONT><FONT color=#000080>. Any questions to the same address.</FONT></P>
<P><I><FONT color=#000080>All comments received will be posted on Knowledge Talk, unless the submitter clearly requests this not be done. Submitters may request that comments be posted without attribution to them. PA prefers that comments are attributed. PA reserves the right not to post comments or to edit comments.</FONT></I></P><FONT color=#000080>Outcome </FONT>
<P><FONT color=#000080>Meanwhile, we have (August 2003) provided the paper in the above form to the Australian Competition and Consumer Commission. The Chairman of the Commission, Mr Graeme Samuel, is to address our Ordinary Meeting on 23 November 2003.<BR><BR></FONT></P></SPAN></SPAN></SPAN></SPAN></SPAN></SPAN></SPAN>
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