Canada needs more competition now

There’s none so blind as those who will not see that competition, the unfettered rivalry between businesses, is the primary engine for growth of our economy. Many empirical studies have established positive relationships between competitive intensity, innovation, and productivity. With the emergence of new economic trends transforming our society, there have been increasing calls for significant changes to Canada’s Competition Act, our main economic framework law that sets the rules of engagement for business competition, including mergers and acquisitions. Canada’s long-standing support of market concentration, a small number of businesses controlling a large share of the market, in a number of industry sectors is now in the spotlight. Widespread digital transformation has helped create “winner-take-all” markets and highlights concerns that excessive concentrated market power can threaten the welfare of businesses, both large and small, and can leave consumers with higher prices, less choice, reduced product quality and diminished innovation. The last comprehensive study of our competition law was conducted in 2008 and urged Canadians to “skate harder, shoot harder, and keep our elbows up in the corners.” The underlying theme of the expert report was that greater competition in the Canadian economy would “improve economic performance and provide Canadians with a higher standard of living.” Unfortunately, the panel’s overarching recommendation for the government to create an independent Canadian Competition Council, tasked to keep competition policy in the spotlight, was ignored. Nevertheless, in response to the growing concerns about market concentration, the government implemented several updates to the competition law this past June. Although imperfect, and undertaken without proper consultation, these changes provide a start to the government’s reform of competition policy. John Pecman is a fellow with the Canadian Chamber Future of Business Centre and a former commissioner of the Competition Bureau Canada. Photograph courtesy of the Canadian Chamber of Commerce As a fundamental tenet as the reforms continue, ensuring that Canada has a strong competition policy should begin with safeguarding the Competition Bureau’s resources and providing it with a stronger voice to advocate for competition by making the bureau a truly independent law enforcement agency similar to the Office of the Privacy Commissioner. Currently, the federal government’s Department of Innovation, Science, and Economic Development (ISED) controls the bureau’s budget and executive hires. This is particularly problematic given the inherent conflict between ISED’s role of supporting Canadian businesses and the bureau’s responsibilities as an unbiased marketplace referee and neutral competition advocate. The most controversial reform proposal expected to be addressed in upcoming government consultations involves the outdated efficiency exemption as they relate to company mergers. The exemption mandates the approval of anti-competitive company mergers if the fixed-cost-savings from a proposed merger exceeds the anti-competitive harm to the economy. The intended goal of the efficiency exemption was to allow for greater product market concentration to enable Canadian businesses to increase their production output and efficiency to better compete abroad. However, our economic experiment of putting greater efficiency over consumer welfare has been a policy failure, and Canadian consumers have paid the price. Since its introduction in 1986, there have been no alleged anti-competitive mergers that have been saved by the efficiency exemption where international exports were of any relevance. The efficiency exception should be downgraded to a factor for consideration along with other pro-competitive merger benefits such as increased investment, dynamic efficiencies, research and development, and exports from Canada. There are also calls for provisions to be added to limit harmful competitive conduct by dominant firms in digital and platform markets. Before considering expanding these provisions, we should wait to test the effectiveness of the recent amendments that targeted digital markets. Additionally, we should continue to monitor the pilot competition policy reforms aimed at dominant digital platforms in the European Union, the United States, and elsewhere that have recently come into effect. The reforms abroad introduce sector regulations to tame alleged market power, which may have the unintended consequences of dampening innovation and investment in the digital sector—time will tell. As Commissioner of Competition Matthew Boswell has repeatedly stated: “Canada needs more competition.” My report on competition policy reforms, released through the Canadian Chamber Future of Business Centre, contains my recommendations that support the commissioner’s pleas. The time has come to move away from the economic policies of the past that have created Canadian market structures that allow just a few firms to exert significant control over an entire sector. There can be no greater economic priority for our government than strengthening domestic competition through further improvements to competition policy. John Pecman is a fellow with the Canadian Chamber Future of Business Centre, an economist, and has worked at the Competition Bureau as an investigator, manager, and executive for more than 34 years—including as commissioner of competition, until 2018. The views expressed in the article are his own. The Hill Times