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Planes, loans and phones: Three things that hold Canadian businesses back

The crux of Canada’s competition problem: oligopolies

Fred Lum/Fred Lum/The Globe and Mail

Credit, a smartphone and a passport are essential tools for any Canadian company that wants to take on the world.

Unfortunately for Canada's entrepreneurs, the country's finance, wireless and aviation industries are all ruled by just a few big players.

The country's banks are quick to issue a government-backed mortgage – less so when it comes to a small-business loan. Canada's wireless penetration is dead last among the 34 countries that belong to the Organization for Economic Co-operation and Development, even though Canadian carriers are more profitable than their U.S. counterparts. A technology executive in Ottawa or Waterloo, Ont., will pay dramatically more to fly to the West Coast than will a rival in New York or Atlanta.

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The common thread: The Canadian providers of these services face almost no competitive threat from abroad.

Leaving the benchmark interest rate at the ultra-low 1 per cent, dropping Canada's corporate tax rates to among the lowest levels in the world, and ongoing negotiations for free-trade agreements are all policies that exist partly in the name of competitiveness. But while these steps are helpful, they also highlight the reluctance of the Harper government to make dramatic structural changes after six years in power.

Fundamental industries, including telecommunications and aviation, remain protected from international competition. The policy results in strong companies, such as Rogers Communications Inc. and Air Canada. But it also results in an environment that stifles innovation and boost prices.

"We still have big chunks of our economy that are protected," said Ian Lee, an assistant professor at Carleton University's Sprott School of Business in Ottawa.

According to Prof. Lee, the Harper government can sign all the trade agreements it wants, but Canada's competitiveness issues won't truly be fixed until it ends the rule of a tiny minority of companies in vital service industries.

"All of these other changes like trade agreements are important and useful, but we have to go into the belly of the beast and get to the core issue, which is to have firms competing with firms," he said.

Follow Canada Competes on Twitter: @CanadaCompetes

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About the Author
Senior fellow at the Centre for International Governance Innovation

Kevin Carmichael is a senior fellow at the Centre for International Governance Innovation, based in Mumbai.Previously, he was Report on Business's correspondent in Washington. He has covered finance and economics for a decade, mostly as a reporter with Bloomberg News in Ottawa and Washington. A native of New Brunswick's Upper St. More

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