7 Jun 2021
Financial headlines tend to focus more on quarterly earnings and share buybacks than on capital spending and technology investments by Canadian companies. The benefits of such investments are rarely discussed, let alone celebrated, yet collectively they are essential to our long-term growth and competitiveness as a country.
For example, without the $ 100 billion spent on technology by Canadian banks since the financial crisis, Canada would have an average rather than global leading digital banking system, which is good for the shareholders and customers of banks, as well. than for the health of our financial system as a whole. Likewise, telecommunications in Canada are making huge technological investments in response to the future of work and digitization. And Canadian railways invest billions in trade-friendly infrastructure, which strengthens our competitiveness.
But the general trends in total business investment in Canada are not moving in a direction that would help restore our capacity for long-term growth. There are many reasons, but there is one often overlooked culprit: regulation.
Poorly designed regulations are a stealthy obstacle to growth. In polls, companies more frequently cite regulation than taxation as a serious competitive pressure, and with empirical evidence: Canada ranked 38th for “burden of government regulation” in the 2019 Global Competitiveness Report of the World Economic Forum. And the cost of this regulatory burden is real. According to the Canadian Federation of Independent Business, regulations at all levels of government cost Canadian businesses $ 38.8 billion in 2020, with red tape accounting for $ 10.8 billion of that total.
As the pandemic fades but its scars remain, Canada will need trade investment – in large part – to rebuild its productive capacity and growth potential for the decade to come. And with monetary and fiscal stimulus clearly at their limits, isn’t it time to ask: What should regulation look like for the post-pandemic economy?
We don’t think the answer is deregulation or lower regulatory standards. The answer is smart regulation, a frugal stimulus to unleash private sector investment.
First, smart regulation must be clear and transparent about its objectives, make things more predictable, and designed with faster decision-making, eliminating overlap and duplication and endless layers of review. The aim is to reduce uncertainty for all stakeholders and enable companies to seize opportunities in the changing landscape and to react quickly, effectively and boldly, in line with regulatory objectives.
Second, smart regulatory goals must be balanced – promoting efficiency and encouraging direct competition while allowing consumers and business customers to take advantage of lower prices, better access and more choice. It should encourage investment in innovation, as this offers more future choices to customers and encourages dynamic competition.
Third, a principle-based approach to smart regulation allows for greater flexibility than a prescriptions-based approach, which focuses on what you can’t do rather than what you should be doing. This can be particularly important in potential areas of regulation, such as data, digital commerce, and social media, where public goals evolve and technology evolves. It can also be more effective when regulatory harmonization between jurisdictions is the goal, but national regulatory systems themselves differ.
Fourth, smart regulation, in a world of “Buy American” and rising global protectionism should encourage strong and efficient Canadian businesses. Ownership of capital should be less important than behavior of capital when making investment decisions, but being domiciled in the country does matter. Vibrant Canadian headquarters directly support well-paying jobs, attract high-value suppliers and create a virtuous circle of talent attraction. For example, the Toronto-Waterloo Corridor added the second-highest number of tech jobs in North America between 2015 and 2019. In addition, Canadian companies are among the most generous donors in the not-for-profit sector, which strengthens the communities.
Regulation is one of the most powerful tools in a government’s political arsenal, but it is not always used effectively. Regulatory uncertainty, opacity and lengthy review processes only hurt Canada’s reputation as a place to invest and grow.
It’s time to make sure that regulations better support our long-term economic growth. Smart regulation is about creating the conditions for an innovative and competitive economy, while supporting social benefits and minimizing unwanted externalities. It’s about ensuring that our regulatory framework keeps pace with technological and market trends, both at home and abroad, and protects consumers and customers. This is greater harmonization with other regulatory frameworks that share the same policy objectives, both at home and abroad. And it’s about regularly reviewing regulations to ensure they’re efficient and effective, using rigorous cost-benefit analysis that is transparent to the public.
We can no longer afford to take an analog approach to regulation in a digital world. Smart regulation is one way to boost the economy in the post-pandemic world, without the need for additional deficit-financed stimulus or prolonged monetary easing.
The Honorable Kevin Lynch is a former Clerk of the Privy Council and a former Vice-President of BMO Financial Group.
Paul Deegan is the CEO of Deegan Public Strategies and was Deputy Executive Director of the National Economic Council at the Clinton White House.
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