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The Harper Review revisited after 15 years
Part Two: Unsustainable prices vs. consolidated corporate power
Canada is in the midst of its first formal review of its competition laws in roughly fifteen years.
The last review – which formed the basis for the most significant changes to the country's competition policy in decades – punctuated the era’s hard-fought battle over competition reform.
And while the political circumstances surrounding the two reviews are quite different from one another, the core debates around policy and philosophy bear a striking resemblance.
So, what happened the last time?
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In July of 2007, the Harper government announced the creation of an expert panel featuring a collection of corporate executives and corporate connected individuals tasked with reviewing Canada’s competition and investment policies.
The competition policy recommendations of that panel’s 2008 “Compete to Win” report were nearly all implemented into the Competition Act and reflect a focus on creating a more “efficient” Canadian economy, partially through the encouragement of corporate concentration – an approach some experts criticize as intellectually flimsy and harmful to consumers.
Part One of this series reported how the competition law changes arising from the Harper Review were enacted via a budget bill and urgent stimulus package, in the aftermath of the 2008 financial crisis.
I also explained how the review usurped the movement spearheaded by Dan McTeague to strengthen the Competition Act’s anti-competitive conduct provisions and to neutralize the efficiencies defence, a statutory trump card which can push anti-competitive mergers through the review system.
McTeague’s movement gained traction but ultimately fell short of enacting any substantive legislative change. To this day, he argues that his efforts faced sustained opposition from industry interests, both from inside and outside government.
My own research into the lobbying records from around that time revealed that some of Canada’s largest corporations in fact did lobby the federal government specifically and consistently about competition policy.
By the time of Harper’s election, McTeague's efforts on competition reform had slowed.
Still, in a May 30, 2007 industry committee meeting, after the federal government had announced their intention to conduct their own review of the Act, McTeague pushed then Minister of Industry Maxime Bernier to appoint a review panel that was “transparent and independent from industry.”
When I spoke to University of Ottawa professor and competition law expert Jennifer Quaid, I asked her to describe her ideal expert panel for the ongoing review by the Trudeau Government.
Professor Quaid stressed the benefits of pulling expertise from a wide range of areas, such as academia, economics, labour and indigenous rights, among others.
She also noted that while industry should have a seat at the table, it was vital to include “representation of the different ways that business can be done,” meaning by large, small and medium sized businesses.
The expert panel that authored the Harper Review’s Compete to Win Report was helmed by Lynton “Red” Wilson, former President and Chief Executive Officer of BCE Inc., and featured N. Murray Edwards, P. Thomas Jenkins, Isabelle Hudon and Brian Levitt.
I asked all panel members for comment and provided detailed questions for this story, but no one had anything to add.
Edwards is the billionaire founder and current Executive Chairman of energy giant Canadian Natural Resources Ltd. as well as the Co-owner of the Calgary Flames.
Jenkins is the current Chair of the Board of OpenText, a software company valued at over $14 billion (as of the date of publishing) which recently touted its “25 acquisitions” in the last 10 and half years. At the time of the report, Jenkins was the Chief Strategy Officer of OpenText.
Hudon is the current President and CEO of the crown corporation the Business Development Bank of Canada, and recently came under fire for the BDC’s McKinsey contracts and spending, per the CBC.
At the time of the review, Hudon was serving as the president and CEO of the Board of Trade of Metropolitan Montreal after roles with Bell Global Solutions, the Canadian Space Agency and BCE Media. She later worked as an executive at Sun Life Financial.
When reached for comment Hudon said “she has nothing additional to offer from this panel that isn't already in the public domain.”
Brian Levitt is currently the Board Chair of TD Bank Group, and was appointed to the board in December of 2008, a few months after the release of the review’s report. Levitt was, at one time, a renowned corporate mergers and acquisitions lawyer and has served as a Director for Domtar Inc. and BCE Inc.
Per the report, the panel received legal advice that members did not need to recuse themselves from any deliberations. However, two members, Levitt and Edwards, recused themselves from discussions with respect to certain “sectoral investment regimes where they have business relationships of a material nature.”
There is no mention of any recusals with respect to competition policy.
I asked Dan McTeague what he thought of the appointed panel members.
He was characteristically blunt.
“Bringing the fox monitor to the chicken coup would have had the same outcome.”
Concentration versus Anti-Competitive Conduct
Competition laws are broadly meant to address two categories of business activity: the anti-competitive growth of businesses through mergers and acquisitions, and certain conduct which may hamper competition (anti-competitive conduct).
Major companies often concentrate their industries through mergers.
They can buy up their competitors and reduce market competition. And they can buy up potential business partners to gain control over multiple stages of supply – like if a grocery retailer acquired a grocery products supplier, for instance.
Both types of mergers can help companies consolidate market power, which can, in turn, harm consumers and others.
Merger laws aim to block or dilute mergers that will have such negative effects.
Anti-competitive conduct rules, on the other hand, prevent businesses from using their existing market power in unfair ways.
One illustrative example of this is predatory pricing, where a dominant player with considerable resources at its disposal undercuts the prices of a smaller competitor by selling its goods or services at bargain basement prices.
Because the larger company has fatter margins, it can eat those losses until the smaller competitor is driven out of business. In the short term, the consumer may benefit from the dive to lower prices.
But eventually, the larger player will have removed a source of competition, empowering itself to provide a worse product at a higher price.
Amazon is alleged to have done something like this to the online baby supplies retailer, diapers.com.
As it has been reported, when Amazon decided to enter into the baby supplies business, it warned diapers.com that it should consider selling to them.
Amazon then reportedly massively reduced its prices on baby supplies until diapers.com – floundering under the pricing pressures – buckled and agreed to sell to Amazon.
The distinction between industry concentration and anti-competitive conduct ended up being a major theme of the Compete to Win Report.
Following the announcement of the expert review panel by the Harper Government, competition and foreign investment partner at Davies Ward Phillips & Vineberg, John Bodrug, wrote that this review was set to be “unlike previous competition law reform efforts, which have been largely initiated or encouraged by the Competition Bureau to strengthen enforcement of the Competition Act.”
Bodrug acknowledged that “much of the recent political attention in the Canadian competition policy area [had] been focused on mergers and acquisitions,” but predicted that the panel would nonetheless direct its more stringent recommendations elsewhere.
He wrote that the panel would likely focus on how the Act could be adjusted to better promote “efficient markets” while also protecting consumers from “unfair practices.”
Efficient markets essentially means lax merger policy and industry concentration. Unfair practices refer to anti-competitive conduct.
In other words, he expected a policy framework which would help Canadian businesses get big, and then try to make them act nicely once they got there.
This was prescient.
The Panel’s findings
“The primary focus of Canadian competition law and its administration and enforcement should be on anti-competitive conduct and outcomes more than on concerns about industry concentration,” reads the Compete to Win Report.
The panel’s recommendations indeed reflect that ethos.
For one, the panel appears to have followed through on their commitment to recommend stronger anti-competitive conduct laws, including with respect to predatory pricing.
Professor Quaid described several of the report’s recommended anti-competitive conduct changes as cleaning up what had been a “bloody mess.”
McTeague told me that, because the Harper Review actually implemented a lot of the anti-competitive conduct rules he had pushed for, he considers his competition reform battle to have ended in a “split decision.”
But his losses were in merger policy, where the panel either did not mention, or outright rejected changes which could have strengthened Canada’s ability to prevent anti-competitive mergers.
The panel’s justification for this position could be summed up as follows: if Canadian firms did not achieve sufficient scale in their operations, they would be dwarfed by the big players of the ever expanding global marketplace.
Concentration within Canadian industries should therefore be encouraged so that Canada could punch above its population weight.
This point of view was hardly new. In fact, it had long been the intellectual basis for Canada’s merger laws, which were and are internationally exceptional in their permissiveness.
Still, the further entrenchment of this view ran counter to the political movement to strengthen the merger enforcement laws that had surged in the years preceding the review. A movement that culminated in the passing of McTeague’s efficiencies defence Bill through the House of Commons, only for it to die quietly on the Senate floor.
And I should add that many contemporary experts, like Professor Quaid and University of Toronto professor and competition law expert Edward Iacobucci, reject the premise laid out by the panel.
Iacobucci actually supports the efficiencies defence, but still wrote that “the argument that the efficiencies defence is desirable in promoting exports by enhancing the efficiency of domestic firms participating in international markets is not especially compelling.”
Given that context, the most significant panel recommendation with respect to merger policy was arguably to maintain the status quo. The report stated that the panel was satisfied with the substantive merger law in the Competition Act, and that only slight tweaks to modernize the process were required.
About the efficiencies defence, the panel wrote that they had “heard much debate” but concluded that there was “no compelling need to change it.”
Instead, there were three main changes to merger policy arising from the review.
First, the adoption of the two stage process that the United States was using, to align the two trading partners.
Second, the shortening of the three year period within which the Commissioner could challenge a completed merger to one year.
And third, the raising of the threshold for the size of transaction and size of the merging entities that would require the merging parties to notify the Competition Bureau.
The impact of the first change is hard to quantify.
McTeague questioned the efficacy of the process change on the House floor at the time, arguing that the United States competition bureaucracy is properly resourced, while Canada’s is not.
He thought that importing an ill-fitting merger review process to Canada would lead to anti-competitive outcomes.
Quaid disagreed with that particular criticism. She classified the change as administrative rather than substantive.
On the other merger policy changes, however, Quaid was quite critical.
She said that they are “ruing the day” that they reduced the period within which completed mergers can be challenged by the Competition Bureau and that it is important to consider who would benefit from such a change.
Granted, some argue that the shorter period provides the benefit of certainty to businesses, but according to Quaid that argument is losing steam and the “international trend is going the other way.”
The idea of setting higher thresholds for merger review notification is also under fire, especially in the light of the unique dynamic between big tech and startups generated by the innovation economy.
“In this world,” Quaid said, “we have to be concerned about the players buying up really tiny players that fly under the radar.”
Quaid told me that if you look at the identity of the Harper Review panel members, they would very much have been informed by a neoliberal non-interventionist approach to competition law; a deference to the inherent wisdom of the market.
And the panel members are not alone here. Quaid said Canadian competition case law also reflects this view: “Everyone's worried about killing the golden goose. Doing something that will irreparably damage the economy, or a growth opportunity or innovation.”
But the issue with that, she argues, is there is no such thing as a neutral position in competition policy. There is not some “pure form” of competition versus some more “polluted form” of heavy regulation.
Rather, the form of competition that has dominated Canadian policy and was endorsed by the panel members of the Harper Review is just one that allows “the determination of what is and is not acceptable to largely rest in the hands of those who are motivated by private wealth maximization,” Quaid said.
On March 12, 2009, the Harper Government further cemented that form of competition policy into the Competition Act, Canada’s foundational piece of competition legislation.
They did so based on the recommendations of individuals connected to Big Oil, Big Tech, Big Telecom and Canadian Banks.
And they did it through a budget bill and stimulus package, as a potential recession loomed.
In defiance of Dan McTeague’s well supported political movement to strengthen the Act’s merger laws, the Harper Review did little to nothing to address the exceptional amount of industry concentration in Canada.
Canada’s competition laws continue to explicitly encourage the consolidation of corporate power.
For the first time in roughly fifteen years – amidst what feel like unsustainable prices for products and services – the federal government is going to take a deep look at that approach.
If their pro-consumer tone sustains throughout their review, the country could see a major upheaval in its corporate economy.
But then again, true and substantive competition reform is an ambitious project. Whether the Trudeau government has the stomach for it remains to be seen.
Adin Wagner is a freelance journalist trained in commercial litigation.
The Bureau is a reader-supported publication. To receive new posts and support my work, consider becoming a free or paid subscriber.