Denise Hearn is the co-author of The Myth of Capitalism: Monopolies and the Death of Competition
Innovation is often viewed as new, novel technology—unprecedented discoveries that forever alter the way we conduct business or aspects of daily living. Schumpeter’s “gale of creative destruction” assumes that markets will naturally mutate and evolve as disruptors replace old incumbents. But one of the most pivotal mechanisms for fertilizing the ecosystem of innovation, less often discussed, is robust market competition.
Healthy competition among businesses fosters innovation and the ability for new entrants to compete. Competition is an indispensable element of capitalism. Yet, competition is withering away at a rapid pace, replaced by increasingly larger firms that dominate their respective industries.
Industry concentration has been particularly pervasive in the United States over the last 40 years; however, Canada is no stranger to the role of oligopolies. The most concentrated industries are ones that Canadians will be well familiar with: telecoms, airlines, oil, and banking.
The wireless telecom industry in Canada is heavily concentrated, with the big three (Rogers, Bell, and Telus AKA “Robelus”) collectively capturing an estimated 88.7 percent of the market. ABInBev and Molson Coors maintain a duopoly and control 63 percent of the beer Canadians drink (including Becks, Budwiser, Corona, Miller and seemingly smaller brands such as Granville Island Brewing). Canada’s airline market is a duopoly with WestJet and Air Canada controlling nearly 85 percent of the market between them.
Banking is controlled by the Big Five (TD Bank, RBC, Bank of Nova Scotia, Bank of Montreal, CIBC) and 4 of those 5 have acquired independent investment banks and asset management firms in recent years to swell their assets to enormous proportions, even relative to US banks. Apple and Samsung account for almost 81 percent of all Canadian smartphone sales, and Amazon continues to make headway with ecommerce sales in North America. It captured 44 percent of all US e-commerce in 2017 and close to 22 percent in Canada in 2016. Canadians pay some of the highest rates globally for international travel, cell phone packages, and banking services.
Keep Canada innovative by avoiding monopolies
Denise Hearn is the co-author of The Myth of Capitalism: Monopolies and the Death of Competition
Innovation is often viewed as new, novel technology—unprecedented discoveries that forever alter the way we conduct business or aspects of daily living. Schumpeter’s “gale of creative destruction” assumes that markets will naturally mutate and evolve as disruptors replace old incumbents. But one of the most pivotal mechanisms for fertilizing the ecosystem of innovation, less often discussed, is robust market competition.
Healthy competition among businesses fosters innovation and the ability for new entrants to compete. Competition is an indispensable element of capitalism. Yet, competition is withering away at a rapid pace, replaced by increasingly larger firms that dominate their respective industries.
Industry concentration has been particularly pervasive in the United States over the last 40 years; however, Canada is no stranger to the role of oligopolies. The most concentrated industries are ones that Canadians will be well familiar with: telecoms, airlines, oil, and banking.
The wireless telecom industry in Canada is heavily concentrated, with the big three (Rogers, Bell, and Telus AKA “Robelus”) collectively capturing an estimated 88.7 percent of the market. ABInBev and Molson Coors maintain a duopoly and control 63 percent of the beer Canadians drink (including Becks, Budwiser, Corona, Miller and seemingly smaller brands such as Granville Island Brewing). Canada’s airline market is a duopoly with WestJet and Air Canada controlling nearly 85 percent of the market between them.
Banking is controlled by the Big Five (TD Bank, RBC, Bank of Nova Scotia, Bank of Montreal, CIBC) and 4 of those 5 have acquired independent investment banks and asset management firms in recent years to swell their assets to enormous proportions, even relative to US banks. Apple and Samsung account for almost 81 percent of all Canadian smartphone sales, and Amazon continues to make headway with ecommerce sales in North America. It captured 44 percent of all US e-commerce in 2017 and close to 22 percent in Canada in 2016. Canadians pay some of the highest rates globally for international travel, cell phone packages, and banking services.
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In December 2018, the Canadian House of Commons released a report entitled “Democracy Under Threat: Risks and Solutions in the Era of Disinformation and Data Monopoly.” The report detailed a number of proposals in response to rising concerns about Big Tech and its ownership of citizen data, such as: implementing increased funding for the Office of the Privacy Commissioner, increased transparency for online political advertisements, and algorithm auditing, to name a few. Among these recommendations, the report also called on the Government of Canada to: “study the potential economic harms caused by data-opolies and determine whether the Competition Act should be modernized.” Data-opolies are a particularly threatening form of monopoly, because they not only can affect what consumers pay for services, but also potentially compromise privacy, autonomy and the democratic process itself (as seen with the 2016 US election tampering).
The title “Democracy Under Threat” may seem alarmist, but free markets are as important to economic determinacy as voter agency is to political democracy. At a time where Google has 92 percent market share in internet search and Facebook controls over 70 percent of social networking, the time is well past due to be asking questions about the kind of markets we are creating and sustaining.
Lack of competition stifles innovation, and Canada has been plagued by declining entrepreneurship rates and weak business dynamism since the 1980s. Canadian firms also spend less on R&D than many of their counterparts among developed countries. This has been attributed to low risk-appetite within Canadian firms, a smaller national market-size, and high corporate taxes. But perhaps a more compelling reason is, that when large incumbents lack competition, there is less need to innovate or self-disrupt.
When discussing economic inclusion, innovation, and fostering Canadian entrepreneurs, serious attention should be paid to the antitrust actions of the Competition Bureau. The Bureau is an independent agency tasked with the administration and enforcement of the Competition Act and the review of corporate mergers to deter anti-competitive behaviour and guard consumer interests. To compete internationally, Canadian regulators have often protected the larger players to the detriment of entrepreneurs.
Venture capitalists in Silicon Valley refuse to fund startup businesses that will compete with today’s dominant tech players (Alphabet (Google), Amazon, Facebook, Apple, and Microsoft). There is an effective ‘kill zone’ around these giants, and the predominant attitude is that challenging their ascendancy means inevitable defeat. Subsidized funding for startups in Canada’s ‘kill zones’ of telecoms and banking should be considered. Relaxed regulatory burdens on smaller firms could also help, as regulation often strengthens dominant firms that have the resources to comply when small and medium-sized businesses often struggle to do so.
Competition is an integral part of sustaining a thriving ecosystem of innovation in Canada. It is time to disrupt the oligopolies and restore competition to Canadian markets.
1 https://ibisworld.ca/industry-trends/market-research-reports/information/wireless-telecommunications-carriers.html
2 http://www.oecd.org/canada/Policies-for-stronger-and-more-inclusive-growth-in-Canada.pdf
For media enquiries, please contact Nina Rafeek Dow, Marketing + Communications Specialist at the Brookfield Institute for Innovation + Entrepreneurship.
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