Canada’s Productivity Crisis: State Intervention Is Dulling The Competitive Edge Of Canadian Firms

The endless appeals to the government to ‘do something’ to prop up companies that have failed in the free market is having a deeply negative impact on Canada’s overall competitiveness and standard of living.

One of the most important factors in an economy being dynamic and innovative is the possibility of failure.

Businesses should know that the possibility of failure exists, and that the government will not step in and save your company if you fail in the free market.

In this way, failure is necessary for success.

Many of the most successful entrepreneurs failed over and over again. They learned from their failures, improved, came back stronger, and then achieved significant levels of success. Thus, their early failures laid the groundwork for their success.

In a relatively free market, businesses have to compete for customers. Those that innovate and provide value will do better than those that stagnate and refuse to adapt to changing circumstances will fall behind and ultimately fail.

This is why countries that embrace free market economics tend to be more technologically advanced and wealthier than countries that don’t.

This is even true of the so-called ‘success stories’ of non-capitalist nations.

For example, some hold up Communist China as an example of a non-capitalist state achieving success. However, the world’s poorest Chinese People live in China, as people of Chinese descent do much better everywhere else in the world – including in Taiwan, Singapore, and the many financially thriving Chinese communities in Canada and the United States.

Further, China’s economic surge was generated by a loosening up of state restrictions. China moved in a more capitalist direction, and then began to grow. Now, with Xi Jinping going back to more ‘classic communism’ and asserting greater state control over the economy, China is slowing down.

Entitlement vs Competition

Here in Canada, we are witnessing an ongoing battle between an attitude of entitlement and an attitude of competition.

So far, the attitude of entitlement is winning, to the significant detriment of our nation.

When I talk about entitlement, what do I mean exactly?

The issue is that many Canadian companies appear to feel entitled to financial survival.

They believe that they should survive and continue operating, regardless of how they perform in the market.

For example, while I have significant respect for many National Post columnists and the paper as a whole, a recent National Post View (editorial board) column on Bill C-18 was quite disappointing. Here are a few excerpts:

The column starts by denouncing Google and Meta’s ‘threats’:

“Threats from Google and Facebook owner Meta to remove Canadian news from their platforms and deprive their users of access to information they rely upon is a cynical negotiating tactic. Rather than enter revenue sharing agreements with publishers, as required under bill C-18, the Online News Act, the companies are trying to demonstrate their market power and extort sympathy for their campaign to maintain their duopoly in the online ad sales market.”

It then notes the significant market share of Google and Facebook in terms of ad revenue:

“More than 80 per cent of ad revenues in Canada go to Google and Facebook. Much of that ad revenue is generated from news distributed on their platforms, created by news publishers, including Postmedia. The tech giants didn’t gain this market share through innovation, but through uncompetitive practices.”

It closes by claiming Google and Meta are to blame for the struggles facing the news industry:

“Across Postmedia brands, we continue to attract readers by the millions, producing coverage that our readers want, trust and are increasingly willing to pay for.

We are confident we are up to the challenge, even when considering the existence of a hostile government policy of increased funding for the CBC, which competes with the work of the private news media, but gives its news away for free. The federal government also maintains onerous regulations on news broadcasters through the CRTC.

This is not an industry in crisis because of its own failures, but rather because a global monopoly in digital ad sales was allowed to emerge by governments asleep at the switch. The federal government has good reason to stand firm and not give in to the tech giants.”

Many of the arguments made in the NP View column are illogical.

Google and Facebook have a massive number of users, users who chose to use those platforms. That choice is itself a democratic process, since it happened in the absence of coercion. With so many people using those sites, how could it be surprising that they dominate when it comes to digital ad sales?

Governments “allowing” it had nothing to do with. Those companies competed in the market, and succeeded. If it wasn’t Facebook and Google, other companies would have filled that demand.

Notice how the NP View article also says they are “confident” they are “up for the challenge,” while at the same time demanding the government intervene to transfer money earned by tech companies to the National Post and other outlets. That seems to betray a significant lack of confidence, as running to the government for help is not what successful independent businesses do.

Look at it another way. The National Post has a long history of success in Canada. They once held a significant portion of ‘national newspaper’ market share. They also had many competitors who at one time or another wanted to usurp their position, yet failed to do so because they failed to provide as much value as the National Post did to readers.

Did those companies deserve to have the government intervene to weaken the National Post and enable the competitors to survive at the expense of the NP?

Of course not.

Just as today, the National Post doesn’t deserve to have the government intervene to prop them up.

By the way, I apply the same principle to myself.

I built up a website, attracted an audience, and sustain my business from a combination of website ads and voluntary donations from readers. I don’t take any government money, and I don’t expect the government to intervene on my behalf. What I do expect is for the government to leave me alone and let my succeed or fail on my own merits, based on the value I provide to those who chose to consume my content.

More competition is necessary for Canada to begin solving our productivity problem

Canada has a serious productivity problem.

According to Statistics Canada, productivity has now fallen in four consecutive quarters:

“Labour productivity of Canadian businesses fell 0.6% in the first quarter, a similar decrease to that recorded in the previous quarter (-0.5%) and the fourth consecutive quarterly decline.

Business output resumed growth in the first quarter, following a contraction in the previous quarter. Meanwhile, growth in hours worked accelerated, after slowing in the previous quarter, and continued to outpace the growth in output.”

Productivity fell in 12 of 16 main industries:

“Goods-producing businesses saw their productivity fall 1.4% in the first quarter, the second consecutive quarterly decline. Service-producing businesses, for their part, posted a 0.4% decrease in productivity, following a 0.3% increase in the previous quarter.

Overall, 12 of the 16 main industry sectors recorded decreases in the first quarter. Only arts, entertainment and recreation (+3.7%), information and cultural industries (+3.2%), accommodation and food services (+2.5%) and retail trade (+1.1%) posted increases in their productivity.”

This is not a recent problem. By some accounts, Canada’s per capita GDP is now back to about 2017 levels, meaning the last half decade has been nothing but economic stagnation. In fact, we would be better off if per capita incomes were just stagnating, because they are in fact declining in this country.

What this means is that while our population and raw GDP is going up due to high immigration levels, we are producing less on a per person basis, and most Canadians are getting poorer in real terms.

This is largely the result of an anti-competitive attitude. When businesses feel entitled to financial survival, and when the government feeds into that entitlement, it means less competition and less of an incentive to innovate. This means that both human capital and financial capital are utilized in a less efficient manner, and consumers are deprived of potentially better products and lower prices. Ironically, this also results in less government revenue, since a more productive economy generates more wealth overall, meaning that even with the same tax rates, a more productive country will have more money available for infrastructure, the military, healthcare, police, etc…

Letting things go

To get Canada on a more competitive footing, we must directly confront the entitled mindset. We must understand that it is a good thing when companies are allowed to fail, because that gives others a chance to rise in their place, and because those failures provide important lessons. Instead of trying to hold on to specific companies through state intervention, we should embrace the idea of competition and change, and realize that it’s better to let go of failing companies rather than prop them up at the expense of others.

Spencer Fernando

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The damage being done by the Liberal Government and Bill C-18 makes it more important than ever for Canadians to support independent media. If you value my writing, you can make a contribution through PayPal or directly through Stripe below:

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