Complacency, Competition, and Canada’s Productivity Crisis – MoneySense

Greater thinking was needed to solve Canada’s productivity crisis

A more productive economy is better equipped to absorb that shock, Rogers argued, and competition is a path to productivity. “Higher productivity will not make Canada immune to U.S. trade policy, but it would help buffer the effect of tariffs,” she said in prepared remarks.

Labor productivity – how much Canadian industry produces per hour worked – fell one percent in the second quarter as trade uncertainty fueled a slowdown in industrial production. Productivity has fallen in six of the last eight quarters in Canada. Rogers speculated in an onstage conversation after her speech that years of relying on proximity to the United States may have contributed to Canada’s productivity crisis.

The country had grown accustomed to American demand for Canadian resources and free trade among North American allies, which stimulated economic growth, allowing weak productivity to fester beneath the surface. “Maybe we’ve gotten a little complacent and relied on that relationship too much. But we’ve gotten a big dose of reality lately,” she said. Removing interprovincial trade barriers is a start to boosting competition, but Rogers said Canada needs to “think bigger than that.”

Rogers focused her speech on the banking industry, which she said has been accurately described as an oligopoly – an industry dominated by just a few major players.

Competition drives innovation, but balance is key

The supremacy of Canada’s Big Six banks has provided stability to the financial sector, she acknowledged, and the profitability of their operations has made these institutions less likely to take big risks with Canadians’ money. But Rogers said there are tradeoffs between promoting too much competition and keeping industries too insulated from outside forces.

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

Rogers calls for smart regulation to unlock innovation and productivity

Rogers pointed to the development of an open banking framework – a concept endorsed by Ottawa that gives consumers more control over their own financial data, making it easier to switch banks – as a path to greater competition in the sector.

An upcoming plan to move to a real-time payments system in Canada that would allow smaller businesses to cut out the big banks as middlemen in their services would also help increase competition, she said.

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Rogers said policymakers must find the right balance between strong competition law in a mix with appropriate levels of regulation and incentives to drive long-needed increases in productivity. She also said during the question-and-answer session on Thursday that the “next frontier in banking” involves the digitalization of assets.

Rogers said Canada should follow the lead of Europe and the United States in bringing forward legislation to regulate stablecoins — a form of cryptocurrency that is pegged to the value of a traditional asset such as a fiat currency to give it a degree of stability for ease of 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 will be “hawkish” on competition as Ottawa tries to build a more resilient economy in the face of U.S. tariffs.

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