Last week Rogers Communications announced it was going to take over Shaw Communications in a $26 billion deal. This apparently has been decades in the making, and Rogers decided that now the time was right. But it isn't right. The Competition Bureau should block this deal in the name of protecting consumers and further to send a message to the rest of corporate Canada: find some courage and learn to compete.
The Harper government tried hard to create more competition in the telecommunications sector. Its goal was to create at least one more viable competitor to the Big 3 of Rogers, Bell Canada and Telus. At the time (2012-2014), there were numerous studies that showed Canada had the highest cellular costs in the world. Some of this could be attributed to geography - a small population over a large area with a harsh climate made building networks a more expensive venture than say in the EU, where some 450 million people live in an area less than half the size of Canada. But it was clear that Canadians were paying far too much. So the government set aside deeply discounted wireless spectrum for new entrants, of which Shaw was one, as a way of getting them into the market.
And it pretty much worked; Shaw-owned Freedom Mobile has accumulated nearly 2 million cellular subscribers in Alberta, B.C. and Ontario. Freedom has been important in these markets, offering cheaper data and eliminating overage fees. Naturally, this has forced the Big 3 to also lower their fees. While Canadian cellular cost are still high, they are at least moving in the right direction. Viola, the wonders of competition.
For the last 25 years at least, neither Canada nor the US (or even Europe, really) has tried to enforce existing anti-trust statutes. The result has been an ever-increasing concentration across almost all industries. A lot of the problems we have as a society are in some way tied to the lack of competition in our economy. Concentration primarily benefits shareholders, and the vast majority of shares are held by the wealthiest 10 percent of the population. We constantly hear the phrase from the Left, that "the economy should work for the people." Greater competition can help realize this goal.
In his eye-opening book The Myth of Capitalism, Jonathon Tepper outlines a litany of negative side effects from highly concentrated industries - excessive costs to consumers, egregious non-compete employment contracts for even low-level workers, plunging R&D budgets, stagnant growth and ever-ballooning executive compensation. One especially salient example from the book: At one point Microsoft was going to program Explorer so that when you typed in Google it automatically took to you to MSN Search. If this had been allowed, Google likely would have died. Instead, it survived and eventually grew to where it monopolized search. Google now behaves as badly or worse than Microsoft ever did, but the Justice Department has not yet lifted a finger.
Creating competition is a much better way of achieving a long-term sustainable reduction in inequality than a wealth tax, which will quickly be eliminated once a conservative government is able repeal it. The savings to lower and middle income families would be substantial, allowing those families to buy other goods with the savings, and this would help the economy grow. And it's not just the consumer side that benefits. Workers would have more options and would likely see some wage increases as monopsony employment situations are eradicated because there are more companies in a given sector to compete for workers.
We hear a lot of pontificating from our business class, economists and politicians about how wonderful capitalism can be. So why don't we work towards actually having it? Joseph Schumpeter famously used the phrase 'creative destruction', where competition spurred innovation and advances, destroying old arrangements and assumptions and leaving those who could no longer compete in the dust. It is a harsh formulation, which Schumpeter well understood. He knew that companies would try to change the rules to get away from constant competition and upheaval, leaving us with the calmer and smoother oligopolistic economy we have today. But competition is really capitalism's main redeeming quality. If we have to have inequality, ruthless efficiency and an extreme division of labour that turns most jobs into stifling monotony, at least we should get the full benefit of lower prices, greater innovation and real economic growth.
Not only should the Trudeau government block the Rogers-Shaw merger, it should take a much more hardline stance on mergers in general. While each case would need to be looked at individually, the goal should be to try to maintain and enhance competitive markets as much as is feasible. When Adam Smith wrote The Wealth Of Nations, he attacked the crown monopolies and the trade guilds that completely dominated British commerce. Freeing people from these would create an 'invisible hand', a tidy metaphor Smith conceived to describe how people acting in their own self-interest can create benefits for all of society. But without sufficient competition, the invisible hand becomes more like a fist to the face.
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