Complacency, Competition and Canada’s Productivity Crisis

Tackling Canada’s productivity crisis requires larger pondering

A more productive economy could be higher equipped to cope with this shock, Rogers argued, and competition was a path to productivity. “Higher productivity will not make Canada immune to U.S. trade policy, but it would help cushion the impact of tariffs,” she said in prepared remarks.

Labor productivity – how much Canadian industry produces per hour worked – fell 1 per cent within the second quarter as trade uncertainty led to a slowdown in manufacturing output. In Canada, productivity has declined in six of the last eight quarters. Rogers speculated in an onstage discussion after her speech that years of reliance on proximity to the United States can have contributed to Canada’s productivity crisis.

The country had turn into accustomed to U.S. demand for Canadian resources and free trade between North American allies stimulating economic growth and leaving weak productivity simmering beneath the surface. “Maybe we’ve gotten a little complacent and relied too much on this relationship. But we’ve gotten a big dose of reality lately,” she said. Reducing interprovincial trade barriers is a primary step toward increasing competition, but Rogers said Canada must “think bigger.”

Rogers focused her speech on the banking sector, which she said is aptly described as an oligopoly – an industry dominated by just just a few key players.

Competition drives innovation – but balance is essential

The dominance of Canada’s big six banks has provided stability to the financial sector, she acknowledged, and the profitability of their operations has made those institutions less more likely to take big risks with Canadians’ money. But Rogers said there are trade-offs between encouraging an excessive amount of competition and insulating the industry from outside forces.

The more firms compete, the harder they may work to innovate, which Rogers says will lower prices for Canadians while boosting the economy. “Greater competitiveness, more new entrants and more innovation in our financial sector would lead to competition that is good for consumers, productivity and our economy,” she said. “We should get into it.”

Rogers calls for smart regulation to advertise innovation and productivity

Rogers pointed to the event of an open banking framework – an idea backed by Ottawa that provides consumers more control over their very own financial data, making it easier to modify banks – as a path to more competition within the industry.

An upcoming plan to maneuver to a real-time payments system in Canada that will allow smaller firms to exclude large banks as intermediaries of their services would also help spur competition, she said.

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Rogers said policymakers must find the suitable balance between strong competition law combined with appropriate levels of regulation and incentives to drive long-needed productivity gains. During Thursday’s question-and-answer session, she also said that the “next frontier in banking” is the digitization of assets.

Rogers said Canada should follow the lead of Europe and the United States in bringing forward laws to control stablecoins – a type of cryptocurrency pegged to the worth of a conventional asset resembling fiat currency, to present it a level of stability for straightforward use in payment systems. “We need our own framework here,” she said.

Industry Minister Mélanie Joly said in a speech at Canada’s annual competition summit last week that the federal government could be “hawkish” on competition as Ottawa seeks to construct a more resilient economy within the face of U.S. tariffs.

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Via Canadian Press

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