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Government protection

In other words, none of this really explains why Canada is so slow at embracing innovation. But here is one argument that makes the most sense, and it will sound a lot like the one arrived at a decade ago by Red Wilson’s Competition Policy Review Panel: Canadian industry is made weaker because the government protects it from competition.



‎One reason so many Americans businesses are adopting advanced technologies is because of the pricing pressures they face. With low inflation and in a highly competitive domestic market, companies cannot pass cost increases, like higher wages, on to consumers. So they’ve outsourced manufacturing services to low-wage economies, reducing American labour demand at home (enter Donald Trump). And they’ve adopted labour-saving technologies, which will become an even bigger factor with a new wave of robotics and digitization.



Not so in Canada. With federal and provincial protection from competitive forces and pricing pressures, costs can be more easily passed to consumers, and that makes it a lot less critical to be innovative. (That lack of pricing pressure also serves the interests of left-wing governments, which can stick new taxes on companies, who can then pass the costs on to unwary consumers).



Innovation lags in our communications, information, finance and transportation sectors because they are protected by law from foreign ownership and competition. Canada’s power utilities are primarily owned by provincial governments (except in Alberta).

Subsidies bubble-wrap our aerospace, arts and cultural industries to safeguard them from tough competition. Health and education services are surrounded by price rules and government control that keep out private participation Then there’s the long list of subsidies and tax preferences for agriculture, forestry products and manufacturing, especially auto manufacturing. In total, I estimate that about 42 per cent of Canada’s business value-added is in protected industries.



Of course Americans are hardly virtuous when it comes to free trade. But it’s their large domestic market that ensures the relentless pressure of competitive forces. In Canada, we instead suffer oligopolies in banking, power, transportation and communications.



But we don’t have to. There are cures to bring us the better competitive health we need. Ending subsidies to bail out insolvent and failing firms would be a first order of business. As would lightening our numerous foreign-ownership restrictions. Provinces need to allow more free trade and mobility for things like skilled workers, log exports and implicit tariffs on wine and beer. And Crown corporations should be privatized (while making sure they don’t end up bought by other countries’ state-owned enterprises).



The longer the question of how to get better economic growth troubles us, the more simple the answer seems. If we want more competitive and dynamic Canadian businesses, we need to make Canada’s business sector more competitive and dynamic.



Jack M. Mintz is the president’s fellow at University of Calgary’s School of Public Policy.