Industry Committee on April 13th, 2021

[The Chair, Liberal, Sherry Romanado]

I call the meeting to order.

Good morning, everyone. Welcome to meeting number 30 of the House of Commons Standing Committee on Industry, Science and Technology.

Today's meeting is taking place in a hybrid format, pursuant to the House order of January 25, 2021. The proceedings will be made available via the House of Commons website. So that you are aware, the webcast will always show the person speaking rather than the entirety of the committee.

To ensure an orderly meeting, I'd like to outline a few rules to follow. Members and witnesses may speak in the official language of their choice. Interpretation services are available for the meeting. You have the choice at the bottom of your screen of floor, English or French. Please select your preference.

This is a reminder that all comments by members and witnesses should be addressed through the chair, and when you are not speaking, your microphone should be on mute. I also ask that you not talk over each other so that the interpreters can do their work.

As is my normal practice, I will hold up a yellow card when you have 30 seconds left in your intervention, and I will hold up a red card when your time for questions has expired. Please make sure that you are on gallery view so that you can see me giving you these indications.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on February 23, 2021, the House of Commons Standing Committee on Industry, Science and Technology is meeting today to undertake a study on competitiveness in Canada.

I'd like to now welcome our witnesses. We have Yelena Larkin, associate professor of finance from York University. We have David Vaillancourt, partner, Affleck Greene McMurtry. From the Canadian Federation of Independent Business, we have Laura Jones, executive vice-president and chief strategic officer. From C.D. Howe Institute, we have Mr. Benjamin Dachis, director of public affairs. From the National Coalition of Chiefs, we have Dale Swampy, president.

Each witness will have five minutes to present, followed by questions.

With that, we will start with Yelena Larkin.

You have the floor for five minutes.

[Dr. Yelena Larkin, Associate Professor of Finance, York University, As an Individual]

Thank you so much.

Good morning, committee members, fellow witnesses and everyone else. I appreciate the opportunity to present my views at this committee.

All of the statements I am about to make are based on the draft of a research paper that my co-author Ray Bawania and I completed in 2019. In this paper, we asked whether the nature of the Canadian economic environment has changed over the past few decades. Our research question was motivated by the trends revealed in the U.S. markets, as well as academic articles that argue that product markets in the U.S. have become more concentrated over the past two decades.

In the project that underlies this statement, my co-author and I examined the business environment in Canada from the standpoint of financial markets. By analyzing the data that is typically used in corporate finance research, my work provides some descriptive statistical analysis of Canadian financial markets that potentially can serve as a starting point for future and more detailed research.

In the centre of our analysis are Canadian publicly traded firms. We first focus on the number of firms traded on the Toronto Stock Exchange, the TSX. Since publicly traded firms are typically the key players in the economy and tend to be much larger compared with private firms, the falling number of public firms could be the first sign of a structural change.

This is what we found. The number of non-financial firms—that is, firms that are not set up as an investment vehicle, such as investments funds, mutual funds and so on—have indeed dropped, by around 30%, since its peak around 2006 to 2008. To ensure that the trend could not be due to industry composition, we also split the overall number of firms into major sectors, and found that the decline in the number of firms is not limited to a specific sector but rather has affected firms across the entire spectrum of Canadian industries.

Next we turned to examining the size of public firms, measured as the market capitalization in constant Canadian dollars of 2002. Market cap measures what a company is worth in the open market and, therefore, serves as the most updated indicator of its perceived value. In addition, it reflects the market's perception of the firm's future prospects and incorporates both tangible and intangible components.

We found that the mean firm size has been persistently rising over the last 35 years. However, the growth has not been equal. Large firms have essentially grown at a much steeper rate over the past 10 or 15 years. For example, the inflation-adjusted market cap of firms in the top quartile of size distribution has swelled from a quarter-billion dollars in 2008 to almost $1 billion in 2016.

We also explored the combined effects of firm number and firm size by constructing a measure of concentration, the Herfindahl-Hirschman index, which is defined as the sum of squared market shares of all the firms within the same industry. We found that concentration has increased in most industries and this increase has been economically significant. Further, consistent with the increase in concentration, we found that the largest firms in each industry have become more dominant. The share of sales by market leaders compared to the total industry sales has also increased substantially over the same period.

In the second part of the paper, we examined possible implications of the systematic increase in concentration along with the decline in the number of publicly traded firms. It is possible that the increase in dominance of large firms could reflect barriers to entry. In general, barriers can be driven by a number of various factors, which include economies of scale and large capital requirements, regulatory changes that potentially discourage new firms from entering the market, and the increasing role of technology behind all this.

To examine the barriers-to-entry explanation, we performed several tests. First, we looked at the link between concentration and profitability. If markets are becoming more concentrated due to greater barriers to entry, we should find evidence that profit margins are increasing in those industries. Consistent with this argument, our analysis showed a positive and significant link between accounting measures and concentration.

It looks like I am running out of time.

In this case, let me mention that, going forward, I would like to set this result into a large frame and consider the relevance of Canadian public firms becoming more valuable and obtaining better investment opportunities. More research is needed to understand the reasons behind the secular decline in the number of firms, which is accompanied by an increase in size and vibrant M and A activity.

I hope these findings can provide an opportunity for policy-makers to further examine the trends of the increased concentration.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

Now we will hear from Mr. Vaillancourt.

You have five minutes.

[David Vaillancourt, Partner, Affleck Greene McMurtry LLP, As an Individual]

Thank you, Madam Chair.

Madam Chair and members of the committee, my name is David Vaillancourt. I'm a partner at the law firm Affleck Greene McMurtry. My practice includes competition law and commercial litigation.

I believe that the abuse of dominance provisions of the Competition Act should be amended to allow private litigants to challenge anticompetitive conduct by monopolists. Right now, the commissioner of competition is the only one who can bring such abuse of dominance proceedings.

Abuse of dominance involves acts undertaken by a dominant firm against competitors in the market that substantially lessen or prevent competition. This generally means firms with more than 50% of market share. It’s about a monopolist using its position to squeeze out the competition and maintain or enhance its own market power.

When a victimized competitor has a problem with an anticompetitive monopolist, their only option is to make a complaint to the commissioner of competition. If the commissioner of competition does not decide to move forward with the matter, there is nothing the victimized competitor can do. The commissioner of competition has to be very selective with the abuse of dominance cases that he brings forward. Abuse of dominance tends to take a back seat to enforcement of the criminal provisions of the Competition Act, as well as merger review.

The commissioner of competition publishes annual statistics about the complaints he receives under the Competition Act’s various civilly reviewable provisions, which include abuse of dominance. I've previously emailed a copy of these statistics to members of the committee. The vast majority of complaints are about abuse of dominance. In the 2019-20 year, it was about 80% of complaints. The stats show that there were 467 complaints that year, and out of those complaints, only 11 investigations were commenced, which turned into three inquiries. The enforcement activities were also very limited. There was one case with a consent order, one case with an alternative case resolution, which is another form of settlement, and one case before the tribunal.

The underenforcement of the abuse of dominance provisions is not a new trend. Since 1986, there have only been 14 abuse of dominance proceedings brought before the Competition Tribunal. The commissioner of competition does not have the resources he needs to robustly police monopolists in Canada. This is causing injury not just to competitors but to competition generally, and to Canadian consumers.

It's clear that the current abuse of dominance regime is not working. Change is needed. Enforcement would be enhanced if there was a private right of action allowing victimized competitors to hold monopolists to account. Even the threat of private action would encourage change in behaviour by monopolists to avoid litigation. The cases don't need to get litigated all the way through to trial.

There are already several reviewable matters in the Competition Act that do allow a private right of action, with leave of the Competition Tribunal. The right to bring a private application for those sections is contained in section 103.1 of the act, which sets out the mechanics for seeking leave of the tribunal. This section could be amended to also add the right to seek leave to bring an abuse of dominance proceeding. Private litigants should also be allowed to make a claim for damages suffered as a result of anticompetitive conduct. Obtaining a go-forward remedy changing a monopolist’s conduct would be helpful, but economic loss caused by the anticompetitive conduct in the past should be compensated. Victimized competitors are more likely to incur the cost of following through with legal proceedings if there is some chance of monetary recovery.

The proposal I am making today is in line with the laws of our international peers. Both the United States and Europe permit private actions for abuse of dominance and monopolization. In fact, private action is the primary method of enforcement for monopolization in the United States, at a rate of about 10:1.

When a monopolist acts in an anticompetitive way, it hurts consumers in the long run by damaging competition. Less competition means higher prices and lower quality for consumers. Amending the Competition Act to allow private abuse of dominance proceedings would be procompetition and proconsumer, and would bring Canada in line with its international peers.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We'll now go to Laura Jones.

You have the floor for five minutes.

[Laura Jones, Executive Vice-President and Chief Strategic Officer, Canadian Federation of Independent Business]

Good morning, everyone.

Thank you for inviting me.

I'm going to focus my comments today on the opportunity to improve competitiveness by modernizing our approach to regulation. I'm the chief strategic officer for the Canadian Federation of Independent Business, so I bring the perspective of small business to the table. My comments are also informed by my recent experience chairing the external advisory committee on regulatory competitiveness.

I have some slides, if you want to follow along, to support my comments.

Slide 2, on regulatory modernization, shows you that it could also be described as regulatory competitiveness or regulatory—

[The Chair, Liberal, Sherry Romanado]

Ms. Jones, I've paused the clock. I'm going to let you know we do not have the slides because they have to be provided to us in both official languages. If you provided them to the clerk in only one official language—

[Laura Jones]

We provided them in both.

[The Chair, Liberal, Sherry Romanado]

Okay, I wanted to let you know we don't have them.

[The Clerk of the Committee, Mr. Michael MacPherson]

We'll distribute them around.

[The Chair, Liberal, Sherry Romanado]

Thank you so much.

If you're wondering why we're not following along, that's why.

[Laura Jones]

That's fine. Thank you.

I will speak to them and I think you have them in both official languages, so they can be distributed.

Regulatory modernization can be described as both excellence or competitiveness. Certainly, those terms were used interchangeably by the external advisory committee. It really includes three important things. One is red tape reduction. The second important thing is supporting innovation. Often new innovations require some regulatory support and doing that in a nimble way would be consistent with regulatory excellence. Finally, of course, there is maintaining high levels of health, safety and environmental protection, which are things that Canadians care about. Those would be the three things—a minimum of red tape, support for innovation and maintaining excellence in the outcomes that Canadians care about—that would be consistent with regulatory competitiveness or excellence.

In our view, this requires a sustained culture shift within government. The good news is that COVID-19 has created some of those conditions for the culture shift with more nimbleness and more focus, for example, on outcomes of regulation. However, there are some challenges in this regard. One of the challenges is that there's not a lot of great data available—particularly data from government—on either the cumulative regulatory burden or our progress towards reducing that burden. With the lack of data comes a lack of accountability. There's also a lack of reporting.

When we look at what data are available, the World Bank is one that's often cited, and Canada gets very low marks on that. To give you a sense of the data challenges there, for example for permitting, our rankings are based on a sole warehouse in Toronto. That establishes our ranking and how long it takes to get a permit and it establishes the ranking for the whole country.

The Canadian Federation of Independent Business has done some of its own research. You can see some of that in the report I have cited in the presentation. I'll run through a couple of stats to help you understand the challenge from that perspective. The cost of regulation to businesses of all sizes in Canada is now $39 billion a year. This estimate was done earlier this year. It doesn't include the cost of complying with COVID-19 regulations, which we know is significant for a small business. Of course, not all of that cost is red tape. The estimate of the amount of it that could be eliminated without affecting the outcomes we all care about is about $11 billion a year or about 28% of that total cost.

The other thing we find is that these costs are very regressive. The smaller the business, the higher the per-employee cost. I think that is something worth paying attention to.

Another finding from the report is that nearly two-thirds of businesses are now telling us they would not advise their children to start a business in Canada based on the current cost of regulation. This is up 15 percentage points from the last time we did this survey in 2017. Nearly nine out of 10 are saying that this regulatory burden adds significant stress to their lives. Eight out of 10 are saying excessive regulation significantly reduces productivity.

In terms of recommendations going forward, I think regulatory excellence is a huge opportunity for Canada to be more competitive and also to reduce the barriers for small business. We have three recommendations.

One is to make this a priority right across government, leveraging the new-found agility from some of the things we did differently in COVID-19. For example, approving a vaccine in a year was something that would normally take the better part of a decade.

The second recommendation is measurement. We need better measurement. Both British Columbia and Manitoba provide good models that the federal government could look at. We recommend reducing that burden by 25%.

Finally, we recommend setting up a place where citizens can highlight red tape, such as a digital portal where they could go. Those examples would be distributed to deputies who could take action on them.

Thank you very much.

[The Chair, Liberal, Sherry Romanado]

Thank you so much.

We'll now turn to Mr. Dachis.

You have the floor for five minutes.

[Benjamin Dachis, Director, Public Affairs, C.D. Howe Institute]

Thank you very much for the invitation to join you today.

I want to relate the economic harm of excess permit costs to Canadian homebuyers and small businesses today.

First, let's look at permit costs to people looking to get into the housing market. Restrictions on housing supply and extra costs hinder the efficiency of the housing market. Recent C.D. Howe Institute research has found a persistent gap between the cost of building new homes and their market price in major Canadian cities. This is a regulatory and permit tax on housing. A well-functioning housing market results in the market price of housing being pretty close to the cost of just building it. If prices persistently exceed this construction cost, it's often due to the barriers that inhibit new construction. These barriers often stem from excessive regulations and permit requirements. This regulatory tax is huge in some places.

We estimate that homebuyers in Vancouver see an extra cost of $644,000 for the average new home because of supply limits. Across Canada's largest and most restrictive cities—this is mostly in B.C. and Ontario—homebuyers paid hundreds of thousands of dollars more than the construction cost of a newly built house because of limits on supply. It's an extra $112,000 for homebuyers in Ottawa. In Calgary, it's an extra $152,000, and it's an extra $168,000 in the greater Toronto area.

Vancouver's cost of housing restrictions are, by far, the largest in Canada, resulting in a 50% extra cost—

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Madam Chair, the interpreter is telling us in French that she's having great difficulty hearing Mr. Dachis's remarks. She can do her job because Mr. Dachis provided his text. However, she's having a very difficult time hearing his remarks.

[The Chair, Liberal, Sherry Romanado]

Okay. Thank you.

We're just going to check with the room. We're having some connectivity issues.

You're coming across very scratchy, Mr. Dachis. I want to make sure that the interpreters can hear you. Could you hold for one moment? I have stopped the clock.

[Benjamin Dachis]

Let me know if you want to do an audio test.

[The Clerk]

Actually, if you could just unplug and plug back in that headset, sometimes that fixes the issue. It doesn't look like it's connectivity-related. Sometimes it's just that the headset needs a reboot.

[Benjamin Dachis]

How's that? Is that better?

[The Chair, Liberal, Sherry Romanado]

We can hear you now.

[Benjamin Dachis]

Perfect.

I'll continue. Apologies for that.

[The Chair, Liberal, Sherry Romanado]

No, not at all.

Thank you.

[Benjamin Dachis]

Vancouver's cost of housing restrictions are by far the largest in Canada, resulting in a 50% extra cost that's on par with similar studies measuring the extra costs in places like Manhattan. At the other end of the spectrum, home-buying costs in Montreal have stayed pretty close to construction costs.

Why are housing costs so high elsewhere in Canada? We find that restrictions in extra costs on building new housing such as zoning regulations, development charges—which don't apply in Quebec, by the way—and limits on land development are dramatically increasing the price of housing.

What about small businesses? The World Bank conducts an annual “Doing Business” survey that's become the global standard of every country's regulatory and permitting burden. As Ms. Jones mentioned, among the 10 major measures of business regulation and process, the World Bank includes the process time to obtain a construction permit for a small business looking to develop a warehouse in Toronto. This is the only Canadian city that the World Bank considers, and I'll get back to how to fix that oversight that Ms. Jones mentioned.

It would take 248 days. It takes 28 days in South Korea, 36 in Singapore and 65 in Denmark or Finland. Major U.S. cities like New York and Los Angeles see approvals within two to three months, yet Toronto is over eight months.

How do we fix this? To expedite approvals, cities should increase their use of e-permitting. E-permitting is an online platform that connects all relevant building permit and planning processes. Such systems already have a proven track record of success across the globe and are starting to gain traction here. Leading by example, governments should also enact policies that set certain design and development standards for their own projects. The federal government could set an e-permitting system requirement and standard in conjunction with willing provinces.

The problem with e-permitting is not technological, but it is training people currently working in and with today's permitting system, both government and industry. Better training can be funded, in part, by the federal government.

However, e-permitting is just a technical workaround of convoluted permit rules. It addresses the symptom but not the cause. The fundamental root cause is too many different permit requirements for development approvals. Much of this is in the hands of provincial and municipal governments, so what can Ottawa do?

First, the federal government could require that infrastructure grants such as for transit or highways only go to areas in which development is expedited. For example, Ontario can designate affected residential or employment lands as subject to what is called the “development permit system”. This system eliminates multiple application streams and sets strict timelines for approvals. Ottawa can require that provinces adopt that or a similar approval process for nearby areas when they get a federal grant.

However, as Ms. Jones noted, the World Bank study only applies to the City of Toronto. What about other places like York Region or Ottawa? The World Bank only measures the permitting cost in the largest municipal government in the country, unless the government specifically requests that the World Bank take on a subnational study. The federal government could pass a motion asking the World Bank to apply its cost of doing business study across the country.

With that, I look forward to your questions.

[The Chair, Liberal, Sherry Romanado]

Thank you very much.

We will now go to Mr. Dale Swampy.

You have the floor for five minutes.

[Dale Swampy, President, National Coalition of Chiefs]

Good morning.

Thank you for the opportunity to speak to you today on the study of competitiveness in Canada.

My name is Dale Swampy. I'm a Samson Cree Nation member and a COVID survivor. I'm honoured to be presenting to you from the traditional territory of the Tsuut'ina Nation and the Treaty 7 first nations in southern Alberta.

I'm the president of the National Coalition of Chiefs, or the NCC, a coalition of industry-supportive chiefs. Our mandate is to defeat on-reserve poverty through participation in our country's development of its natural resources. We work in co-operation and in partnership with natural resource proponents in an effort to enhance the economic prosperity of reserve communities. We also support indigenous-led natural resource projects.

I appreciate that you have included an indigenous perspective on the panel today, because Canada's ability to attract investment is a major challenge, more so today than at any other time in our country's history.

As you are aware, Canada has experienced a significant loss in its ability to compete on the international market, as well as within its own boundaries. We are no longer able to trade effectively even between our own provincial borders. Many would agree that this is a direct result of restricting regulatory barriers that have been introduced over the past few years.

For example, we believe the tanker ban, or Bill C-48, was passed in order to ensure that Alberta's oil does not cross the borders of British Columbia and on to tidewater. International trade of our most valuable commodity would have increased the standard of living of all Canadians, including first nations. First nation communities in B.C. and Alberta lost $2 billion in benefits when the northern gateway project was cancelled. The cancellation had no effect on world greenhouse gases. It only created uncertainty for would-be investors in Canada's economy.

The new national regulatory regime, or Bill C-69, was forced onto an existing regulatory process, the National Energy Board, which was already a world leader in safety, integrity and environmental protection. We feel there was no need to amend this process.

The new UNDRIP legislation, Bill C-15, will create additional uncertainty and legal ambiguity in an economy that is already hindered by major project delays caused by lawsuits that challenge our own Constitution. The NCC has already expressed its issues and concerns regarding this legislation, and has asked, through its participation in hearings, that the federal government consider alternative legislation to fulfill its promise for reconciliation with first nations in Canada.

The NCC believes that increased indigenous community participation in the natural resource industry, through employment, contracting and ownership, will increase Canada's competitiveness. We want the federal government to give first nations a share in ownership and control of Canada's natural resources in a manner similar to what the U.S. gave the 13 tribes in Alaska.

Who better to give ownership of natural resources and natural resource development than first nations. Our people have lived on this land for thousands of years. We respect and want to protect the land. Many people will come and go, but first nations people will never leave this land. We have a spiritual tie to the land. We will never sell our lands or resources. Since 1971, the Alaskan tribes have had the authority to sell their lands and resources, and not one tribe has ever considered selling their land.

We have missed out on 150 years of natural resource development in this country, along with countless billions of dollars' worth of projects, projects that would have supported thousands of jobs in indigenous, rural and remote communities. It is time for Canada to grant first nations the right and ownership of their natural resources.

Instead of using new legislation, such as UNDRIP, as a form of reconciliation, the NCC requests that the federal government consider an act similar to that of the Alaskan tribes, which will provide ownership of lands and resources currently owned by the Government of Canada.

In 1996, the Royal Commission on Aboriginal Peoples, in a report issued by the Liberal Party under the leadership of Jean Chrétien, recommended that the federal government grant to aboriginal peoples of Canada 30% of all the lands and resources owned by the federal government as a form of reconciliation. Through this report, the federal government possesses the ability and justification to grant this to all first nations in Canada.

We are hoping your study will provide our chiefs with an opportunity to create a reconciliation process that provides real and tangible benefits for first nation communities and supports Canada's economic growth and competitiveness. Together we can defeat on-reserve poverty.

Thank you, and I look forward to your questions and further discussion.