Entrepreneurs are the engine of any economy. They create products and services that meet our needs. They often build entire industries from nothing and create jobs that lift people from the depths of poverty into the middle class and beyond.
Given the importance of entrepreneurship to job and wealth creation in Canada, it isn’t a surprise that policymakers, philanthropists, and universities spend billions on fostering entrepreneurship and innovation.
Efforts to spur entrepreneurship in this country clearly have had some positive impact. Indeed, our nation almost leads the world in entrepreneurial activity, trailing only the United States, according to a 2015 ranking (at the time, about 13 per cent of the working-age population was involved in start-up ventures, according to the Centre for Innovation Studies.)
And yet, when it comes to promoting entrepreneurship, Canada has a major problem—four problems, to be exact.
The first issue is a lack of growth and expansion. Generally speaking, Canada struggles at producing business leaders with the drive and mentality to compete internationally. As a result, although we have an abundance of small enterprises, very few of them produce revenues above $100 million. Looking at Fortune 500 companies, our nation can boast 13, while France, Germany, Britain, the Netherlands, and Switzerland have 31, 29, 24, 15, and 14, respectively.
“When focused, Canadians are capable of anything. When we fall, we get back up, especially when we know it matters. That is our national identity. We just need to extend this never-give-up mentality to the world of business.”
Lack of urgency is another issue. In fact, our greatest obstacle to international success might just be leadership complacency. Talk of innovation and international expansion at many organizations falls on deaf ears because many Canadian entrepreneurs are disinterested or reluctant to accept new challenges. Income tax plays a big role in this. With that said, many leaders I have spoken with as part of my research mention being comfortable with their existing customer base because they like the idea of being able to go home early, freeing time to play golf or enjoy a nice evening out. This attitude contributes toward a comfortable work–life balance, but too much comfort with the revenue status quo hurts Canada’s economic growth and limits job creation—contributing to the growing chasm between our haves and have-nots.
As noted above, Canada’s discouraging tax structure doesn’t help drive economic growth. When entrepreneurs in this country achieve an income over $135,000, 46 per cent of their gross salary goes to income tax. For Canadians with incomes over $500,000, the tax rate rises to approximately 50 per cent. And this progressive tax structure limits the incentive for entrepreneurs to focus on growth and expand internationally. For many business leaders, it just makes more sense to reap the benefits of staying small, such as the ability to balance work with home life.
Educational policies also suppress the incentive to succeed. Some Canadian provinces, for example, still have policies that prevent teachers from giving students a zero grade—even on assignments not completed. As noted in a 2015 Fraser Institute blog, no-zero policy advocates insist that issuing zeroes for unfinished work is wrong because such low scores can make passing courses impossible and can remove the incentive to do well on other work. But in practice, “no-zero policies effectively serve to ‘tax’ work by students on the margin. After all, if some effort and no effort produce the same grade, some students will be incentivized to give little effort. Similarly, no-zero policies may deprive students of the satisfaction of hard work.”
Giving grades to students who don’t produce any work produces complacent graduates. Furthermore, it prevents the development of the resilience required to cope with failure in the real world. It also hinders the teaching of a very important skill: the ability to learn from failure, which is important to achieving success.
So, what needs to happen? Simply put, it is time for Canadian business leaders to collectively gain a better sense of urgency. This isn’t impossible. History shows we have it in our national character.
During WWI, determined Canadian soldiers captured Vimy Ridge in just a few days, despite facing heavy defences that French and British troops had failed to overcome for months. With over 10,000 killed or wounded in the infamous battle, the cost was high. Nevertheless, the victory at Vimy Ridge in April 1917 represents a defining moment for our country, one that historians note enabled Canadians to cast off Britain’s shadow and contemplate national greatness. In June 1944, after storming Juno Beach and quickly pushing 15 miles inland on D-Day, Canadian soldiers had to be asked to stop and wait for our allies to catch up.
When focused, Canadian are capable of anything. When we fall, we get back up, especially when we know it matters. That is our national identity. We just need to extend this “never-give-up” mentality to the world of business.
But to do that, we must eliminate regressive educational policies and benchmark Canadian tax structures against nations with the highest gross domestic product growth rates. We must also use tax incentives to stimulate investment and redirect resources devoted to innovation and entrepreneurship toward fostering skills in growth and international expansion.
In other words, Canadian politicians and educators need to focus resources on developing entrepreneurs and business leaders with a sense of urgency about competing on the world stage.
For the research referenced, the author would like to acknowledge funds received from the Acton Institute Mini-Grant.