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opinion

Maybe you saw that report by the CBC’s Marketplace the other day on the cost of wireless telephone service in Canada. If so, maybe your fists have not yet unclenched from the little balls of rage that formed as you watched.

Quoting a recent study by the Finnish research firm Rewheel, the report found the cost per gigabyte of wireless data transmission in Canada is “seven times more expensive than Australia, 25 times more than Ireland and France, and 1,000 times more than Finland.”

For example, “scrolling Instagram for five minutes would cost about half a cent in France, while it would cost 20 cents in Canada. Downloading a half-hour show from YouTube would cost eight cents in Ireland and $1.03 in Canada. Downloading an entire season of Wednesday from Netflix would cost about $1.62 in Australia, and $10.22 in Canada.”

File this under shocking, but not surprising: Rewheel’s is only the latest in a string of reports to find the cost of wireless service in Canada is, if not the highest in the world, then certainly among the highest. Neither is wireless the only industry in which Canada enjoys that distinction.

Canadians also pay among the highest air fares, domestic or international, in the world. Using data from travel site Kiwi.com, the Consumer Choice Center found the cost of air travel per 100 kilometres was “2.1 times higher than in the United States, 2.8 times higher than in New Zealand and 3.6 times higher than in Portugal.”

The same holds with regard to financial-service fees. For example, the charge for a customer of one bank to withdraw money from another bank’s ATM is 10 times as high in Canada as in Britain. Mutual funds, in particular, are extraordinarily expensive in Canada; our management expense ratios, according to a 2019 study, are – once again – among the highest in the world.

What is the common thread linking these three industries, other than obscenely high prices? Competition. Or rather, the lack of it. Just three cellphone companies, Rogers, Bell and Telus, control 90 per cent of the market in Canada. Two large airlines, Air Canada and WestJet, control 80 per cent of the air-travel market. The big five banks control 85 per cent of the market for financial services in Canada (by comparison, in the U.S., the five largest banks account for just over a third of the market).

These, moreover, are only the most extreme examples. Lack of competition is a pervasive problem in Canada – not as an accident of history, but as a matter of deliberate government policy.

Why is our health care system so expensive, yet produces such mediocre results? Because no one in the system knows what anything costs, certainly – but more because no one has any incentive to find out what anything costs. The hospital administrator does not need to know whether her hospital is charging more or less than its competitors for a tracheotomy: It has no competitors.

Why do Canadians pay two and three times the market price for such staple food items as milk, eggs, butter and poultry? Because their producers have been organized into government-sponsored price-fixing rings, backed by production quotas and protected by three-figure tariffs, the whole racket dignified by the euphemistic name of “supply management.”

Why is the postal service so glacial, and yet so costly? Because Canada Post, unlike postal services across Europe, remains a statutory national monopoly: It is illegal for anyone else to carry a letter in Canada for less than three times the price of a first-class stamp. Why is Via Rail so sluglike and unpleasant? Because it, too, remains a monopoly. Competition in rail is perfectly possible – the rails may be a natural monopoly, but not the cars that run on them. Only policy forbids it.

Neither did the three big private-sector oligopolies described above arise by chance. In all three, effective competition is most likely to come from outside our borders – domestic startups have had a hard time getting a foothold. Yet in all three, foreign competition is effectively barred. Only domestically owned companies may operate in the Canadian wireless market. Foreigners are likewise forbidden from taking over Canadian banks.

Airlines are protected not only by foreign ownership restrictions, but by rules prohibiting foreign airlines from flying between Canadian cities – a practice so ghastly it even has a name: “cabotage.” International travel, meanwhile, is governed by a series of bilateral agreements, in which countries gingerly extend to each other’s airlines the right to fly between them. Canada has some of these, but not many.

You’d think in a country as vast as Canada we would want to make travel and communications as cheap and efficient as humanly possible. The point, after all, of putting planes in the air is not to give pilots something to do. It is to move passengers from one place to another. And yet the operating principle of Canadian regulatory policy is the opposite. Industries are not regulated in the interests of the people who use them – consumers – but in the interests of the industries themselves.

And so, in place of competition we are given such worthless baubles as a “passenger bill of rights” to safeguard the consumer interest. These are poor substitutes, as they do nothing to alter the underlying balance of power between producers and consumers. Competition forces producers into an endless search for ways to improve customer service; if one company doesn’t give them satisfaction, another will. Regulation, on the other hand, gives producers no incentive to please consumers, but only to do the minimum necessary to keep the regulators at bay.

That’s not only a matter for consumers. It has broader implications for productivity and innovation – and for wages, which depend on both. In a market economy it is consumers who, through the choices they make, drive competing firms to lower costs. Muzzle competition, and you not only despoil consumers, but constrain the relentless search for new and better ways of doing things that alone fuels gains in productivity.

Through all the vast literature on productivity, this is the most common theme: competition, competition, competition. This is to be distinguished from the still-flourishing cult of national “competitiveness,” whose thesis seems to be that competitive success abroad is best achieved by reducing competition at home, in the service of creating “national champions” capable of taking on the best in the world.

The opposite is true. At the time Michael Porter’s seminal 1990 book The Competitive Advantage of Nations appeared, it was common to attribute Japan’s economic rise to the concentration of ownership in the hands of a few giant cartels, the keiretsus, overseen by the supposedly all-powerful Ministry of International Trade and Industry. By contrast, Mr. Porter found it was intense local competition that was the biggest factor. “The harsh domestic rivalry among Japanese companies … has been the key to that nation’s success,” he wrote. “It drives companies to move beyond whatever initial advantage led to the founding of the industry and to begin developing their international potential.”

Japan, he noted (the numbers would no doubt be different now, but the point remains), had 112 machine tool makers, 34 semi-conductor manufacturers, 25 audio-equipment companies, 13 companies making fax machines, and no fewer than nine auto manufacturers. It had seven times as many manufacturing firms with less than 50 employees as the U.S., with half the population.

If Canada, therefore, has struggled with productivity – near the back of the pack among the OECD in productivity growth over the past 30 years, and likely to stay there in the next 30 – our half-hearted commitment to competition may be part of the explanation.

People in government are inclined to see innovation as a technological process: You put a certain amount of R&D spending in at one end of the economy, and higher productivity comes out the other. But it is better understood as an economic process. Companies innovate not because they can, but because they have to – because the competition will eat their lunch if they don’t.

As the Council of Canadian Academies noted in its 2009 report, Innovation and Business Strategy: Why Canada Falls Short: “Competition is among the most potent incentives for innovation, both because of the benefits innovation can provide … and the threats that can be averted if innovation keeps a firm running ahead of its competitors.”

Or as the 2008 report of the federal Competition Policy Review Panel, headed by former BCE Inc. CEO Red Wilson, put it: “The primary drivers of productivity growth are the investment, innovation and adaptation fostered by openness and competition.” Still, “the benefits of investment and innovation are not achieved without financial cost or personal dislocation and uncertainty. … It is the lure of economic gain and personal success as well as the spectre of economic loss and personal failure as a result of competition that provide the incentive” to do so.

And yet it is worth it. “Opening an economy to the free entry of goods, services, competitors and capital increases competitive intensity in the economy and, as a result, its productivity. … The greater the level of competition in an economy … the better off its citizens will be and the better its successful firms will be able to compete beyond the boundaries of the domestic economy.”

How to achieve that openness? The Wilson report was full of useful suggestions, most of which remain unimplemented. Rather than oblige foreign investors to prove a “net benefit” to the economy from a given acquisition, for example, it would have reversed the onus, requiring the government to show that it was “contrary to Canada’s national interest.” It would have loosened (but not abolished) restrictions on foreign ownership in airlines, telecoms and financial services.

And it recommended eliminating – by 2011, it suggested – all of the hundreds of interprovincial barriers that divide and hamstring the Canadian economy. Needless to say that went nowhere. These are dismissed in some quarters as unimportant. Not so: A Senate committee report estimated their cost to the economy at as much as 7 per cent of GDP.

As with other areas in need of reform – health care comes to mind – the question is not so much “What is to be done?” but “Why can’t we ever seem to get it done?” It strikes me that all of the measures that might be introduced to bring more competition to the Canadian economy can be summed up in two words: consumers first.

If governments understood nothing more than that – that consumption is, as Adam Smith put it, “the sole end and purpose of all production,” and that therefore “the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer” – and if every regulation were therefore subjected to the test of whether it served the consumer interest – whether it put consumers first – the country would be a lot more prosperous and consumers a lot less angry.