INST Committee Report

Due to its narrow focus, the Majority Report does not consider the implications of other government policies on Canada’s overall competitive framework. Tinkering with competition laws, as this Report recommends, will have little impact on competition in Canada without addressing the broader policies government policies that undermine competitive markets.

It is worth underlining that social democrats support the establishment of competitive markets as a fundamental social good unto itself. Our history in the twentieth century has proven, beyond any doubt, that competitive market economies deliver better, more prosperous, more comfortable and fulfilling lives for citizens than any of the anti-market alternatives. Competitive markets maximize our prosperity by encouraging entrepreneurship and efficiency and by widening consumer choice.

The Liberals and the other right-wing parties talk incessantly about the benefits of markets. Unfortunately, all this talk is merely a smokescreen for policies that distort markets and promote monopoly at the expense of competition.

In real life, markets never achieve the ideals of perfect competition. Any real life factor that interferes with one of the five assumptions of perfect competition is a market distortion. The fewer distortions there are in a given market, the more its outcomes benefit society. Conversely, when markets are distorted, the benefits of competition are reduced or negated. Thus, the object of our government’s competition policy should be to eliminate and/or mitigate market distortions.

The political right has built a false mythology about markets. This mythology holds that all government regulation is, by definition, a market distortion. It follows from this that removing regulations removes distortions and moves markets closer to perfect competition. The Liberal government uses this ideological approach to justify deregulating everything they possibly can.

The problem with this approach is that regulation is not, by definition, a market distortion. Sometimes it is, but most government regulations actually promote competition by reducing market distortions, thereby making markets more competitive. This is due to the fact that, in the real world, markets have built in distortions. Effective regulations eliminate or mitigate these distortions and make markets more competitive.

Without sufficient regulation to eliminate or mitigate distortions, many markets inevitably become, to a greater or lesser degree, anti-competitive, inefficient and harmful to consumer choice. The kinds of markets that are prone to these outcomes when deregulated are those that, structurally, are the furthest from the ideal of perfect competition. The more distortions a market has in its unregulated state, the more anti-competitive it is in the absence of corrective regulations.

In our experience with deregulation in North America, markets with severe barriers to entry and limited numbers of sellers have consistently been the most failure prone when deregulated. Examples of such industries include the airline industry, electricity and health care.

Canada’s airline industry is a striking example of an industry in which government deregulation has increased market distortion, leading to a single-airline monopoly. This is because the airline industry is, structurally, so far from the ideal of perfect competition that, in the absence of regulations to correct its distortions, it rapidly trends toward the elimination of competition. It has enormous barriers to market entry and far too few sellers to prevent market manipulation. For consumers, the end result of deregulation has been the elimination of choice and higher air fares, the opposite of what the government promised when it deregulated the industry.

Outcomes have been similarly negative in the electricity and health care sectors. Jurisdictions that have deregulated electricity markets, such as California and Alberta, have experienced monopolistic price manipulation and, in the case of California, deliberate manipulation of energy supplies that led to blackouts.

America’s supposedly free market health care system is, in fact, demonstrably less efficient than Canada’s highly regulated system. The American system is also highly intrusive into personal medical decisions. Private insurance companies routinely second guess treatments and prevent Americans from switching doctors. Thus, Canada’s highly regulated health care system delivers the benefits of competition, greater efficiency and choice, better than America’s less regulated model.

When confronted with the real life failures of their mythology, the Liberal government and others on the political right respond with a convenient tautology. Any time deregulation fails, they simply claim that they did not deregulate enough and use this to justify further deregulation that further distorts the market. This refusal or inability to grasp when cold hard reality contradicts theory is classic ideological behaviour.

All markets have built in distortions that reduce or negate the benefits of competition. Economists recognize that perfect competition is an unattainable ideal. Regulation promotes competition by eliminating or mitigating market distortions.

For an example of how regulation eliminates market distortion, look no further than your local supermarket. The government imposes very strict labelling regulations on most supermarket products to make sure consumers have information on nutritional factors and price per unit. Since consumer information is one of the requirements of perfect competition, these regulations eliminate a market distortion and help the market function more efficiently. The world is full of similar examples of regulations that expedite commerce, like government regulations of weights and measures and enforcement of standards and labelling on other products, like textiles and consumer durables.

Regulations can also mitigate market distortions to reduce their harmful effects on competition. Let us return to the example of the airline industry. No regulations can eliminate the barriers to market entry, such as the prohibitive start-up costs and the limitations of the supporting infrastructure like airports and air traffic control resources. However, more effective regulations to prevent the Air Canada monopoly from using its market power to systematically destroy all competition could at least mitigate the distortions inherent in this market.

Canada’s New Democrats propose a new approach to competition policy, beginning from the assertion that government has a positive role to play in promoting competition by eliminating and mitigating market distortions. This would mean a departure from the dominant mythology that government regulation is automatically distorting.

While New Democrats do not oppose the minor tinkering proposed by the Majority Report, we consider the report inadequate because it is constrained by its narrow focus. There is no discussion of, for example, the role that consumer rights play in competition policy. Well-informed consumers are a necessary part of a healthy competitive market, and one of the requirements for perfect competition, yet the Liberal government continues to ignore growing public demands for more information on the labels of consumer products.

New Democrats have been at the forefront of campaigns for mandatory labelling of genetically modified foods and changes to the Textile Labelling Act that would tell Canadian consumers whether or not the clothes they buy are produced with Third World child labour. By refusing to make this information available to consumers, the Liberal government is deliberately protecting the market distortions created by this lack of information. In so doing, they contradict their stated support for competitive markets and expose their real agenda — to protect companies with existing market power at the expense of new entrepreneurs and competitors who would offer the public a wider range of choices.

Labelling is just one example of an area where the Liberal government’s ideologically driven antipathy to regulation results in less competition and choice. Another example is their headlong rush to deregulate industries, like the airline industry, which contain major structural distortions that require regulation to prevent natural monopolies from taking hold. The result of their "deregulate everything" approach is less competition, the rewarding of inefficiency, less choice and higher prices for consumers. The only winners are companies that already have market power, which are free to abuse their dominant market positions. The losers are consumers, smaller and newer businesses, entrepreneurs and society as whole, which loses out on the benefits of a dynamic and innovative economy.