The Gazelle Shortage
For years now, the federal government has been trying to get Canadians to diversify away from our dependence on natural resources by building new kinds of companies — bigger, bolder ones that can compete internationally and win. The government promotes entrepreneurship via a tantalizing smorgasbord of federal and provincial grants, loans and tax incentives for start-ups — one of the richest sets of subsidies in the OECD. A new entrepreneur with a decent accountant can write down a lot of business costs and write some off altogether, while paying a very low tax rate overall.
On paper, it seems to be working. Canada is now the second-easiest place in the world to start a company, reports the World Bank, meaning that we trail New Zealand. And according to the Global Entrepreneurship Monitor (GEM), nearly 17 per cent of working-age Canadians, versus about 13 per cent of Americans, either are currently engaged in setting up a company or are already owner-managers of a “baby business” that’s generating revenue and is less than three and a half years old.
But despite all this entrepreneurial activity, the productivity gap is not closing. And Canada’s lousy record on innovation isn’t improving.
That’s because most Canadian start-ups never amount to much. As with new businesses the world over, the failure rate is high; one-half don’t make it past the five-year mark. Most of those that do survive don’t grow into thriving, bustling enterprises. The majority of Canadian companies that start out small stay small, experiencing zero or negative employment growth. Of the 1,170,000 businesses in Canada, 98 per cent have fewer than a hundred employees — many fewer, in most cases. More than three-quarters employ ten or fewer people, and more than half are micro-enterprises, with no more than four employees.
Small businesses are hardly irrelevant; they contribute roughly 30 per cent of each province’s GDP, and employ 70 per…