The 1960s, the decade of Canada’s centennial, marked the country’s coming of age: a new flag, medicare, a national pension, expanded immigration. The sixties also saw an economic debate over growth and productivity that has shaped the country ever since.
A primary worry was Canada’s domestic market, too small and scattered over a vast distance, and as a result companies were unable to attain a size to compete beyond our borders. A consensus among business leaders emerged. In 1969, a major report declared the main objective of competition policy should be “the most efficient possible performance from the economy.”
The idea fit the shifting philosophy of the era. Years before, in the early 20th century in the United States, the focus of competition law was on breaking up corporations that had amassed monopoly powers amid rapid industrialization. By the 1970s, conservative legal thinkers such as Robert Bork in the U.S. turned the idea upside down: bigger was better. Larger companies would run more efficiently – and the gains would be a win for everyone.
In 1986, Canada codified the new philosophy in the Competition Act. The first stated purpose of the act is to maintain and encourage competition “to promote the efficiency and adaptability of the Canadian economy.” One section, which became known as the efficiencies defence, explicitly permits mergers that result in a prevention or lessening of competition, if those losses are outweighed by gains in efficiency. This legal trump card became an outlier among Western countries.
Mergers and takeovers are neither inherently good or bad. If two companies combine forces, the result can be a more robust competitor, able to operate more efficiently – one accounting department instead of two – and the merged company can deliver gains for its customers, whether innovative products or lower prices. The textbook theory also contends people who lose jobs in a merger would be quickly redeployed to other, more productive work elsewhere.
Push the idea further. If bigger is better, surely then oligopolies should be welcome and, eventually, monopolies?
There had been, decades ago, dissent. The late Peter Newman, in his 1998 book Titans, wrote that Canada had “allowed its anti-monopoly legislation to be written by the very people it was meant to police.” In recent years, a countermovement in competition law emerged, as the downside of consolidation – namely, too few competitors – became clear. A leading voice in Canada, where a few, large companies dominate many industries, is Matthew Boswell, head of the Competition Bureau. He has pushed for reform and said the current law enables “high levels of economic concentration – even monopolies.” This space strongly agrees.
This month represents a demarcation between past and future in Canada’s competition law. The federal Liberals last November had started a review of the rules. In mid-September, ahead of broader changes, Prime Minster Justin Trudeau rushed out the big move that people across the political spectrum, from the NDP to Conservatives, are calling for: it’s time to kill the efficiencies defence. The bill was tabled Thursday.
This is, finally, the dawn of a new era in competition law. The U.S. federal government this month put Google on trial as an alleged monopolist. Facebook will be on trial soon. It’s all happening as once venerated ideas have been found lacking. “Efficiencies are often claimed but rarely proved,” stated a submission in Ottawa’s review, from the U.S. Federal Trade Commission and Department of Justice, solicited by the Competition Bureau.
The need to oust the efficiencies defence has been downplayed in some quarters, on the reasoning it hasn’t often been used to defend anticompetitive mergers. But the change is more than just one section of the law. It’s about the overarching philosophy. That is a crucial step. The work of change is ongoing. The Liberal bill includes other wins for competition that this space and others have advocated. These include bolstering the bureau’s powers to investigate industries and prevent deals between companies that don’t directly compete but end up stifling competition.
An overhaul is still needed. Ottawa says it plans “comprehensive legislative reforms” to the Competition Act in the coming months. The challenge now is to ensure this momentum leads a new legal framework that embodies a more modern view of how to best promote growth and productivity.