Steven Globerman: The Trudeau government’s plans to lower prices make no sense

Most of the commentary about the Trudeau government’s recent fall economic update has focused on housing initiatives and debt projections. But the update also proposed significant new regulatory burdens on Canadian businesses to ostensibly lower prices for consumers. However, these proposals are ill-conceived, miss the root causes of the problem, and in some cases simply shift costs from one group of consumers to another.

For starters, the Trudeau government wants to amend the Competition Act, the federal law regulating competition in the marketplace, to establish a “Grocery Task Force” to supervise “big grocers,” stabilize prices, and monitor and investigate practices such as “shrinkflation”—that is, when producers reduce the size of products due to rising production costs.

While the government’s proposals are light on details about enforcement, it’s easy to imagine the difficulty the Competition Bureau, the federal law enforcement agency tasked with enforcing such things, would face in determining, for example, what constitutes shrinkflation. If a grocer changes the packaging size and price of a specific product, is that always shrinkflation? Or is that grocer, in an effort to cover their full costs, simply expanding the range of options for consumers who may opt for lower prices over higher volume?

In reality, if the Trudeau government wants to help lower food prices for Canadians, it would reduce tariffs on imported dairy and other food products and eliminate provincial marketing boards. These costs are passed on to consumers at the checkout line. 

Also according to the economic update, the government plans to crack down on so-called “junk fees” such as roaming charges, excessive banking fees, and airline fees. But how would competition authorities determine when certain fees are “junky” while other fees are legitimately meant to recover costs for services customers desire? Clearly, such judgments would be totally arbitrary. And if the government prohibits specific fees, without helping increase competition in the affected sector, the new fee prohibitions will likely result in increased prices for other transactions involving affected businesses. In an effort to reduce prices for Canadians, the Trudeau government will simply push costs from one consumer—or one transaction—to another. 

It’s also noteworthy that the worst-offending industries, in the government’s eyes, are among the most sheltered from foreign competition. Specifically, in Canada, foreign ownership restrictions in sectors such as media/telecommunications and air transportation are among the most restrictive in the developed world. If the government wants to meaningfully protect consumers, it would scrap direct and indirect restrictions on foreign competition in these industries—for example, eliminate “cabotage” regulations that prevent foreign airlines from operating domestic routes within Canada. More competition in the air means lower prices for Canadian air travellers. 

Finally, the Trudeau government wants to address so-called “planned obsolescence” where manufacturers create demand for more expensive new versions of existing products by deliberately designing products (e.g. smartphones) to wear out or function less effectively over a relatively short period of time. But the concept of planned obsolescence is open to debate since informed consumers in a competitive marketplace will purchase products at the lowest available price with “lifespan” (and other factors) in mind.

Furthermore, planned obsolescence is often—if not always—in the consumer’s best interest. “Value engineering” is a design process meant to use as little material as possible in a product while still delivering an acceptable lifespan. For example, the useful life of a smartphone is limited to a few years due to rapid technological improvements in both software and hardware. It would be wasteful to build a smartphone with a physical lifespan much longer than its useful lifespan. Competition policy bureaucrats in Ottawa are likely ill-equipped to distinguish between efficient and inefficient product obsolescence.

Increasing competition in Canada is a worthy objective. Unfortunately, the Trudeau government’s latest proposals seem more designed to win votes than improve the welfare of Canadian consumers.