Canada’s Productivity Challenge: Unlocking Economic Potential

Canada’s productivity woes may be self-inflicted, yet solutions are within reach. For years, discussions around productivity have often felt like an unsolvable puzzle. Issues like stagnant wages, prolonged timelines for scaling businesses, and sluggish growth have persisted. The country has lagged behind the United States and other developed nations, with the gap widening since 2000, according to Nicolas Vincent, the external deputy governor of the Bank of Canada.

An independent study commissioned by the Competition Bureau of Canada reveals that regulatory barriers significantly hinder competition within the economy. Conducted by international productivity experts, the study indicates that alleviating these barriers could potentially boost Canada’s economy by 6.5% to 10% in the long term, a figure considered conservative by government standards.

Understanding the Regulatory Landscape

The report highlights that current regulations across vital sectors—namely energy, transportation, retail distribution, and professional services—are more restrictive than necessary. This restrictive environment leads to inefficiencies that reverberate throughout the economy. The study compares Canada’s regulatory framework with that of 14 other OECD countries over a 25-year span. While Canada was relatively competitive in the 1990s, it has since fallen behind, ranking among the least favourable in terms of competition today.

The implications of these findings are evident. Businesses face higher input costs, fewer supplier options, and a slower uptake of new technologies. This regulatory friction complicates efforts to expand across provinces, stifling growth.

Potential Gains from Reform

By modelling a scenario where Canada aligns its regulations with international best practices, the study estimates productivity gains could reach up to 10% over time. Even modest reforms bringing Canadian regulations closer to those in the United States could elevate the GDP per capita by approximately 5%. In practical terms, stronger competition might enhance living standards by around $7,500 per person over time.

Importantly, these projections exclude spillover benefits to sectors such as agriculture and mining. They also do not account for the advantages of reducing internal trade barriers, improving labour mobility between provinces, or attracting greater foreign investment. Consequently, the actual potential for economic uplift may be significantly higher than the study suggests.

The relationship between competition and innovation is also critical. Open markets foster new entrants, compelling established businesses to improve or risk obsolescence. The report argues that many Canadian regulations restrict competition for reasons unrelated to health, safety, or environmental concerns. Instead, many rules are outdated and no longer reflect current market dynamics.

Jeanne Pratt, acting commissioner of competition for the bureau, stated, “This study shows just how much Canada could gain from a pro-competitive regulatory reform across all levels of government.” She emphasized that recent progress in eliminating internal trade barriers demonstrates that such reforms are achievable.

Addressing Systemic Issues

One significant contribution of the study is its framing of competition as a systemic issue. Sectors like transportation and energy underpin virtually all industries. Inefficiencies in these sectors can lead to widespread costs across the economy.

The Bureau’s backgrounder outlines four primary ways regulation can undermine competition:

1. **Barriers at the Entry Point**: Complex licensing and permit requirements can deter new business entrants. Provincial monopolies may also restrict competition.

2. **Rules Shaping Competition**: Regulations that limit pricing and advertising can hinder businesses from offering competitive deals, favouring incumbents over newcomers.

3. **Weakened Pressure to Innovate**: Suggested fee guides in self-regulated professions and non-compete agreements can diminish the drive to innovate or compete for talent.

4. **Friction for Customers**: Difficulties in comparing options or switching providers can stifle competition. Improved transparency and stronger consumer rights are essential for fostering competition.

These challenges are familiar to business leaders, as they often experience the impact of varying licensing regimes and restrictions on data portability. Although these issues may not appear as line items on balance sheets, they significantly influence the pace of innovation and economic mobility.

The study does not advocate for specific policy changes but emphasizes the costs of inaction. It encourages executives and founders to recognize how regulatory conditions shape their strategic decisions. Expansion plans, talent acquisition, supply chain design, and pricing strategies all operate within regulatory frameworks that can either facilitate or hinder progress.

As discussions regarding competitiveness and productivity intensify, the study adds substantial weight to Canada’s ongoing innovation discourse. Other nations have successfully leveraged competition reform as a catalyst for economic growth. For instance, reforms in Australia during the 1990s resulted in a permanent GDP increase of approximately 2.5%.

In conclusion, the findings prompt a critical examination of whether Canada’s regulatory framework supports or obstructs economic adaptation. As Carolyn Rogers, senior deputy governor of the Bank of Canada, remarked in a February 2025 report, “You’ve seen those signs that say, ‘In emergency, break glass.’ Well, it’s time to break the glass.”

Pro-competitive reforms can be achieved without compromising essential health, safety, or environmental protections. Ultimately, understanding the impact of regulation on competition is becoming increasingly vital for business leaders as they navigate the complexities of growth in a changing landscape.