January 27, 2021
Premier’s Council for Recovery and Growth
Office of the Premier
5th Floor South, Shaw Building
95 Rochford Street
PO Box 2000
Charlottetown, PE C1A 7N8
Encouraging economic growth through pro-competitive policies
The COVID-19 pandemic has had a profound impact on Canada’s economy. In this new environment, all levels of governments are working to develop policies aimed at stimulating economic growth, innovation and job creation.
Competitive markets are more important than ever, and pro-competitive policies can help accelerate Canada’s economic recovery by stimulating the entry of new businesses, spurring innovation, lowering prices and increasing choice for Canadians. Importantly, competition is also a key catalyst of productivity,Footnote 1 which increases the competitiveness of Canadian exports, expands our output and increases the economic benefits for Canadian workers, businesses and investors.
The Competition Bureau (Bureau), as an independent law enforcement agency, ensures that Canadian businesses and consumers prosper in a competitive and innovative marketplace. As part of its mandate, the Bureau promotes and advocates for the benefits of competitionFootnote 2 based on the guiding principle that competition is the best way to improve choice, lower prices and prompt innovation.
A recent study estimates that Canada could realize a 4% to 5% boost in productivity through pro-competitive regulatory reform and reduced barriers to entry.Footnote 3 Countries that have taken steps to enact pro-competitive regulation are reaping the benefits. A 2005 study by Australia’s Productivity Commission estimated that pro-competitive reforms initiated in the mid-1990s boosted GDP by 2.5% and raised average household incomes by $7,000 AUD.Footnote 4
Experience from past crises indicates there will be considerable pressure on governments to shore up domestic industries through a variety of supportive and protective measures. The Bureau does not believe these policies and competition have to exist at cross-purposes, and the governments can strike a fine balance between long term policy implications and very real short and medium term concerns. That being said, policies to restrict competition have tended to deepen economic recessions and delay recoveries, and such actions can be difficult to reverse.Footnote 5
To promote competition and accelerate economic recovery, policies should minimize barriers to entry and expansion. Following an economic downturn, markets in which businesses can easily enter and expand are likely to recover the fastest. Obstacles that make it more difficult for businesses to enter into or expand in a market diminish competitive intensity and slow growth. When businesses are faced with the risk of a new entrant stealing customers, they are pressured to continually innovate, improve their efficiency, and keep prices low.
Empowering small and medium enterprises through pro-competitive policies
Small and medium enterprises (SMEs) are the lifeblood of a dynamic and resilient economy. In 2019, more Prince Edward Islanders working in the private sector were employed by SMEs that in any other province.Footnote 6 SMEs bring innovative products and ideas to the market, and put pressure on larger businesses to remain competitive. Pro-competitive policies support the ongoing participation of SMEs in the marketplace and promote dynamism and competitiveness in the Canadian economy.
The COVID-19 pandemic has had a disproportionate impact on SMEs.Footnote 7 Pro-competitive policies that minimize barriers to entry and expansion for SMEs are vital to stimulating economic growth, innovation and job creation. Following an economic downturn, markets in which businesses can easily enter and expand are likely to recover the fastest. Obstacles that make it more difficult for businesses to enter or expand in a market diminish competitive intensity and slow growth.
The Bureau applauds the important steps the Government of Prince Edward Island is taking to encourage economic recovery and growth through the establishment of a Premier’s Council, with a focus on, among other things, “foster[ing] a culture of competitiveness where businesses thrive”.Footnote 8 To support such efforts, and to assist policymakers at all levels of government in assessing the competition impact of policymaking as we look towards Canada’s post-crisis recovery and beyond, the Bureau has developed a Competition Assessment Toolkit (Toolkit),Footnote 9 based on the Bureau’s experience and international best practices.
The Toolkit, appended to this letter, provides a step-by-step guide to assess the competition impact of new and existing policies and to tailor policies appropriately to maximize the benefits of competition to the economy. The Bureau encourages the Government of Prince Edward Island to consider the six-step process outlined in the Toolkit, and to take competition issues into consideration as it conducts its review.