Bank of Canada Senior Deputy Governor Carolyn Rogers delivered a speech in Halifax calling Canada’s productivity problems “an emergency.” (Credit: THE CANADIAN PRESS\/Sean Kilpatrick) <\/p>\n
Bank of Canada<\/a> senior deputy governor Carolyn Rogers says fostering competition in the Canadian economy<\/a> is a powerful tool for boosting productivity, including in the country\u2019s financial sector.<\/p>\n \u201cGreater contestability, more new entrants and more innovation in our financial sector would lead to competition that\u2019s good for consumers, for productivity and for our economy,\u201d said Rogers, during speech in front of the Canadian Club Toronto. \u201cWe should lean into it.\u201d<\/p>\n Canada\u2019s productivity slump has long been a subject of focus for policymakers and economists. Just last year, Rogers delivered a speech in Halifax calling Canada\u2019s productivity problems \u201can emergency.\u201d Canada\u2019s trade war with the United States<\/a> has only reinforced the urgent need to fix the problem, as productivity declined by one per cent in the second quarter, the steepest quarterly decline in three years.<\/p>\n \u201cHigher productivity won\u2019t make Canada immune to U.S. trade policy, but it would help buffer the effects of tariffs,\u201d said Rogers. \u201cAnd it\u2019s the clearest path to boosting real wages, making life more affordable.\u201d<\/p>\n Competition is one area the deputy governor points out, that can force firms to be more efficient, more innovative and attract more investment.<\/p>\n \u201cWe like our hockey analogies these days, so you could think of it this way: you always skate a little harder in the game than you do in practice,\u201d said Rogers. \u201cAnd when the game starts, the tougher the opponent, the harder you skate.\u201d<\/p>\n The financial sector consists of six key players that collectively hold about 93 per cent of all banking assets. While Rogers said this concentration has contributed to Canada\u2019s financial stability, it also should not be taken for granted.<\/p>\n \u201cHowever, many argue that this level of concentration has clear negative impacts on productivity, innovation, capital allocation, cost and consumer choice,\u201d she said.<\/p>\n Rogers points to recent announcements in the U.S. to reduce regulations in their financial sector and recent comments by the United Kingdom\u2019s Chancellor of the Exchequer Rachel Reeves who ccalled regulation a \u201cboot on the neck of business.\u201d<\/p>\n Recent reforms on the horizon for the financial sector include open banking, which will empower consumer choice by shifting control of financial data over to consumers. Real-time rail, a project that will modernize the payments system, will make real-time payments faster and give more firms direct access to the payments system.<\/p>\n \u201cThe experiences of countries that have already introduced instant payment systems show that these systems have real benefits,\u201d said Rogers. \u201cAnd a study last year by the C.D. Howe Institute<\/a> estimated that Real-Time Rail could deliver more than $3 billion in efficiency gains to Canada\u2019s economy over its first five years.\u201d<\/p>\n This could also apply to other \u201cnetwork sectors\u201d of the economy, meaning sectors that serve everyone, like transportation, telecommunications<\/a> and energy. Rogers noted it\u2019s important to get the balance right, as competition can have drawbacks as well, like low investment after an optimal point, leaving vulnerable populations behind or increased risk of fraud or predatory practices.<\/p>\n \u201cAn economy with too little competition will lag in innovation and efficiency and struggle to attract investment,\u201d said Rogers. \u201cAn economy with too much competition can also have underinvestment and is more likely to experience instability and market failures.\u201d<\/p>\n Rogers said fostering competition will have its trade-offs, but policies that balance competition must adapt.<\/p>\n \u201cIf policies designed to balance competition don\u2019t change as needed, they will create or exacerbate negative outcomes for consumers \u2014 and for productivity,\u201d she said.<\/p>\n