Opportunity in Face of Challenge: A Competitiveness Agenda for Canada’s Future

From: Competition Bureau Canada

Canadian Club Toronto

November 25, 2020

(As prepared for delivery)

Good afternoon everyone, and thank you to the Canadian Club for inviting me to speak with you today.

I would like to take this opportunity to discuss the role of competition in Canada and why it matters more than ever as we work to recover from the economic consequences of the ongoing pandemic and aim to build a stronger, more resilient economy.

Competition Drives Economic Growth

Let me start by briefly outlining why competition is so important in our economy. It is the force that drives us to do better. It rewards innovation, and penalizes complacency, and it drives businesses to develop newer, better and more affordable products. There is no motivator quite like competition, and often we are inspired to realize our full potential when others push us to reach it.

Study after study has shown the power of competition to drive productivity and performance in the marketplace. Competition boosts investment in new technologies, allowing businesses to displace entrenched incumbents or even create entirely new markets. Competition not only lights a fire under a business, but under the economy as a whole. As firms learn to compete in their own backyard, they are better prepared for the global challengers that await them outside our borders. Canada is, and will always be, a key participant in the global economy, and we must focus on what drives our competitiveness abroad.

Ultimately, all Canadians benefit when competition makes our economy more productive and resilient. Individuals and firms alike enjoy lower prices, more choice and better quality products and services when there is healthy competition.

Competition and Recovery

We know that competition fuels innovation and growth, and so, in the midst of the current global pandemic, we must ask ourselves: how does competition fit into Canada’s economic recovery?

I would start with the importance of staying the course on Canada’s commitment to its competition laws. In times of economic crisis, it is tempting for some to lobby that the long-established principles for healthy competition be relaxed and claim that doing so will ease stressors to Canada’s markets and aid in economic recovery. However, history has shown us that the opposite is true.

By shielding themselves from the motivating force of competition, entrenched firms can raise prices, reduce quality, and become complacent. The upshot is that this conduct, and the policies that allow it, can worsen an existing economic crisis and delay recovery. To defend against this, in the words of James Ilsley, a Member of Parliament during the Great Depression, “competition is the best protection the public has.”

Unfortunately, crises can also be prime opportunities for firms to consolidate market power and engage in anticompetitive activity, whether through the acquisition of weakened competitors or cartel conduct to control the price and supply of goods and services.

To protect competition, both through and beyond the current crisis, we must turn our attention to the core of Canada’s economy: small and medium-sized businesses. Businesses with fewer than 100 employees account for over 40% of Canada’s private-sector employment, and over 99% of firms in Canada have under 250 employees.

These firms are the engine that drive competition in much of Canada’s economy. Through their entry and expansion, they challenge established incumbents, and disrupt entire industries. They are the true bedrock of the Canadian economy.

Sadly, it is these small and medium-sized businesses that have been hardest hit by the current crisis. Analysis by the Royal Bank of Canada shows that, this year, smaller firms have recorded almost twice as many job losses as their larger counterparts, with women and youth suffering disproportionately. If Canada’s small- and medium-sized businesses are hollowed out, we lose out on vital economic activity today and a more dynamic economy tomorrow.

It is an unfortunate reality, but we will see more businesses exiting the market in the coming months, which will increase industry concentration. Canada’s competition laws will help protect the investments made by governments to support our economy by preserving the competitive intensity of marketplaces across the country.

While governments provide financial assistance to help vulnerable firms to weather the crisis and continue to compete, Canada’s competition laws ensure that firms can’t use this crisis to insulate themselves from competition. The Bureau will remain vigilant against such attempts. Taken together, stimulus and a commitment to competition can be a powerful combination for seeing Canada through this volatile period.

Canada’s Economic Opportunity

In the midst of such volatility, it is understandable that Canadians are focused primarily on the day-to-day, making ends meet and ensuring that their families are healthy and secure in the coming months. But, we should also not lose sight of what Canada can be after COVID-19. The decisions we make today will position us well for a stronger economy and a more prosperous future. I believe that the key to that future is in taking action in three vital areas.

First, safeguarding competition in an era of global digital giants is paramount. Network effects and economies of scope and scale have created an environment where digital markets can tip toward high levels of concentration and give firms unprecedented economic power. In the absence of scrutiny and principled enforcement from competition authorities to address abuses of market power, these companies can take on the role of anti-competitive gatekeepers, deciding who gets to compete, and potentially forcing new and innovative firms out of the market.

It is the responsibility of the Competition Bureau to enforce Canada’s competition law and ensure these players compete fairly, on the merits of their offerings. We must preserve a path forward for new entrants so they can scale up and challenge even those firms who we may have called “disruptors” themselves in their infancy. My foremost priority as Commissioner of Competition is to ensure that the Bureau has the tools and resources it needs to safeguard competition in the digital age.

Second, a strong telecommunications infrastructure underpinned by vigorous competition is foundational to Canada’s future success in a digital world. Investment in Internet infrastructure is critical in Canada, and the pandemic has only increased the urgency. Firms of all sizes have had to rapidly shift their business models to support online offerings, and to do that, they need reliable, affordable access to Canada’s networks. As we know, the federal government has made recent announcements about the Universal Broadband Fund as part of its efforts in this area. Competition in this sector is essential and the Bureau will continue to be vigilant against anticompetitive conduct and advocate for increased competition in Canada’s telecommunications markets.

Finally, creating regulatory environments that, at all levels of government, prioritize competition in Canada’s economic affairs will help improve our productivity and our overall economic well-being, without compromising legitimate regulatory goals. We have a tremendous opportunity right now to rethink the rules of Canada’s economy with a focus on removing unnecessary barriers to competition that can discourage new entrants and impede their ability to scale up.

An important factor, as we rebound from this crisis, will be the ability of businesses to enter or re-enter markets, post-pandemic, something that the regulatory environment can either encourage or frustrate. Research by the OECD puts Canada in second-last place among our OECD peers for market regulation, a measure of how pro-competitive a country’s regulations are. The elimination of regulatory barriers to competition, at all levels of government, is a huge opportunity for Canada.

For example, a 2018 study estimated that Canada could realize up to a 5% boost in productivity were it to pursue regulatory reform that places greater emphasis on competition in the Canadian economy. Just like a firm facing increasing competition, I believe we have yet to explore our full competitive potential as a country, but we are working hard to change that. We recently published a toolkit to help us strengthen our economy by adopting more pro‑competitive policies. This publication is available on our website and I encourage everyone to take a look at this document. We must all think about these important issues together and I ask you to consider how the principles of competition can be incorporated in areas that your work touches upon. And, of course, our team at the Bureau is ready to assist regulators and policy-makers who would like to assess the competition impact of existing or proposed regulations.

Conclusion

As we head into what will be a difficult winter, I want to end on a positive note. Although incredibly challenging in many ways, the past year has shown us what Canadians are capable of in times of crisis. We have faced this crisis not as individuals but together, and there is tremendous strength and resolve across our great nation to weather this storm and come out stronger on the other side. The economic success of our nation is ultimately a shared responsibility.

Canada has the potential to reap the real benefits of a strong culture of competition, but it requires all of us to engage. The Bureau’s role is to ensure that those with economic power in Canada don’t abuse that power, and that firms of all sizes can compete freely and fairly. We will also continue to promote and advocate for regulatory environments that prioritize competition. All levels of government need to find the delicate balance between regulation and competition. Businesses of all sizes need to compete hard on the merits to drive themselves forward, to innovate, to grow, and to avoid stagnating to everyone’s detriment. Consumers need to continue to vote with their wallets and voice their desire for increased competition throughout the country.

In times of crisis, and in the economic recovery we anticipate, we know that making good on our shared responsibility is more important than ever.

Thank you again, for inviting me to speak with you today, and I look forward to our discussion.

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