Complacency, competition, and Canada’s productivity crisis

Bigger thinking needed to fix Canada’s productivity crisis

A more productive economy is better equipped to handle that shock, Rogers argued, and competition is a path to productivity. “Higher productivity won’t make Canada immune to U.S. trade policy, but it would help buffer the effect of tariffs,” she said in prepared remarks.

Labour productivity—how much Canadian industry produces per hour worked—fell one per cent in the second quarter as trade uncertainty fuelled a slowdown in manufacturing output. Productivity has declined in six of the last eight quarters in Canada. Rogers speculated in an onstage conversation after her speech that years of relying on proximity to the United States may have contributed to the productivity crisis in Canada.

The country had grown accustomed to U.S. demand for Canadian resources and free trade between the North American allies fuelling economic growth, allowing weak productivity to fester beneath the surface. “Maybe we got a little complacent and relied too much on that relationship. But we got a big dose of reality recently,” she said. Dropping interprovincial trade barriers is a start to boosting competition, but Rogers said Canada needs “to think bigger than that.”

Rogers focused her speech on the banking sector, which she said is accurately described as an oligopoly—an industry dominated by just a few main players.

Competition drives innovation—but balance is key

The supremacy of Canada’s Big Six banks has offered stability to the financial sector, she acknowledged, and the profitability of their operations has made those institutions less likely to take major risks with Canadians’ money. But Rogers said there are trade-offs to both promoting too much competition and keeping industries too insulated from outside forces.

The more firms compete, the harder they’ll work to innovate, which Rogers said will drive down prices for Canadians while boosting the economy. “Greater contestability, more new entrants, and more innovation in our financial sector would lead to competition that’s good for consumers, for productivity, and for our economy,” she said. “We should lean into it.”

Rogers calls for smart regulation to unlock innovation and productivity

Rogers pointed to the development of an open banking framework—a concept endorsed by Ottawa that sees consumers take more control over their own financial data, making it easier to switch banks—as one path toward more competition in the sector.

A forthcoming plan to switch to a real-time payments system in Canada that would allow smaller firms to cut out big banks as a middleman in their services would also help boost competition, she said.

Rogers said policy-makers must strike the right balance of strong competition law in a mix with appropriate levels of regulation and incentives to spur long-needed boosts in productivity. She also said during the Q&A on Thursday that the “next frontier in banking” surrounds the digitization of assets.

Rogers said Canada ought to follow the leads of Europe and the United States in tabling legislation to regulate stablecoins—a form of cryptocurrency pegged to the value of a traditional asset like a fiat currency to give it a degree of stability for ease of use in payment systems. “We need to have our own framework here,” she said.

Industry Minister Mélanie Joly said in a speech at Canada’s annual Competition Summit last week the federal government will be “hawkish” on competition as Ottawa seeks to build a more resilient economy in the face of U.S. tariffs.

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