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Monopoly-Friendly Canada ‘Does Not Treat Competition Policy Seriously’

John Pecman on why it’s time to beef up the Competition Bureau he led.

By Bryan Carney 19 Mar 2019 | TheTyee.ca

Bryan Carney is Director of Web Production at The Tyee. You can follow his very occasional tweets at @bpcarney.

Canadians like to believe they live in one of the most sophisticated free-market economies in the world. Don’t tell that to John Pecman. Until May of last year, Pecman was commissioner of the Competition Bureau, the agency responsible for enforcing laws against anti-competitive practices in the Canadian marketplace.

After he stepped down in September 2018, he published an article in the Canadian Competition Law Review that called for reforms to give the bureau more power to check corporate concentration, including added independence by separating it from the Ministry of Innovation, Science and Economic Development.

In a phone interview with The Tyee last week, Pecman elaborated, saying that federal laws governing corporate competition reflect Canada’s outdated view of itself as primarily a resource exporter and otherwise unable to compete with the big U.S. economy next door.

This led to laws favouring corporate consolidation in the name of “efficiency” over promoting competition or the interests of consumers.

The Competition Bureau he ran lacks the independence that would make it truly effective, he said — a vulnerability to political meddling that brings to mind other headline grabbing moments in Ottawa of late.

“Scarce enforcement resources” further erode the bureau’s ability to take initiative, he noted. The Trudeau government trimmed the bureau’s already strained budget to help cover a $950-million industry initiative called “superclusters,” says Pecman.

When it comes to not just studying market concentration but moving to break it up, says Pecman, Canada is “so far behind other western economies on this front. The fact that the country does not treat competition policy seriously is just a great disappointment to someone who has spent his entire life working in this area.”

Here is more of what Pecman, who spent 34 years at the bureau and now is senior business advisor at the nation-wide law firm Fasken, had to say...

On why it’s time to get the Competition Bureau out of the Ministry of Innovation, Science and Economic Development:

“If you look at any international body’s recommendations on institutional framework and design for competition authorities, the number one no-no is to be housed in the industry department that’s there supporting business, particularly [corporate] ‘national champions.’ Of course the industry department is probably the most lobbied department, so there’s the perception of political interference.”

On years of competition law foot-dragging in Canada:

“Competition law has been sort of shunned to the side, other than there were some serious amendments in 2010. I think particularly when you’re reading the papers today and [headlines reflecting] the angst about monopolies and IT giants, and corporate concentration and income inequality, we haven’t heard much from the government on any plans to study these issues.

“There have been calls outside of my requests from time to time to look at the law. For example, Carolyn Wilkins, the senior deputy governor at the Bank of Canada. During her speech this past year at the G7, she raised a concern about the growth of the IT giants and its impact on labour.”

On ‘scarce resources’ and ignored cases:

“Notably, on the abuse of [corporate market] dominance or consumer protection and deceptive marketing practices, particularly on the latter part, we receive more complaints than we have resources. We have to be careful, the bureau does, where to invest our scarce enforcement resources.”

On the big 2008 recommendation never enacted:

“If you are familiar at all with the competition review policy report done by L.R. (Red) Wilson [for the Canadian Council of Chief Executives] back in 2008... the largest recommendation that they made was to create an independent Canadian competitiveness council that would report to parliament that would do the advocacy and the policy work for competition. And that was not adopted by the previous government or this government.”

On how Canada lags behind other nations, hurting innovation:

“There is a huge gap. Most countries around the world have their competition authorities spending significant budgets to work in terms of promoting competition. In Canada, that’s just not the case. It depends on the discretion of the commissioner. There is no expressed authority to do it.

“To me, there needs to be some clarification of the importance of competition policy and advocacy in Canada with expressed authority to do that kind of work — whether it’s referred back to an independent competitiveness council to do the work or give the authority to the competition bureau. Someone has to do it.

“It’s hurting the competitiveness of the country not focusing on that, including the innovation agenda. The number one driver of innovation is competition.”

On why the Competition Bureau is ‘spinning its wheels’ because it can’t make regulations:

“We are so far behind other western economies on this front. It’s just disappointing. The fact that the country does not treat competition policy seriously is just a great disappointment to someone who has spent his entire life working in this area, knowing how powerful it is.

“Let’s take a good example — FinTech (Financial Technology). We engaged in a serious market study on the whole question of financial services technology. We put together a significant consultation and put out a report with 30 recommendations, including moving to an open banking system whereby consumers can move their banking data easily to competitors, whether it’s FinTechs or other banks, to facilitate competition, lower prices, better services.

“The government, in its last speech in the throne, identified this as important and in finances started to look at the issue.

“But in England, their competition authority did a robust market study because [unlike Canada] they can compel information from companies. Then it issued regulations. So England is about a year ahead of us. They’ve actually implemented open banking. And the FinTech companies and services and banking service fees have gone down significantly in the U.K. And FinTech is twice the size in Europe as it is in Canada.

“So there’s an example of the importance of competition advocacy in changes by government to facilitate competition and the benefits to the marketplace, where consumers have greater choice, lower prices, better services, better quality.

“And so, we’re spinning our wheels on open banking. The finance department is going to study this for years and who knows where it is going to end up?

“It just speaks to the lower priority competition policy has in Canada, in my view, compared to Europe, Australia, the U.S.”

On why Canada tolerates such high corporate concentration:

“I think it has to do with the fact is that we’re a small open economy next to the U.S. Economic thinking back in the ‘60s was that we needed to have large economies of scale in order to be competitive internationally. And of course, Canada has significant barriers to foreign competition in many sectors, whether it’s the financial services, transport, agriculture, just go down the list.

“The government has created economic policies that create corporate concentration, with the view of becoming more competitive internationally. I think that’s the thinking behind it. Whether it’s been successful or not, you can be the judge of that.”

On why ‘efficiencies’ enriching corporate shareholders supersede consumer interests:

“The ‘efficiencies defence’ was part of that thinking [that], in Canada, having larger companies to compete internationally was important. So this defence, which is an outright defence [supporting] an anti-competitive merger, was implemented. And we’re unique in that. I think we’re the only major economy in the world that has this defence, whereby an anti-competitive merger could proceed because of cost savings. Sometimes just static cost savings going to shareholders are more significant than potential higher prices to consumers or other businesses.

“It’s something that I don’t believe we should be an outlier on.”

On how consumer resentment may fuel populism:

“I just think [the efficiencies defence] needs a rethink, particularly when you’re looking at the whole issue of populism, corporate concentration and income inequality. In Canada, we can clear mergers to create increases in concentrations — further increases in concentration — because of cost savings that go to shareholders from a merger transaction. Increases that could be one-time, that do not benefit the economy at all writ large.”

On Canada’s own monopoly game, and why it’s rigged:

“I’m concerned about the rules that have created the concentration in Canada. Concentration per se, is not a problem. That is the end game for any company in a business — they want to become a monopoly. And if you earned organically and not through anti-competitive processes, more power to you! You’ve got a better mouse trap, you can reap the monopoly benefits of that.

“That’s not what competition laws are designed to prevent. They’re preventing abuses in a monopoly situation, or once you’ve emerged to become a monopoly. That’s what competition laws are in place to do.

“So really, the concentration piece doesn’t bother me, it’s how these companies are able to obtain concentration in Canada. It’s not through open, competitive markets. It’s through protection from government, protecting companies against competition.

“That’s the concern I have in Canada, with regard to our foreign investment rules, our supply management rules, our efficiency defences — those are my concerns with our process in Canada.”

On whether corporate concentration and competition could be an election issue this fall:

“I think it’s starting to make its way back to the front pages, and people may be following. But generally speaking, it’s an obtuse area that most don’t pay attention to. And so it rarely makes it as a priority in politicians’ platforms because it’s not a big vote-getter at the end of the day.

“But there’s a federal election coming up and, you know, what better way of targeting the middle class or consumers than saying there’s going to be a review of the Competition Act, given the growing concern about corporate concentration. To me it’s an easy, low-hanging fruit. But I haven’t seen any talk about that yet in Canada.”  [Tyee]

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