There are a number of regulatory strategies for revitalizing Canada’s entrepreneurial landscape. Here are a few of them.
by Aftab Ahmed. Originally published on Policy Options
July 23, 2024
(Version française disponible ici)
This is part two of a two-part series. Part one examines how the Canadian regulatory framework has limited competition, encouraged greater concentration of companies and hindered the arrival of new players.
Business-minded Canadians are acutely aware of the hurdles that entrepreneurs face in making headway against restrictive rules and red tape that stifle competition and discourage entrepreneurial risk-taking.
They’ve seen the harm done to the economy writ large. The important question is: What low-cost, high-impact public-policy measures could lighten those burdens? Oversight, in itself, and regulation purely for the sake of regulation, are counterproductive.
The scale needs to be balanced between new entrants willing to assume reasonable business risks and established players who have historically used government regulations to sculpt uncompetitive markets to their benefit.
Deloitte, the Fraser Institute, consulting firms, think tanks and, to their credit, many federal policy-makers and public servants have identified several strategies that Ottawa should consider to energize Canada’s business landscape. The solution is not necessarily less regulation, but smarter regulation that encourages innovation and promotes competition.
“Sandboxes, automation and emerging tech
Regulatory “sandboxes” are a good starting point. They are an innovation that offers a reprieve from the full weight of regulatory compliance for a designated period. They provide a controlled space for businesses to test new models and technologies in sectors that are strictly regulated. This helps small- and medium-sized enterprises (SMEs) and rapidly growing firms test new products and services under supervision without having to immediately face bureaucratic demands.
Transport Canada’s sandbox for remotely piloted aircraft technology is a good example. It provides special licences to industry participants to test restricted or unregulated drone activities.
Harnessing cutting-edge technologies for the design and review of regulations offers another path for more streamlined governance. Artificial intelligence, machine learning and blockchain technologies are big words on paper, but they hold great potential to automate complex regulatory operations such as approvals, compliance monitoring and reporting. And they can improve efficiency by identifying redundancy and bottlenecks, thereby making Ottawa more agile in its response to economic changes.
The federal government is and should be adopting these technologies. A pan-Canadian artificial intelligence strategy is one way Canada’s leadership is trying to boost competitiveness.
Another solution related to the above is to prioritize policies that unlock the potential of new technologies in economic growth. Creating adaptable regulations that can accommodate emerging technologies is key to expanding markets and attracting investments. Dedicated federal government teams focused on monitoring and adjusting regulations could ensure that Canada continues to encourage entrepreneurship and economic expansion.
Regulation can be a force for good when it creates a conducive environment for SMEs and attracts foreign direct investment. It’s a significant problem when too many rules stifle competition in low-growth economies, particularly in mature markets like Canada, which faces diminishing returns on traditional investments and struggles to find new avenues for growth. An example of this is the much-critiqued telecommunications sector.
A 2022 index ranking 100 countries on internet accessibility and affordability placed Canada 15th in cost to users, primarily due to a significant drop in the sector’s domestic competitiveness from first to 32nd place. Last year, three major players – Rogers, BCE Inc. and Telus Corp. — together held 88.5 per cent of all revenue market share. A similar scenario exists in the airline industry, where limited competition among a few major carriers leads to higher fares and fewer choices.
These two areas are examples of how insufficient competition ultimately makes living in Canada less affordable. If Ottawa does not modernize its regulatory landscape, Canadians will continue to lose out.
The business case for reforming Canada’s regulatory controls is clear. Equally clear is the urgency for the country to become a leader in adopting technology. Two federal initiatives would suggest Ottawa appears to recognize this.
Federal initiatives
A periodically reintroduced bill, first presented in 2019, targets outdated and overlapping legislation so that federal agencies can adapt to technological advancements. The initial iteration of the bill revised 12 laws, including the Canada Transportation Act and the Food and Drugs Act. For example, an exception to regulatory requirements was made to allow for testing of innovative health technologies like 3D-printed tissues.
Another amendment to the Electricity and Gas Inspection Act promoted the use of clean technologies such as LED and hydrogen-fuelled vehicles.
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Building on these reforms, Bill S-6, introduced in March 2022, aims to reduce administrative overhead for businesses and streamline digital interactions with the government. The goal is to improve cross-border trade and create a more consistent regulatory environment across different levels of governance.
Parallel to these legislative efforts, the Centre for Regulatory Innovation was established in 2018 to help federal regulators adopt innovative practices by broadening their understanding of emerging technologies and promoting experimental approaches.
Beyond fiscal policy
Fiscal policy tools, while important, are not the sole solution to boosting competition. Meaningful discussions that extend beyond debates like the recent one on the capital gains tax increase are imperative. Regulatory policies are often overlooked in discourse, but they merit equal attention and deliberation.
The pace and scale of regulatory reforms will determine whether Canada lags behind or catches up in its quest to become globally enterprising. Our economy’s foundation is undeniably strong and offers numerous advantages. But it needs to be steered toward genuine competitiveness beyond symbolic reputational strength. This will signal to entrepreneurs that Canada is open for business and that Ottawa will champion their success.
The views expressed in this article are personal opinions and do not reflect the views or opinions of any organization, institution, or entity associated with the author.
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This article first appeared on Policy Options and is republished here under a Creative Commons license.