Laura Paglia:
Welcome to Candid Conversations for Financial Markets podcast series. I’m your host Laura Paglia, President and CEO.

Our podcasts are designed to provide insights, transparency and provocative yet achievable proposals for matters that move financial markets in Canada.

We are joined today by the Honorable Colin Deacon. Senator Colin Deacon was appointed to represent Nova Scotia in the Senate in June 2018 with an entrepreneurial background. When appointed to the Senate, he was tasked with one request, to hold the government to account and to challenge it to be better. He is staunchly independent and believes in collaborative work amongst all parliamentarians.

He intends to continue disrupting the status quo and challenging the government to improve for the benefit of all Canadians and the Canadian economy.

As part of the Senate, he has been a strong advocate for entrepreneurs, harnessing the digital economy, updating Canada’s privacy legislation, ensuring global competitiveness of Canadian firms, and promoting Canadian leadership on climate change. Welcome, Senator Deacon.

Colin Deacon:
Thank you very much, Laura. I’m really glad to be with you today.

Laura Paglia:
Senator Deacon, the imposition of tariffs has exposed fundamental, long-standing weaknesses in our economy that you have challenged the government to address for some time. Why the complacency or the reluctance to change in Canada?

Colin Deacon:
That’s a really good question. I think we’ve taken Canada’s prosperity for granted. Too many have. That was certainly the case in my mind in the last Prime Minister’s office and in Ottawa more generally. And it’s occurred at a time and over a time when it really mattered because the world’s changed so considerably.

I mean, as a country, it seems we’re comfortable with the status quo. We’ve rested on our laurels of past success and we’ve willingly become reliant on one customer. So I think it’s important we accept that this is of our own making. That Trump was a trigger, but it’s of our own making.

And I think of comments just last week from RBC CEO Dave McKay at their AGM and he said, “Canada,” and I’ll just quote here, “Canada lacked ambition to do big things. We have to change that. We have to seize this moment as a country.” And I couldn’t agree more.

My only fear right now, it’s not the tariffs, it’s that our complacency might cause us to not use this crisis to retool in really significant ways and consider how we will in future manage extreme counterparty risks like a US president who seems to do things that aimed at tearing up the most valuable trade agreement in the world or other black swan events that may occur.

Laura Paglia:
With respect to Canada’s complacency, Canada ranks 18th in productivity, GDP per hours worked, in the OECD. In 1970, we were the sixth most productive economy in the OECD. History shows that advances in productivity often come from start-ups, the new companies that are led by entrepreneurs with the groundbreaking ideas. Yet, according to a 2023 study conducted by BDC in collaboration with the University of Montreal, nearly half as many people are launching businesses in Canada as they were 20 years ago.

You’re an entrepreneur. What’s changed?

Colin Deacon:
Well, a lot. I was an entrepreneur before I took on the responsibility of this role and I grew two businesses from an idea into the exporter of global, of services globally and scientific equipment.

And I have a sense of how hard it is to do that.

I think the world has fundamentally changed, but Ottawa and the Canadian economy is still running according to many rules that were created in the 60s, 70s and 80s. And that world no longer exists.

I mean, the number that really worries me is our GDP per capita when it’s inflation adjusted is flat. Well, every country around us has been growing, especially the United States.

And I think structurally, I think it’s important to note that much of this trouble started before 2015. It’s easy just to blame the last government, but I think as a country, we have to look over the last 30 years and say, have we done a good job of managing the conditions that have got us to where we are? We’ve got pervasively low levels of business investment. It’s not just happened, it’s been happening. And now with what’s the uncertainty around President Trump’s actions and probably continued actions, this is going to be a prolonged period that we’re going to have to be really creative in how we break out of.

We’ve also not learned how to grow big new Canadian owned industries in the digital and data space.

It’s amazing the extent to which we don’t invest in some of the best companies that are  growing out of Canada from Canadian ideas and Canadian entrepreneurs.

And it’s this limitation in how we invest in intangible assets or the vast majority of the world’s wealth is in intangible assets now, 90%.

So we’ve got to make a significant change in how we choose to invest as a country.

And I think the conditions, changing the conditions that have caused that is going to be really important to creating wealth over the next decades versus the ways we have created wealth in previous decades.

Colin Deacon:
There’s three main things: the highly consequential industrial policy change that occurred in 1986, the consolidation of investment industries under the control of our banks, and the third is the growth of regulation.

So I’ll just speak to each of those if I could for a second. In 1986, the Competition Act—Canada’s Competition Act—became law, and it guaranteed the formation of monopolies in every sector in Canada: banking, telecom, agriculture, transportation, groceries, you name it. The purpose of that act was to create big corporations that could compete with the U.S. giants.

And that was Canada’s industrial policy for 40 years, as opposed to fostering competition.

Yet every bank CEO, every bank economist talks about the importance of competition—I’ll be it in every sector other than banking.

Why do they do that? Because competition is a driver of innovation and business investment. And it’s how we turn, how we create productivity, growth, and prosperity. That competition is critical.

But the good news is, over the last two years, there have been amendments to the Competition Act that removed that consolidation bias. So that’s the first item I would point to as to why we’ve had some troubles.

And we are where we are. The second is our banking sector used this new industrial policy from 1986 to expand into broader control over the financial industry more generally.

In the 60s, 70s, and 80s—back in the late 70s and 80s—I was a stockbroker. And the investment industry was dominated at that time by independent investment houses run by independent risk takers. But today, our six banks now completely dominate the investment industry in Canada.

I look back a generation or more—Canada was a world leader in mining and minerals investment. And it still holds the biggest global conference in that regard every year. We built a world-class oil and gas sector. We created unique investment products like flow-through shares to fund nascent businesses to become international powerhouses. I mean, we’ve done great things in the past.

The third factor that I think has really caused us to stagnate is Canada’s industrial policy of consolidation led to the creation of enormous regulatory structures across government that favored, in the end, our oligopolies. And I’ll explain why. The rules and regulations that define how an industry sector functions disproportionately support the growth of our biggest companies in Canada—I can provide some evidence around that as we go through the podcast.

But what this has ultimately created is now a world-leading level of regulatory burden in Canada. According to the OECD, we’re one of the worst countries in the OECD in terms of the amount of regulation that has to be managed in our economy.

And the reality is that the complexity and cost of these regulations act as a protective moat around oligopolies in every sector. It makes it really hard—almost impossible—for innovative challengers to break through. And that weakens competition outside of our biggest businesses. It allows them to grow without having to invest and innovate at globally competitive levels. And I just have a belief that a business can never be regulated into becoming customer-centric. And it can never be regulated into becoming globally competitive. The only thing that does that is competition.

So now we are faced with what the Bank of Canada calls a “break-the-glass productivity emergency,” but it didn’t happen just in the last 10 years. And I think it’s really crucial that we realize that these are structural decisions we’ve made over multiple generations.

And the path we’re on—it was all before, it was all before this disruption of Washington. And it’s time for a change. And every bank CEO, every bank economist points to the importance of competition as a driver of innovation, as a driver of business investment, as a driver of productivity growth, and a driver of the competitiveness of the Canadian economy. So that’s where I stand.

Laura Paglia:
Thank you, Senator Deacon. The disruption caused by the current U.S. administration and you’ve referenced a comfort with the status quo being one trading partner.

It’s resulted in much of Canada’s startup ecosystem being financed by American venture capitalists. Could you provide us some insights as to why this has occurred? And secondly, should we continue to attract this U.S. investment as these political tensions, as you’ve described, are sure to continue?

Colin Deacon:
Yeah, there’s no question. And it’s important you’re focused on this. The Canadian Venture Capital Association says that only about 14% of the money invested in their members’ transactions is actually emanating from Canada. Two-thirds is from the United States and 20% from elsewhere.

So the reality is, in addition to our failed industrial policy and the favouring of oligopolies in Canada, we haven’t figured out how to function in a data-driven world as an economy. 90% of the global wealth is in intangible assets. And our economy and governments, as far as I’m concerned, remain focused on physical and tangible assets.

We—and I spent a lot of time in the 90s working through our granting councils and Canadian universities—we invest about $8 billion a year federally and provincially in research through our universities, and they’re world-class researchers and world-class universities. But within two years, two-thirds of the resulting patents are transferred out of Canada.

So not only do we not protect our IP, but we’re also investing in foreign companies that use Canadian talent to develop their IP and commercialize their IP in Canada. Like Canadian talent and Canadian money is used to commercialize foreign IP in Canada—like the proposal of the battery manufacturing plants—not commercializing our battery researchers, we’re commercializing foreign IP.

And that’s a really big issue. The Senate Banking Committee that I am a proud member of—when I was deputy chair, we did a study that I’ll make sure you have for the show notes. But it goes into this deeply troubling problem. And in June 2023, we published a report called Needed: An Innovation Strategy for the Data-Driven Economy. And we went through a lot of the different issues. And certainly they color my thinking on a whole lot of this issue.

But the reality is, we’re a highly profitable source of great global technology opportunities. And if we’re not going to invest in these opportunities, smart investors from outside of Canada do and will continue to.

But I think it’s important just in the context of your members and your organization to recognize the fact that our public markets have become increasingly irrelevant. Now, I mentioned I was in the investment industry in the late 70s and 80s.

And if we look at where we are today, it’s a shadow of where it was.

Just—and I’ll just focus on the technology side—U.S. equity markets are 32% technology and 13% financials. And Canada, we’re 32% financials and only 8% technology. So there’s a real problem, a real disconnect here between where wealth is created.

I mean, the banking investment sectors enable the creation of wealth. But the creation of wealth is the technology sector.

And IP and technology are 90% of global wealth at this point in time. So we’ve got to figure this problem out. And global investors are itching for our technology companies. And there’s a great study of the work being done in this by Professors Pandes and Tingle at the University of Calgary. And they have really taken time to understand the declining relevance of the TSX.

In 1986—I was in the industry—and in 1986, the TSX had 84 operating company IPOs. And that was the same year as our industrial policy focused on consolidation versus competition came into force. It’s also the year that the banks started buying investment dealers.

From 1987 to 2000, the average number of IPOs was 35 on the TSX, which is less than half of what it was in the mid-80s. From 2001 to 2014, it was down to 13 a year, about two-thirds drop from where it was in the previous decade or so.

And in all of 2023, 2022, 2023, 2024, it was one operating company IPO on the TSX. Overall, the operating companies on TSX have dropped by 45% in the last 25 years—now at about 670 companies.

So to create a liquidity event, Canadian businesses, Canadian tech companies tend to go to the U.S. or exit via acquisition, neither of which is optimal from my standpoint.

Big senior investments like CEF Financial have been acquired. So it’s limited the diversity of investments that Canadians can invest in in our markets, which means that’s in my mind what’s driving the over trillion dollars of Canadian wealth that’s now invested outside of Canada.

We were a global leader—I think about 15 years ago, there was an effort and a proposal to merge the TSX and London Stock Exchange in a 50-50 merger.

That was ultimately thwarted by the banks. But I’ve got to say, from where I’m sitting today, having 50% of a globally competitive stock exchange would be a pretty big economic advantage for us in the world we now find ourselves in.

Laura Paglia:

Senator Deacon, this has been a very welcomed, very important discussion.

Colin Deacon:

Thanks so much, Laura. I’m really honored to be invited and included.