The Agenda with Steve Paikin (Audio) - Is a Lack of Competition Gouging Canadian Consumers?

Episode Date: October 30, 2024

The terms "competition" and "productivity" have filled the minds of policy analysts and economists in recent years. But, what does it all mean for Canadian consumers? Denise Hearn and Vass Bednar wrote about how capitalism has actually hurt consumers in their new book, "The Big Fix: How Companies Capture Markets and Harm Canadians." They join Steve Paikin to discuss more. See omnystudio.com/listener for privacy information.

The terms competition and productivity have filled the minds of policy analysts and economists in recent years. But what does it all mean for Canadian consumers? Authors, Denise Hearn and Vass Bednar, explore these concepts and the growth of corporate consolidation in their new book. It's called The Big Fix, How Companies Capture Markets and Harm Canadians. Denise Hearn is a resident senior fellow at the Columbia Center on Sustainable Investment at Columbia University.

Vass Bednar is the executive director of McMaster University's Master of Public Policy program and the host of the Globe and Mail podcast Lately. And they join us now in the studio for more. Welcome, nice to have you two here. Thank you, Steve. Now you've been here before, Vass. That's right, I'm a newbie.

You're a newbie, it's your first time here. It is, yeah. But you live in New York. I live in Vermont, actually.. Thank you, Steve. Now, you've been here before, Vass. That's right. I'm a newbie. You're a newbie. It's your first time here. It is, yeah. But you live in New York. I live in Vermont, actually. Oh, Vermont. Sorry. You work in New York. Yes.

But you're one of us. You're a Canuck, right? You started your life in Canada. Yeah, very proudly. That's a lot. OK. Newbie gets the first question, OK? Competition, productivity, the buzziest words

among analysts right now. Why those two words and why right now? Well, that's a great question. It has been on the forefront of national conversation. I think we all recognize that Canada has a productivity crisis, as people have called it, but really it's a longer standing trend and it doesn't just affect Canada.

It actually is affecting most OECD countries where despite years of lots of stimulus from central banks, lots of fiscal stimulus from governments, many OECD countries are struggling with productivity and stagnant growth. And we think that one of the underappreciated culprits is the rise of monopolies and industry concentration. To be continued on that in a second. I understand why people who read the report on business in the Globe and Mail

are obsessed with productivity and competition. Why should the average Canadian or the average Ontarian care about it? I think the average person cares because they feel the effects every day in their everyday lives. And then we sort of have this mystery, right? We're like, hmm, in Canada, I wonder why firms historically under-invest in productivity enhancing technologies. I wonder why we're not investing more in our workers

or in research and development. And some people are starting to draw kind of more of a dotted line between productivity and competitiveness, as Denise is hinting at, sort of saying that our firms just aren't motivated to try harder, because they't need to. Consumers at the end of the day feel this. Yeah. That's the bottom line. Totally. There is a term you use in your book, which I confess I hadn't heard before. Yeah, right. K-A-Y-F-A-B-E.

K-Fabe. What's K-Fabe? We know you're a professional wrestling fan, Steve, deep down. Yeah, so we actually stumbled across this. Bass and I, despite how we look, are not also professional wrestling fans. But we found this analogy, which is in professional wrestling, all of the matches are pre-scripted. You have these characters that are invented with these fake rivalries, fake feuds.

I got the quote right here. Yeah. You ready to go? Let's hear it. Sheldon, fake feuds. I got the quote right here. Yeah. You ready to go? Let's hear it. Sheldon, put this up. This is from the book. K-Fabe is the illusion of rivalry.

It is what all of pro wrestling is built on. Invented characters and storylines, fake rivals engaged in fabricated feuds, and staged events that are portrayed as real. Everything down to the last detail of a match and a wrestling season is highly scripted. It's a perfect metaphor for markets today. You really think that's what's going on in our markets?

It's as bad as pro wrestling? Well, we do. We think we're living in the age of K-Fabe capitalism, as we call it, which is the illusion of rivalry, where it looks like there's more competition than there actually is. So we've heard about the airlines, we've heard about the banks, we've heard about grocery stores, telecommunication.

There's a lot of K-Fabe, you would suggest, going on there. Where else are we feeling the corporate consolidation in perhaps less high profile sectors? Sometimes I feel like the question should be, where aren't we experiencing it, right? In book publishing, right? In media, in newspapers, which we often talk about in Canada and how that can kind of constrain our access

to information. Even places like vet clinics, funeral services, right? We're seeing more consolidation, more of that ownership changing that contributes to that illusion of choice, the illusion of rivalry. So it might seem at first glance, we're a little bit interested, right? In counting the number of competitors in a particular sector as that's our key indicator. Is there enough competition? But what it obscures is how

is competition actually occurring if it's occurring at all? And that's kind of the recalibration we want to offer. Let me just for fun push back a bit on that because you say newspapers. We happen to be sitting right now in a great newspaper town, right? It might be the only newspaper town in North America that has four daily newspapers and yet I think they're all losing money and they're all incredibly precarious I mean how much more competition do you want these folks are already competing so much that probably some of them aren't going to be alive in five years well the terms of competition have

certainly changed for newspapers over time, right? The conversation about newspapers is really one about changing advertising, which does bring in the big tech giants. But when we look at the consolidation of ownership of newspapers, we see that most are owned by Post Media, Tour Star or Quebecer. But you're right, there are innovations and people kind of experimenting and doing new things in newspapers, but that doesn't change what the trend has been over time. Do you think, Denise, that readers are really being harmed

by this consolidation that's happening in media? And if so, how so? Oh, yes, I mean, absolutely. For one, you want a diverse media ecosystem and landscape so that you can have access to free information and free flowing information. And I think we've seen that recently in the US, also in Canada, where when you have this concentrated ownership, they really can direct the course of journalism in ways that are

favorable to their own business interests, which may be in competition with a thriving democracy. One example was Bezos, who owns the Washington Post, basically mandating that they couldn't this year endorse a candidate. I was just going to ask you about that. Yeah. Isn't that something?

I mean, it is. The Washington Post. Yes. The Washington Post is not going to endorse a candidate for president. But we shouldn't be surprised, because this is sort of how the fabric of democracy gets undermined when you have corporate consolidation

in competition with political democracy. And so that's the kind of conversation we want to bring forward is this can feel esoteric. It can feel a bit sort of technocratic sometimes when we talk about these policy issues, but they really affect us day to day as consumers, as workers, and as citizens, most importantly. And you're not buying the explanation from the publisher of the Washington Post that nobody really, no, he didn't say this, this is my view, nobody cares about editorials and newspapers anyway in terms of who they're endorsing.

And the newspaper really shouldn't be in the business of endorsements anyway, it should really be in the business of reporting. That's the explanation. Is it just a newspaper? I mean, that goes back to, I think, our ownership conversation and who owns what and kind of increasingly how these assets are part of ecosystems back to the harms for consumers It's not just price right often price is an entry point to these bigger conversations about market power But it's also the kind of journalism we need in terms of more diversification more Storytelling about corporate concentration in Canada.

In the US, yes, we can talk about their population differences, et cetera, and Denise is a dual citizen, as you heard, but there are reporters with dedicated beats that report on corporate power and kind of act as a check and balance. And we don't really have that in Canada. Our storytelling is in fits and starts and pockets.

It's important, but it is something we need more of too. What's the Cineplex story? Oh my gosh. How much time do we have left? Cineplex is, has been fascinating us. So Cineplex owns and kind of controls access to about 75% of the movie cinema marketplace, which would really make the bank splash because the big five have about 85%. But it's also really a gatekeeping story because of their ability to kind of throttle access

to film. I never really thought about how a movie gets to the movie theater. And I think I just sort of presumed or assumed that if you're an independent cinema down the street, you sort of just got to pick and choose from a library and sort of put up your hand and pay a fee and kind of get it there. And it's not how it works anymore, right? So as we were sort of diving into how Cineplex controls that access, you see these other elements, other ways Cineplex exerts some market power, like a recent case where the

competition bureau won and said that actually Cineplex is charging people an extra $1.50 that they're kind of hiding in a kind of deceptive way when you go online. Now, is that $1.50 gonna kind of make or break people over time or cause you to lose your house or something? No, but it's the principle, right, that they're able to kind of deceive us in a particular way,

and we think it sends a really important message. I'm sure I miss lots on movies, Denise. We've been talking about movies for a while. Well, I was just gonna add, I think the Cineplex case is a great example where it's controlling access to markets, right, for independent cinemas. They don't have equal access to the same markets. And we see that all across the economy

and that makes it really difficult for entrepreneurs. And that's back to the productivity question. I mean, we have 50% fewer startups than we did 20 years ago in Canada. We have 100,000 less startups now. And there's many reasons for that, of course. We have an aging population. Cost of living is higher. Maybe it's harder to save to start a business.

But again, when so much of the landscape is now dominated by these old, entrenched firms, it's much harder to start a business and then have equal access to the market. So even if you can access capital, which is what we normally think of, being the primary barrier for startups, can you actually scale? Can you grow? Can you access markets in ways that allow you to be competitive? And we think that's a major story as to why, you know, we're having these productivity challenges.

You're the dual citizen, so I'm going to put this question to you, because it's a Canada-US comparison. Let's do a comparing contrast here. In Canada, the median age of our top 15 largest publicly traded firms is 122 years old. In the US, it's 45 years old. Why does that matter?

Well, because new firms add the most new jobs. So again, this gets to lower job growth, lower productivity. And then you have these sort of old dinosaur firms that are not incentivized to innovate. Well, hang on, hang on. Old dinosaur firms. Apparently, OK, you pick this part up. I was like, big dinosaur pushes back.

Yeah. Canadians apparently don't mind the institutional security or comfort that comes with being a century old company. What's wrong with that? So as to what's inherently wrong with that, I think for a long time in Canada, we've been sold sort of different stories about security, predictability, maybe some of the national champions arguments. We've also been told that geography is largely our destiny. You know, don't get too greedy. Don't ask for much more.

This is what the economy can handle. But again, in terms of stifling entrepreneurship, potentially deceiving consumers, limiting choice, having impact on workers too. There are all these really fascinating intersections of consolidation that again go far beyond price. And for most people, price is a very natural entry point and it's an important one, but it's not the only one. But is it, I mean, presumably there is something to the fact that Canadians like to drink Molesons,

even though it's not a Canadian beer anymore, because they watched Hockey Night in Canada and they kept hearing since 1786. And they kind of like the fact that there's a beer that takes them back to the days of their parents and grandparents and great-grandparents and great-great-great-great-grandparents. Sure. Is that okay?

Of course. I mean, I think we're not, you know, anti-storied firms that have earned their market position over time because they're offering fantastic products and services and maybe there's a nostalgia effect. But I think at the same time, what Vass and I try to cover in the book is that, you know, a lot of the companies that we sort of think about with the storied Canadian history, Hudson's Bay Company is one example.

Again, it's not a Canadian company anymore. Right. It's not. I mean, basically we say these firms are not what they used to be because the terms of ownership have changed. And we use this example with Hudson's Bay where consumers think of it as a department store. But Baker says actually we're a holding company with billions of dollars of real estate.

So the way that they conceptualize themselves has fundamentally changed. And we think that that's important to note, not just for regulators, but also for us as consumers to really understand how markets are shifting and how that affects us. Let me play off that with another excerpt from the book. Sheldon, if you would bring the graphic up, I shall read along for those listening on podcast.

Here is from the Big Fix. Canadian companies are nowhere near the size and scale of Amazon, but some of our most beloved brands now see themselves less as industry leaders and more as collections of varied financial assets. Consumers think of companies as offering goods and services, but this is not necessarily how companies think of themselves as they increasingly use convoluted accounting and tax practices that primarily seek to return capital to shareholders. In this way, companies no longer invest in

production. They are investment companies. The term for this is financialization and it is key to global capitalism today. Okay, let's dive down a little more on that. What's the issue with financialization? Yeah, so financialization happens both at the company level, as you were describing, where companies now, you know, and this is part of how economies are shifting, but they're no longer rewarded for actually producing goods and services, but actually owning, you know, intellectual property

and creating moats and extracting rents, that's the economic term, where they, you know where they moat a big swath of the ecosystem and then they just collect the tolls for other people that have to access. So we think that is a problem. It also shocked me, Steve, when I was thinking about, okay, what is going on with Canada's startup ecosystem and what about companies going public? And in 2023, there were 135 companies that went public on the TSX. But it shocked me when I found out that 84% of those were exchange traded funds,

which are a financial product. So the majority now of our indices are not operating companies, they're actually just bundles of financial products. And again, this doesn't help our productivity, it doesn't help our productivity. It doesn't really help us as consumers because we're not getting new innovations. We're not getting Canadian firms that can operate globally and actually be productive

in that way. So I think there's many layers to the financialization story, but that all trickles down to the problems that we're discussing on the show. Let me do a follow-up. A very short question. Sure. Isn't that capitalism? Well, we think that the terms of capitalism have shifted and that, yes, in some ways you can argue this is what capital markets incentivize, but we think that it's sort of gone in a different

direction that is leading to many of the kind of ailments that we see in the economy today. And that's a big problem. Okay, Vass, over to you next. One of the examples of regulating massive everything companies, Meta, Google, et cetera, is the Online News Act, C-18. And it raised the question of whether Canada as a country, this sounds crazy to ask, but was Canada as a country big enough to take on Metta? What do we conclude about that question? I think Canada is and was big enough to take on Big Tech

in that way. I think for some people, the Online News Act read as what would be called a remedy from a competition case that we never actually had, right? So we see more competition, more antitrust cases in the US really going at how Google obtained its monopoly, was that fair, was it appropriate, how Facebook operates, et cetera, sorry, meta.

I always have trouble calling it that. I think what surprised people, or maybe why for some that didn't really land is because C18 wasn't couched in that bigger conversation about competition, right? It's a piece of legislation that fundamentally aims to rebalance power in a marketplace. And in that way, you can think of it as being competition law. The competition law is not just the competition act in Canada, but it's sort of the anchor that we maybe project our hopes for how to best kind of regulate the economy. We're not always thinking about how to complement that.

There was a time, though, in that showdown between the government of Canada and Meta Facebook, call it what you want, where it looked like Facebook was going to win. It looked like Facebook was going to stare down a G7 country and come away with a victory Is that weird? I mean, is that completely weird to you? I mean, I think what's weird is how willing they were or the company is to exert kind of its market power and sort of bully an entire country, right? The companies wanted to set the terms of competition by themselves. We saw that they were happy to write checks and contribute money, very important money to Canadian journalism, but they didn't want to be restrained or restricted by how the

government thought those funds should be allocated. They were more interested in picking winners themselves. That's part of the recalibration that Denise and I offer, right? This kind of fake, part of the K-fabe, right? This fake kind of opposition between free and fair and idealized markets and then markets where government kind of gets in the way. Typically in areas where we don't have capital G government intervention, private firms are more than happy to regulate and set the terms of those markets in their favor. And I think that's what we've seen with big tech and news media.

I'm sure we all remember at this table here, there was a moment when Mark Zuckerberg was testifying before Congress. And I can't, might have been Orrin Hatch from Utah, the senator who asked him, wait a second, Facebook, you give this away for free. So how do you make any money? How is government supposed to regulate, challenge, force competition upon these behemoths when they really don't even understand the business model to begin with? Well, I mean, if you're into conspiracy theories, I have heard that if you were Metta or Facebook at the time, you would have paid a fortune for that media moment, right?

Because it basically convinced an entire generation that government was incapable of regulating. And we've had 40 years of that neoliberalist approach of saying, the best thing government can do is take its hands off because they can't possibly understand these technologies. And thankfully, I think that's shifting. And as Vass said, markets have rules and they can be set democratically or they can be set by de facto private regulators.

Take your pick. And we think in Canada and in the US and all around the world, as you say, these companies are now so large, they have market capitalizations bigger than many nation states. And we need strong government regulation and law enforcement to ensure that companies can't just ride roughshod, you know, around in any country as they wish. And I wish there was a different solution. We're not saying that we want to be overly interventionist or that we're advocating for more red tape, but we're saying, you know, markets need to be fair and free. And if you are a capitalist, then that means that they have to have guardrails and those have to be fair and free and if you are a capitalist then that means that they

have to have guardrails and those have to be set you know by the state. And this is not unprecedented I mean I remember when I was a kid Ma Bell was in charge of everything and they I don't know what was 40 50 years ago they came and they broke up Ma Bell which nobody thought would happen is that what you're advocating here do we need to break up the fangs Facebook Apple Netflix etc etc Google. It's not the big fix we're putting forward, but it is something we've considered and talk about with other competition leaders kind of around the world.

Fundamentally, we're advocating for a recalibration of that entire competition conversation. So what does that look like, Ves? Yeah, what is it? Recalibration. What does it look like? I mean, on page this page, I was like, zoom in on me so I can read you part of it. I mean, part of it is this whole of government approach, right?

The big fix is fundamentally a triple entendre because we wanted to have a little bit of fun. And the first thing it speaks to is just the problems that people feel, right? Whether you're in a Reddit thread, making a meme, wearing a cool t-shirt, people are really frustrated. And we think it's really important to pay attention to the direction of that public anger, even though it may not be the source of every single policy solution.

The second is these kind of big fixes that always lurk around us, these silver bullets that aren't us, right? We hear, add one more foreign competitor and that's going to kind of unleash the economy and supply management. These are important elements of the conversation, but they're not the big fixes we hope they are. What we'd like to see is more of a comprehensive, more fulsome, whole of government approach that calls on other ministries,

not just the Competition Bureau, which is one little bureau nested in the Ministry of Innovation, Science and Economic Development, but really says that, you know, in finance, in transportation, through the provinces and even municipalities, we need a better eye to both when we make a decision, what are the implications for competition, but also where are there opportunities for us to make markets work better? The only trouble with that, Denise, is that that's not how government works. Government works in silos, right?

Overwhelmingly, the Ministry of Health doesn't talk to the Ministry of Community and Social Services, so they can't take a whole of government approach to problem solving because they're all living in their silos. So what you're asking for is actually something very revolutionary. How do you make it happen? Well, we do take inspiration from what happened in the US under President Biden's administration where there was an executive order which created a competition council with all the heads of different relevant agencies, so including Treasury, Labor, you know, everyone was there

and directed not only additional research but very specific itemized sort of agenda items that each ministry or each agency needed to go and do. And then, you know, and then this council would meet on a regular basis to discuss and to sort of report back on their progress. So we think that something similar could happen in Canada. We don't think it's, you know, out of the realm of possibility, especially given that this is one area where there is cross-partisan support. You know, the legislative changes to the Competition Act that went through over the last year and a half passed unanimously through Parliament.

So we think, you know, this is, and we speak to all the different parties, and we think that this is a great opportunity for Canada, whether you're conservative, liberal, or anywhere in between, to see this as an important issue affecting Canada's future, and that's why we think there's enough motivation for this to potentially break down those silos, hopefully. And not just motivation, but scaffolding, right?

Increasingly over the course of our research, we were sort of very charmed to see that Canada has the foundation of a whole-of-government approach. The Competition Bureau has tons of MOUs with other orders of government. Memorandums of understanding. We're in an acronym-free zone here, guys. Whoops. Yes, memorandums of understanding. Well, you mentioned the Online News Act. The Online Streaming Act, which also came from Heritage, can be viewed as a piece of legislation that sought to rebalance power in a particular sector. Is that not competition law? The Minister of Finance Deputy Prime Minister, Christia Freeland, has been working hard to

reduce junk fees and banking. This is part of a suite of interventions that make markets work better, better protect consumers, and are just good for everyone. Sure. And I was just going to say that in Canada's history, we've only had a few instances of blocking mergers, and actually none of that has happened at the Competition Bureau. It's interesting. I guess Paul Martin, when he was Finance Minister, stopping the big banks from joining, I mean I read about that in here. Yes,

and there was a recent, I think back in 2023, there was a construction company that a Chinese company bid for, in a takeover bid, and it was stopped on national security grounds. So I think, as Vas is saying, we have some precedent, but I think and I will add you know I think that we are in favor of breakups perhaps not of Canadian firms because again they don't have the size and scale but certainly in the US we do think that those structural separations are really important because you can see in in history when you did break up you know Bell Labs when Standard Oil was broken up and so forth, it really breaks open markets and allows for, again, startups to enter.

And even Microsoft in 2000, when it was under a lot of anti-trust scrutiny, some people believed that because they had that sort of policeman at the elbow, as Columbia professor Tim Wu says, that that allowed enough space for a little startup called Google to get a foothold. So those are the types of solutions that we enough space for a little startup called Google to get a foothold. So, you know, those are the types of solutions

that we're advocating for. Let me, I want to beg the control room for one more minute here because there are a lot of workers slash employees who when they hear the words competitiveness and productivity basically mean, they basically infer that to mean you want me to work harder for just the same amount of money. Right? Is that That we're talking about here. No, it's not what we're talking about. We're talking about freedom for workers worker mobility

The ability to be free of non non competes unnecessary constraints typically used to intimidate people You know, we saw here in Canada not just the collusive power of the grocers potentially, you know, maybe calling each other around the same time to conclude hero pay in the pandemic. Quite a coincidence. I know, right? It just happens. We also saw Tim Horton's franchisees, you know, staying in touch so that you could not take your labor and skills to a Tim Horton's in kind of the same neighborhood or same geography. Now these lawyers will tell you these aren't enforceable under Ontario law, etc. Ontario has since banned non-competes, which to us seems like part of that whole of government

approach. But really these are tactics that firms use to intimidate people and constrain their freedom. Gotcha. The Big Fix is what the book is called, How Companies Capture Markets and Harm Canadians. It has brought Denise Hearn and Vass Bednar to our studio here today for which we are grateful. Thank you, you two. Thank you. Thank you.