If the government is serious about disciplining its spending and stopping growth in the bureaucracy, as the Treasury recommends, the relevance of the Commerce Commission must become a matter for immediate debate.

Many producers are now in greater need of protection than consumers, who are benefiting from reduced demand and over-capacity.

Meanwhile, governments everywhere are intervening to tilt the playing field to the advantage of at-risk firms.

Our own government paid scant regard to either competition law principles or market-distorting effects when it introduced guarantee arrangements for the banking and financial services sector.

Elsewhere, merger and nationalisation of banks has proceeded without recourse to the regulator.

Governments are raising new barriers to trade, to protect their own farmers and workers. "Buy local" is fast replacing "Buy green" as the consumers' mantra, often with official encouragement.

The implications of these interventions cannot be ignored, including what they might mean for the Commerce Commission's role and - indeed - for its future existence.

Our Commerce Act was introduced in the mid-1980s as an adjunct to the reformist Labour government's programme of economic deregulation. The rationale offered for the bill's introduction by the then Department of Trade and Industry was that "if any policy to free up the economy is to be effective, legislation to counter private regulation of the market place is necessary."

But from the start, the competition cure had its shortcomings. In those sectors where it was perceived to fail, sector-specific regulation was introduced.

Resort was also had to regulation when the commission declined to allow for the advent of a national dairy champion.

In the process, competition law - and the Commerce Commission - has lost much of its original purpose. The notion that the legislation would be largely self-enforcing has been replaced by need for an annual government grant of almost $40 million. That sum may soon increase.

In its briefing to the incoming minister of commerce, the Ministry of Economic Development reveals that it has been undertaking a "detailed baseline review" of the commission with PricewaterhouseCoopers.

All details of that review have been withheld, apart from its conclusion that "the commission is significantly under-resourced." The ministry also refers to the commission potentially gaining broadcasting regulatory responsibilities. Doubtless that too would involve more public cost.

Of greater concern than its increasing cost is the overly interventionist approach that the commission is now adopting toward private enterprise.

The fundamental premise of competition law is that firms make their own competitive choices unconstrained by either the state or collusion. The commission is there to serve as the market's referee, not its coach. But the commission has taken an increasingly distributive stance.

First, in exercising its regulatory functions it has come to value a dollar saved by a consumer at more than a dollar profit allowed by a producer. In so doing, it promotes mere rivalry rather than competition, by forcing successful firms to create headroom for their less efficient rivals.

Second, as the commission's latest annual report proclaims, the commission now focuses its enforcement litigation on "maximising compensation to consumers and penalties achieved." That is, the commission gives cartel investigation a high priority because, the chairwoman claims, their behaviour "robs companies and consumers of the benefits of competition.".

Even recognising that regulators start with "a supersized helping of moral authority," such hyperbole is unacceptable. Most of the commission's cartel investigations to date have been in areas of peripheral relevance to the New Zealand economy. Enforcement in this area has become an opportunistic revenue-gathering exercise.

Third, the commission seems to view all commercial decisions it disagrees with as indicative of market failure or misuse of market power, deserving of either litigation or regulation. This despite frequent indications from the courts that all firms, even those with market power, are permitted to act in what they judge to be their commercial best interests.

Competition law may be a luxury that we can no longer afford and our regulator is no longer the impartial and occasional arbiter that the Commerce Act once presumed the Commerce Commission would be. Isn't it time, then, for drastic change?

And should not these questions at least be raised before the term of the present Chair expires on March 31? MED advises the minister in its briefing that it will report separately on "membership and appointment issues." But surely function should take precedence over appointment. And certainly, prospective change in function must affect appointment.

Innovation, enterprise and investment are all being constrained by a competition regime that may have run its course. There should be a fundamental review - and not one carried out by ministry and the commission.

A possible outcome of that review could be:

1. retain the Commerce Act but disband the commission - most elements of the act are self-policing and competitors already take a strong role in preventing misuses of market power;

2. transfer responsibility for investigating price fixing and Fair Trading Act breaches to the Crown solicitors - the commission briefs them to do the work anyway, and really that's the essence of the "consumer protection" role; and

3. transfer the policy responsibility from the ministry to the Treasury or to some other agency whose activities and philosophy are more closely aligned with an economic growth strategy.

The agency should be charged with monitoring and making recommendations to government in relation to industry-specific outcomes that would have the goal of increased productivity and efficiency rather than increased competition. The agency's guiding principles could be:

1. Productivity should not be allowed to be constrained by inefficiency;

2. New Zealand's size, remoteness and dependency on primary exports are factors that cannot be ignored;

3. Efficiency and growth will require innovation, enterprise and investment (especially to provide infrastructure and connectivity);

4. Regulation should be imposed only where market outcomes are demonstrably inefficient;

5. Regulation should be targeted to addressing the source of those inefficiencies; and

6. Regulation should be proportionate to the problem and impose the least costs necessary to remedy the issue.

Grant David is a partner at Chapman Tripp specialising in competition law. These are his own views rather than the views of the firm or its clients.

This article first appeared in the print edition of The National Business Review on February 5, 2009.