Partly because inflationary pressures in Canada were greater than in the United States, and the inflation psychology was more deeply entrenched, the recession here was more severe than in the United States. The effects of technological change, including a decline in communications costs, meant that, through the 1980s, national markets had become much more susceptible to international competition.
In Canada, however, the relatively high inflation of the 1970s and 1980s had distracted Canadian firms: rather than focusing on product design and innovation, cost control, and productivity improvement, many of them had been looking for ways to take advantage of inflation. Thus, they had tended to postpone the adjustments needed to respond to a changing world economy.