Speaking Notes for Sheridan Scott Commissioner of Competition

Competition Bureau

The Brave New World of Competition

Canadian Corporate Counsel Association
National Spring Conference
Ottawa, Ontario

April 24, 2006

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(PDF: 40 KB)

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I appreciate this opportunity to speak directly with you today, not just because you represent so many Canadian corporations, but because the title of this conference, Leading Change in a Brave New Regulatory World, lends itself to a key theme that I want to address.

But my theme and message may be somewhat different than that implied by your title. Let me explain.

At the risk of sounding like your high school English teacher, let me put the title in perspective. You may, or may not recall that the phrase "brave new world" first appears in Shakespeare's last play, The Tempest. But for most of us, it is best known as the title of the Aldous Huxley novel, written almost 75 years ago. His Brave New World was a dystopia, a future society corroded by drugs and other problems. As a result, "brave new world" has become an expression for a future to be viewed with suspicion, if not downright dread.

The question is, should we view our brave new regulatory world with similar degrees of suspicion and dread?

The answer is clear. Not only should we welcome this new order, we should be actively seeking it, for it may well hold the key to our future prosperity.

And the reason is simple. Before we deal with the brave new world of regulation, we need to deal with the brave new world of global competition. This competition demands and will reward new approaches to regulation because, as a mid-sized, open economy, our future is ever more dependent on our ability to compete globally.

And it is not clear that we are totally ready to succeed, at least not yet. On October 18, 2005, the Conference Board described Canada as an underperforming but potentially gifted child. Our productivity achievements were declared to be our most significant weakness, with 2004 increases less than one-third of those in the US (1.1% versus 3.6%).

This difference goes straight to Canadians' wallets and purses: Our annual per capita income gap with the US now exceeds $8,000.

While there is work to be done, I don't want to overlook our accomplishments. As a country, we have made great progress in the last twenty years, opening up to new markets with multilateral and regional trade agreements, reducing barriers to internal trade and restoring our fiscal health.

In these and other ways, we have created a solid foundation for our future. The challenge is to ensure the foundation remains strong, and to build on it. And in this effort, the Competition Bureau has a key role to play. Our job, according to the Competition Act is to maintain and encourage competition in Canada, and competition is one of the cornerstones of our competitive foundation.

We do our job in two ways: by enforcing the Competition Act to protect competitive forces in the economy, and by being energetic advocates on behalf of competition.

I will speak a bit more about our advocacy work later, but let me begin with a quick refresher on the four broad enforcement elements of the Act, although I suspect that many, if not most of you are not in need.

First, the Act provides the Bureau with the right to review and contest mergers in order to prevent excessive market concentration. Only the larger mergers must be notified to the Bureau, and these mergers are very carefully analysed to ensure that we act only where the merger will result in a substantial lessening of competition – historically, over 96% of all notifications are approved without change.

The second part of the Act provides the Bureau with civil powers to deal with certain potentially anti-competitive business practices. These include practices such as abuse by a firm of its dominant position in a market to reduce or preclude competition, refusal to deal, tied selling, and exclusive dealing. Now I know that aggressive pricing and bundled discounts can be legitimate business practices and we are very, very careful to differentiate business practices which support, or are part of intense and vigorous competition, from those with the effect of impeding competition.

Third, as you know, the Act covers criminal practices such as price fixing and bid rigging. These have been described as the most egregious forms of anti-competitive conduct and are taken very seriously.

You may, in fact recall the announcement in late January of a major cartel decision involving the paper industry. Cascades Fine Papers Group Inc., Domtar Inc. and Unisource Canada, Inc. each pled guilty in the Superior Court of Justice in Toronto to two counts of conspiring to lessen competition unduly contrary to section 45 of the Competition Act. Each company was sentenced to record fines of $12.5 million for their part in the domestic conspiracy of carbonless sheets. A prohibition order was issued against the companies and senior staff were either demoted or dismissed.

This decision demonstrates that we and the courts take domestic cartels very seriously.

And the economic reason is clear: cartels and bid rigging are capable of diverting large sums of money away from consumers, away from taxpayers, and away from other Canadian companies such as yours that compete globally. In short, these acts destroy markets and competitiveness.

Which brings me to the fourth element of our mandate which is to preserve the integrity of the marketplace, and in particular marketplace information. To this end, the Act contains provisions dealing with false and misleading advertising.

The Bureau's role and powers in enforcing these four elements of the Act are those of a law enforcement agency. For example, we can and do seek search warrants and conduct searches. We can and do seek wiretaps. We have an immunity program for individuals who want to bring us evidence of cartels or other criminal offences.

As with other law enforcement bodies, we examine and analyse cases as they emerge. And when warranted, we present our cases either to the Competition Tribunal, a specialised body equipped with both judicial and economic and business expertise, or through the Attorney General to the courts for Criminal matters.

You are probably very aware of these enforcement duties. But I suspect that our advocacy role is less well known. I want to change that situation today.

We are specifically charged by our Act to advise on, and speak for and about competition in Canada. We take this role very seriously, from our interventions in regulatory fora such as the Canadian Radio and Telecommunications Commission and the Canadian Transportation Agency, to providing advice to governments of all levels on policies affecting the marketplace.

And as I am doing today, we speak out publicly on behalf of competition. Which takes me back to my theme for today: competition is for competitiveness and innovation.

This is not a new thesis.

The central role of competition in economic progress is well established. Adam Smith's invisible hand moves in the ether of competition. More modern thinkers, from Joseph Schumpeter to Michael Porter have written about the importance of the forces of competition within an economy in determining economic competitiveness. McKinsey and Company noted that: "Greater competition means stronger productivity growth, which in turn means a faster growing economy and more wealth to share."

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In short, competition helps drive the competitiveness which determines our standard of living. This has been true since human beings first began to trade. And it is still true in the "brave new world" of today.

But there is a difference. Our brave new world is more than ever driven by innovation, and this innovation is fundamentally changing the economic game plan for Canada.

You know too well that the pace of innovation has skyrocketed, propelled by highly educated individuals, information and communication technology, and of course globalization.

The implications are huge: in the past, a company could stick to its knitting. Today, it will find itself unravelled by rivals that knit faster, better and at lower costs.

And as Al Jolson said in that great innovation, the talking picture, "You ain't seen nothing yet."

All of the factors supporting global innovation are being accelerated with the emergence of China, India and other countries. We have seen the impact of their low cost labour. But these countries are dead serious about moving up the value chain, and quickly. They will be formidable competitors. But there are also extraordinary opportunities if we compete in their markets with world class products and services.

To survive and prosper in this new global arena, we must ensure that our economy excels in the virtues of the perpetual "Global Economic Olympics" - not faster, higher, stronger, but more innovative, efficient and economically agile. These are the business virtues that we must nurture.

And such virtues are most often the products of the successful interpretation and reaction to market forces - in other words, competition.

Today, I am going to focus on the innovation virtue, but my comments can apply equally to our need for efficiency and agility.

So what drives innovation?

Well, it appears that innovation is the complex product of supply and demand. On the supply side are factors such as highly qualified graduates, tax credits, funding for basic research, centres of excellence, and so on. This side of the equation has received and will continue to receive considerable attention and debate.

Less attention has been paid to the flip side of the coin, the factors affecting the demand for innovation - that is, those factors which drive businesses to take on the challenges and risks of the innovation process. But this is changing.

In January of 2005, The Institute for Competitiveness and Prosperity produced a report titled Canada's Economic Prosperity. Based on the work of the World Economic Forum, the report identifies many factors contributing to our productivity malaise compared to the US. One of the overall factors they identify is weaker competitive pressures in Canada, including the effectiveness of our antitrust policy.

To quote their report:

"The Business Competitiveness Index rates Canada very low on factors of competitive pressure - with Canada trailing the United States in 17 of the 23 factors regarding firm rivalry and degree of sophistication of customers."

Their view of the impacts of these shortcomings is harsh. The report concludes that:

"…company strategies and operations are only as good as they need to be. If the environment in which companies operate is not providing the specialized support and the intense pressure for innovations and upgrading, then the companies will have uninspired strategies and mediocre operations."

If true, where does that leave Canada? I know that we are blessed with entrepreneurial skills and drive. Many Canadian markets, especially those well integrated into the global scene, are intensely competitive. But to function at the cutting edge of global competition, all of our markets need to be highly efficient, with minimal distortions from regulations. They need to be supported by world-class marketplace infrastructure. And they need to be free from anti-competitive activity.

This is not just because you need to have competitive suppliers, although that is critically important. But competitive, effective markets do more. They generate the market information and ideas that guide successful innovation. They give you rapid feedback on your progress and strategies. They set competitive challenges that spur better performances.

Customers, faced with choices, become more demanding, more confident and more successful. And successful customers are good customers.

A competitive marketplace also ensures that firms enjoy the benefits of innovation. They will not suffer from undue regulatory delays, uncertainty or restrictions. They will be protected from unfair practices of other marketplace participants. Their successful innovations will have a chance to turn into profits.

Obviously, the sheer force of competition is a powerful spur to innovation. Peter Nicholson, who was recently appointed as the first President of the Canadian Academy of Science, drew on the results of an extensive study by the Organization for Economic Cooperation and Development to argue that:

"Competition is important not only because it makes business more responsive to the wishes of consumers but also because it creates a powerful incentive to innovate and continually to increase efficiency so as to expand, or defend, market position. … competition is, in most cases, an extremely potent driver of productivity growth."

And many business leaders are on the same page. For example, Thomas H. Weidemeyer, Chief Operating Officer, United Parcel Service, and President, UPS Airlines noted the following:

Imports lead to competition … competition leads to innovation … innovation creates new products and industries.

So effective, competitive markets drive the demand for innovation, and innovation drives competitiveness and productivity. The obvious question is: what do we have to do to improve Canadian marketplaces?

We can draw on examples of action elsewhere in the world. For example, Australia, the UK and the European Union are all making competition a cornerstone of their economic development initiatives, with great success. In Australia, they have totally revamped their way of doing things, from their competition act through to the way they treat regulation and legislation in all markets. They have achieved national consensus on the importance of competitive markets and have coordinated state and federal efforts.

The UK offers another example. They have also revamped their competition enforcement, but perhaps more importantly, they are applying a competition lens to all proposed legislation to ensure that the many and varied policy objectives of government are achieved with the least interference to the marketplace.

We in Canada have to get moving. And, at the Competition Bureau, we are acting on the two fronts I mentioned earlier - enforcement and advocacy.

With respect to enforcement, we have a fundamental philosophy: the prevention of marketplace infractions is far better than prosecution. As a result, the Bureau has a systematic approach which we call the Conformity Continuum, a fancy title to reflect the range of efforts we use to assist firms to avoid a conflict with the Act - from education and communication efforts through to monitoring, voluntary compliance and, of course, adversarial enforcement actions. I hope your in-house compliance programs are also contributing to this goal.

My own in-house enforcement priorities are directed to make the best use of our available resources to have the greatest impact on competition in Canada. While we will enforce all elements of the Act, of course, we are going to focus our attention on certain areas.

For example, we will be looking closely at local bid rigging and national cartels - criminal offences which take money from business, consumers and governments. And as I pointed out earlier, these criminal activities erode our competitiveness.

We are targeting mass market fraud schemes which exploit Canadians and undermine confidence in markets, including the critically developing electronic marketplace. In this area, fraudulent and misleading health claims are a particular concern.

While improved enforcement is important, my experiences in the government as a regulator, and in the private sector as a regulatee have taught me that a market will not be competitive if underlying business frameworks mitigate against it. In fact, McKinsey and Company's Global Institute "believes that poor regulation is the main factor hampering productivity and growth in economies throughout the world."

And this is where our role as an advocate comes into play to promote the removal of government barriers and ensure we can effectively deal with anti-competitive business conduct.

We are not alone in taking this view. I have already mentioned the extensive work underway in Australia, the UK, and the EU. My counterpart at the German competition authority makes a very succinct comment on the importance of this work. In a speech to the International Competition Network, he noted the following: "Acting against infringements of competition by companies remains without doubt our key task. But to effectively protect competition requires more. The battle against state-imposed restrictions of competition is no less important if competition is to develop freely."

In all of our interventions in Canada, we rely on our experience, our contacts, our skills and careful analyses. We do not argue blindly for competition at the expense of all other goals, but rather we attempt to advocate that these goals be achieved through and in concert with competitive forces, and with the least impact on the marketplace.

To be effective, we have to be plugged into how markets operate and the challenges you face. So I now meet regularly with the major business associations and consumer representatives. I, and other Bureau staff, are out talking to groups such as this one, increasing business awareness of the Bureau, and in turn, the Bureau's awareness of business issues and concerns.

To increase sectoral expertise, we have created teams of officials from across the Bureau, each of which is responsible for developing and maintaining awareness of sectoral developments, contacts and issues. We have 'sector days' during which business leaders visit the Bureau to discuss developments in their industries, including developments related to globalization, emerging technologies, and regulatory issues.

We are engaging leading experts in business and economics to help us understand issues affecting markets and the potential for improved reliance on marketplace solutions.

I emphasize again that we are not doing this in isolation. We are closely watching the efforts of other countries to look for more effective ways of improving our marketplaces. They are doing it and so can we.

And we have to succeed because the brave new world of global competition demands a brave new world of regulation.

As I said at the outset, I do not view this with dread but with anticipation that we can and will seize the opportunity. Shakespeare was also positive about the brave new world almost four centuries earlier. You may recall, the original phrase was spoken by the character Miranda in The Tempest; it goes like this:

"How many goodly creatures are there here!
How beautious mankind is!
O brave new world,
That has such people in't!"

I don't know which beautious people Miranda was contemplating. But I do know that our capacity to truly succeed in the brave new world will depend on "goodly creatures", such as you here today. It will be up to you, as the conference title suggests, to lead the change, to push the agenda forward and to enable Canada to succeed into the future. I look forward to working with you in this effort.

Thank you.