Government’s Role in Boosting Canadian Competitiveness

Policy Competitiveness

Published on April 19, 2022

Takeaways

Canada must reform its regulatory framework to improve competitiveness and curb anti-competitive practices by multinationals.
Canadian investors must be more willing to take risks on local businesses or we will lose out on promising companies to American investors.
The Canadian government must rethink its procurement strategy and be more willing to take risks on Canadian enterprises.

Action

The Canadian government plays a critical role in helping Canada become more competitive. They can do this by reforming their regulatory frameworks surrounding data, rethinking their procurement strategies and encouraging more investment in local enterprises.

Hi, I am Colin Deacon. I am an Independent Senator representing Nova Scotia in the Senate of Canada.

Why is data-driven decision-making so important for Canadian competitiveness in the digital world?

We are living in a “disrupt or be disrupted” world. Every sector is changing at a rapid pace, which means if we are going to keep creating high-value jobs and exports from this country, we must be able to keep up with the regulatory and legislative changes as well as changes in business practices. Our ability to keep up will allow us to be globally competitive. If we are not globally competitive, we cannot count on our standard of living being delivered at a better rate to our grandchildren. In fact, we are currently creating the circumstances that will lead to them having lower levels of prosperity. Competitiveness is crucial.

“Canadians are not extracting value from their own data and delivering value around the world. “

It starts with how we look at competition here. Right now, Canadians are mostly at the wrong end of the data vacuum. Our data is leaving the country and being used by multinationals and big tech. Canadians are not extracting value from their own data and delivering value around the world.

We need to change how we regulate the use of data in this country and how we protect Canadians from having their data exploited. We need to make sure that we have rules that allow consumers to use their data to their benefit. For example, we do not have data portability, a basic element of the General Data Protection Regulation (GDPR) that is practied in Europe. Canadians do not have the right to access our data and decide how it is used, by who, for how long and for what purposes. This is a foundational piece that we have not kept up with. We are in desperate need of new privacy legislation.

Another issue is how we treat competition. This should not only be done through the Competition Act as there is no question that it needs updating. It is a generationally old piece of legislation that affects how we govern competition in airlines, banks, rail, food, telcos and more. The Canadian Competition Act needs updating because it predates the internet. The world has changed dramatically and data has a huge effect on the competitive landscape.

Canada has to change how we regulate various sectors and businesses in this country to allow and encourage innovation. We do not need to worry about how a specific objective is achieved, we just need to make sure that businesses are protecting consumers and that they are not being anti-competitive in how they operate. We need to make sure Canada has globally competitive enterprises so that our local businesses are not constantly disrupted by a global player that delivers 10 times the value at one-tenth of the cost. Changing how we regulate ourselves is really crucial.

What are the challenges Canadian entrepreneurs face and what must we do to better support them?

We have assets and liabilities. We have a huge and rapidly growing track record of success in tech. Canada has one of the fastest-growing tech sectors in the world now. We have a great base here but we do not have a history of success in investing at the level that we need to be at. Compare the investments in our tech sector to that of the mining or oil and gas sector. Canada was the world leader in financing gold mines in many different areas. We were also a global leader in terms of financing mineral exploration and exploitation around the world. We should be aiming to achieve the same level of investments in technology as well.

We have to develop from the earliest stage. We need seed investors who are comfortable with helping to take an idea and turn it into a company. We need investors who can help founders create enterprises around good ideas and help them to identify speed bumps during the early stages.

“Canada needs to have its own growth capital at a globally competitive rate that allows our companies to be comfortable here.“

Shopify was $150 million shy of becoming an American company before it went public. If that money had not come in from OMERS Ventures in the nick of time, Shopify would have become an American company. Canada needs to have its own growth capital at a globally competitive rate that allows our companies to be comfortable here. We must have investors that are comfortable with assessing risks and investing money in growing opportunities here to the point where Canadian companies no longer need to be sold to American multinationals in order to create value.

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How can we ensure that more local funding gets into the hands of Canadian businesses?

There are many things we could be doing. Equity tax credits are a great tool to get seed investors incentivized to invest. They will find it easier to put their money at risk rather than in the bank at those early stages. Capital gains tax exemptions on private investments made to get a company going could also be introduced. We need to encourage more money to get into the hands of better companies.

Another thing we must do is get more growth capital. When banks do share buybacks, we can make it so they have to invest a certain amount of money in the economy in a highly regulated sector. They should put some money into the economy to encourage growth. The same thing applies to pension funds. A certain amount of money has to go into the future of our economy in terms of growing opportunities and directing where the next jobs and future wealth will come from.

Those are some ideas from an investment standpoint. From the perspective of regulatory changes, we must bear in mind that we cannot be lagging behind the world in making regulatory changes that allow Canadian companies to compete in Canada. Regulatory reform can help new entrants to challenge the incumbents in this country and become more competitive. Regulatory changes that level the playing field in sectors like telcos, banking, agriculture and agri-food are critical to boosting competitiveness.

There is also an issue with procurement. Canada tends to buy from multinationals. Even then, we still end up with huge setbacks like with the Phoenix pay system. The Canadian government and local companies manage procurement to reduce risk but actually end up creating a lot of it. We have to assume that there is risk in everything that we do. As such, we should focus on using more Canadian enterprises to solve big government problems.

What must Canada change about our procurement strategies to drive innovation and commercialization?

I appreciate the questions you are asking because you are getting to things that I care a lot about.

Right now, Canada’s procurement strategy is focused on getting the lowest cost because we think that is the way we can best serve Canadians. This causes the government to first define what the solution is, before looking for the cheapest way to deliver that solution.

“The government can break the problem they want to solve into smaller bits to reduce the risk and be comfortable that some of those solutions are going to fail.”

When the government defines a solution for a problem themselves, they eliminate the opportunity for innovation. The government should be defining the problem. They should let enterprises know what the problem is and what the constraints are to overcoming it. They should then open the floor to ideas by asking local companies how they would go about fixing the problem. That will start to pull innovation into government. When government defines the solution, it is looking in the rear-view mirror. It is not pulling innovators in to help them solve the problem. The government can break the problem they want to solve into smaller bits to reduce the risk and be comfortable that some of those solutions are going to fail. We must change our approach to solving problems and investing.

“With better procurement, Canada could have developed different businesses to sell internet solutions to other low-density populations in the world.”

We have to fundamentally shift our mindsets, and only can we lead. Why is Canada not a leader in delivering satellite-based internet services globally? We have one of the lowest density populations in the world, and yet somehow the only way to get internet to all our citizens is through wires. How does that make sense? Why have we not incentivized fundamentally different approaches to addressing that problem? If the government had been open to other solutions, we would surely have different ways of getting internet to our people. With better procurement, Canada could have developed different businesses to sell internet solutions to other low-density populations in the world.

What are the sectors that you would be most excited about if you were a new entrepreneur today?

Cleantech, banking, agriculture and food are the sectors to be most excited about in Canada today. There are connections between all of them. Highly capital-intensive industries that require creative problem solving, contain opportunities for digitization and that have global demand are the way to go for Canada. If we can come up with a world-leading solution, we will have more global opportunities. We should also look at healthcare opportunities. Canadians cannot currently afford our healthcare system. We have to change how we deliver healthcare in this country and how we create solutions to the problems in delivering healthcare here.