2021 Vancouver Competition Policy Roundtable speech

Speech

Remarks by Matthew Boswell, Commissioner of Competition
Vancouver Competition Policy Roundtable
January 26, 2021

(As prepared for delivery)

 

Good afternoon everyone, I appreciate the invitation to speak with you all today. This Roundtable brings together members of Canada’s competition community to discuss topics that I believe will have a profound and lasting effect on the future of our country, and I am honoured to participate.

This winter continues to be a difficult one for Canadians, and although there are more challenges to come, we have good reason to hope that brighter days are ahead.

On that promising note, I want to speak today about the complementary role that competition and stimulus can play in Canada’s recovery from the current international economic crisis.

Competition and Recovery

Canada, along with many of our peer countries, is poised to launch another major round of stimulus to help mitigate the economic consequences of COVID-19. Given this, I think it is worth exploring the important connection between economic stimulus and competition. Economic stimulus will help maintain the level of competition in Canada through the crisis, and competition has the potential to improve the effectiveness of that support.

Stimulus -> Competition

One of the primary goals of Canada’s recent economic stimulus has been to allow firms sidelined by the pandemic to weather its economic consequences. Without it, we would expect a sharp increase in the number of firms exiting the market, especially in sectors hit particularly hard by the pandemic. Thanks to this temporary fiscal support, firms that may have otherwise left the market are able to remain, helping to prevent industry concentration and preserve competitive intensity beyond this crisis.

This support is particularly critical for the small- and medium-sized businesses that we now know have been hardest hit by the pandemic, and tend to have limited access to the financial lifelines available to larger firms. Comprising a significant portion of Canada’s private-sector employment, small- and medium-sized firms are often the upstarts that drive competition in markets across Canada, challenging entrenched incumbents, and sometimes disrupting entire industries. If Canada’s small- and medium-sized businesses fail, we lose vital economic activity today, and more dynamic markets tomorrow.

Although concerns about appropriate targeting and the potential negative impacts of propping up so-called “zombie firms” do merit analysis, especially in sectors that will experience long-lasting changes in demand, governments should be ready to use the fiscal tools available to them. As the Chief Economist of the OECD noted a few weeks ago, now is not the time for countries to repeat past mistakes of meeting crises with austerity.

I should note, as governments across Canada enact these stimulus measures, policies on public procurement become increasingly important. Whenever possible, governments at all levels should rely on competitive bidding processes to protect public value. Competitive bidding between firms drives lower prices, higher quality and increased innovation, ensuring Canadians get the highest value for their tax dollars.

Acting decisively to help preserve the level of competition in affected markets is crucial given what we’ve learned from previous economic crises. Crises can be prime opportunities for dominant firms to consolidate market power and harm competition, whether that’s by buying up weakened competitors, fixing prices, or reducing output.

This kind of conduct can worsen an existing economic crisis and even delay recovery. Paired with fiscal stimulus to protect vulnerable firms through the crisis, strong enforcement of competition laws ensures firms can’t insulate themselves from the forces of competition during a crisis.

Competition -> Stimulus

While stimulus can help maintain the level of competition in Canadian markets, low competitive intensity can reduce the effectiveness of that stimulus. A paper published last year by Spanish economist, Jorge Padilla, illustrates the logic of this concept. The positive effect of stimulus spending, the fiscal multiplier, is reduced when firms are free to charge high margins on their products. But, when fair competition drives those margins down, the return for each stimulus dollar increases. Competitive markets give us more bang for each buck of economic stimulus. Unfortunately, recent studies suggest Western economies have seen sharp increases in markups, possibly driven by rising market power[1]. In effect, a lack of competition may be blunting the ability of governments to respond to economic crises.

This underscores the importance of preventing and addressing anticompetitive conduct during times of crisis. The cost to Canadians is two-fold. Companies violating the Competition Act are taking money out of the pockets of vulnerable Canadians and harming our ability to recover economically. Allowing competitive intensity to diminish and market power to grow unchecked leaves us less able to respond to economic crises today and in the future. Put simply, competitive markets are vital to our economic recovery.

Taking a longer-term view, stimulus can be seen as an investment in Canada’s competitive future. Two sectors underpinning that future are telecommunications and health care.

I am pleased to see our government investing in Canada’s telecommunications infrastructure. Thanks to the pandemic, the consequences of the “digital divide” have never been clearer. In response to vital public health measures, many firms have had to rapidly shift their business models to a more digital focus. To make that shift successfully, those businesses need reliable, affordable access to Canada’s networks. For this reason, the Bureau will continue its vigilance and advocate for increased competition in Canada’s telecommunications markets.

With respect to health care, the Bureau recently launched a market study examining how to support digital health care in Canada through pro-competitive policies. I believe that pro-competitive policies can bring about greater innovation, choice and access to digital health care across the country, and this work will be an important step in that process. We recently concluded the public consultation phase of this study to better understand potential impediments to innovation and choice in Canada’s health care sector, and we will be publishing a report in the coming weeks.

Implications

There are steps Canada can take today to secure the complementary benefits of fiscal stimulus and competitive markets throughout this economic crisis. First, Canada should stay the course on its commitment to the principles of competition. During a crisis, it is tempting to believe that relaxing the principles of competition will ease economic stressors and support recovery, but experience shows the opposite is true. More than ever, Canadians need the protection and benefits that competition provides. This is especially true in sectors like telecommunications and digital markets, which are critical to the success of Canadian businesses, workers and students.

Beyond staying the course, Canada must also make sure our competition laws are fit for the digital age. Many of our foreign counterparts are already in the process of updating their own competition laws, and I look forward to continuing this work with the policy-makers responsible for the design of the Competition Act.

However, the scope of competition in Canada extends well beyond the pages of the Competition Act. Policy-makers at all levels of government have a role to play in protecting and encouraging competition as they balance their many competing policy priorities. As we work to recover, we have an opportunity to create an environment that brings down barriers, and allows Canadians to re-enter the competitive process, presenting new challenges to entrenched incumbents.

Research by the OECD puts Canada near the bottom of our global peer group when it comes to pro-competitive regulation, which I see as an indication of just how big the opportunity is for Canada. A 2018 study suggests Canada could realize up to a 5% boost in productivity if we were to pursue regulatory reform that places greater emphasis on competition. Last year the Bureau developed a toolkit to assist regulators in this task, but this is just a first step in a process that could have positive implications for all sectors of our economy.

Conclusion

I want to thank you again for your time this afternoon. The members of this audience are responsible for the future direction of Canada’s approach to competition, inside and outside the courtroom. Each of you has a role to play in supporting a more competitive Canada that is able to prosper, no matter what challenges we may face.

Rather than retreating from their commitment to competition in the face of crisis, countries around the world are moving to put it at the center of their economic affairs. When I spoke to you here last year, I said we must all work together to create a culture of competition in Canada. I believe that now, this project is more urgent than ever.

Thank you.

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[1] Jan De Loecker, Jan Eeckhout and Gabriel Unger, ‘The Rise of Market Power and the Macroeconomic Implications’ (2020) 135 (2) Quarterly Journal of Economics 561.

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