Enough with the gazelles already—Canadian business needs lions
All of a sudden we seem to be surrounded by gazelles. It’s as if the Canadian industrial policy landscape has been transported to the Serengeti. Entrepreneur Anthony Lacavera and writer Kate Fillion have a new book out (How We Can Win) in which they argue that Canada needs more gazelle firms—by which they mean, not taxidermy specialists, but fast-growing small businesses that leap over the transition to being medium-sized and then big firms. Bank of Canada Deputy Governor Sylvain Leduc has just delivered a talk to a Sherbrooke, Quebec, audience that he called “Seeking gazelles in polar bear country,” where he examines the same question of how Canadian firms can be more successful—an interesting example of the bank doing micro (though Mr. Leduc treads very carefully).
The little I know about gazelles I get from watching the National Geographic channel. What stands out is that in the end the gazelle always gets caught by the lion. I realize selection bias is at work here. Filmmakers crave drama and simply watching the gazelles graze, however beautiful and calming that may be, provides no tension. But if we Canadians do have to choose an avatar for our business sector, I’d go with the lions. You hardly ever see the lions being eaten. And never by the gazelles.
I haven’t read Lacavera and Fillion’s book, which just came out, but judging by the excerpt that appeared in the National Post, the main reason Canadian firms aren’t as successful as those elsewhere is that they spend far too much time answering surveys. Lacavera and Fillion quote sheaves of surveys about almost everything you could imagine Canadian business people would have an opinion on. Some of the answers are compelling such as how Canadian small-business owners generally express less business ambition than their American counterparts, though on that it would be interesting to know: a) how much of the difference in responses was from differences, if any, in the surveys themselves; b) whether there’s the same difference among Canadian and American big-business owners; and c) how Canadians who don’t own businesses feel about ambition. Lacavera and Fillion suggest that in many circles in Canada ambition is looked down on, in part because it is such an American thing. That’s fine. People are entitled to their prejudices. But if ambition really is a necessary condition for success—it’s certainly not sufficient—then we’re looking down our noses to spite our face, if mixed nasal metaphors are permitted.
Lacavera and Fillion also suggest that the currently much-discussed small business rate—10.5 per cent on the first $500,000 of income—creates an incentive for many Canadian firms to stay small. Those that want to grow have to get over a tax hurdle as their marginal rate rises. The remedy is not to raise their rate to the general business rate but to have a low, flat tax for all business—maybe even for individuals, too.
Bank Deputy Governor Leduc provides a nice review of some of the more common explanations for lack of dynamism in the Canadian economy though, as befits his and the bank’s role, without making policy proposals. That the population is aging is one theory. As people get older (trust me on this!) they get more risk-averse. On the other hand, economic risk-taking seems to be declining even among younger people. Increasing economic concentration may be a problem. Who wants to tilt against the big firms who dominate, sometimes with the assistance of government regulation, several important industries? A third possibility is that entrepreneurs’ opportunity costs have been rising. University-educated Canadians, of whom there are many more than there used to be, may prefer steady salaried work with good benefits to striking out on their own and establishing their own company.
Mr. Leduc doesn’t say so but it occurred to me reading his paper that one form of steady work for university grads who want good stable income is analyzing and assisting Canadian businesses both in research institutes and in the smorgasbord of different programs our various governments offer small businesses. If all the Canadians who currently make a living analyzing, advising, lending to and opining on small businesses instead started small business themselves, we might have all the gazelles we need.