21, January 2019 – Blog #19
Entrepreneurship in Alberta – Definite signs of the poor economic situation in Alberta
Alberta again has the highest rate of entrepreneurship in Canada, confirming what we have seen for the last five years. The Global Entrepreneurship Monitor (GEM) report on Entrepreneurship in Alberta shows that 19.6% of Albertans aged 18-64 are involved in starting a business. This is higher than the rate for Canada as a whole (18.8%) and higher than all other innovation driven economies including the US, Australia and Israel. Although Alberta has a slightly higher rate of established businesses than Canada as a whole (7.5% vs 6.2%) it is lower than the US or Australia.
Alberta also has a lower rate of intrapreneurship than the Canadian average, 5.7% compared with 6.6%, similar to last years findings. This factor can be linked to a firm’s innovation and productivity strategies.
Who are these entrepreneurs? They are highly educated, with most having a university or college education, many with graduate degrees. The rate of entrepreneurship rises steadily with the amount of education, peaking in those with some post graduate experience. Their ages vary, with entrepreneurship rates peaking in the 25-34 and 55-64 age group. The entrepreneurship rate in the 55-64 age group is two and a half times the Canadian average, and supports a narrative of older workers losing their jobs in the weak economy.
For Established Businesses, the rate increases steadily with age, as expected, but Alberta has a surprisingly high rate in the 18-24 age group.
The rate of women’s entrepreneurship is almost 90% of the male rate, one of the highest ratios in the world. It is much higher than the Canadian average of 66%.
What do they do? Alberta has a very different startup industry profile than Canada. GEM puts businesses into four categories – extractive (oil and gas, mining and agriculture); transformative (manufacturing), business services and consumer services. Alberta has two and a half as many extractive businesses, twice as many transformative business, roughly similar business services, and far fewer consumer oriented businesses than Canada as a whole.
Why do they do it? Most entrepreneurs say they started their business to purse an opportunity, although 23% do so out of necessity, because they had no other economic opportunities. The necessity rate is 50% greater than the Canadian average, and this may reflect poor economic conditions in Alberta. It is worth noting that in 2014 (when the economy was much stronger), the necessity entrepreneurship rate in Alberta was only 8%.
Size and Growth. Startups in Alberta are much smaller than the Canadian average. One third of all Alberta startups have no employees, compared with 22% in Canada. And only 6.7% have 20+ employees, compared with 12.9% for Canada as a whole. However, almost a quarter of Alberta startups plan to have 20 employees in five years’ time.
How innovative are they? 40% of Alberta startups say they have no novelty in their products or services, the highest rate in Canada. This would indicate a low level of innovativeness. This is corroborated by the metric that over 60% of Alberta startups use older technology, also the highest rate in Canada. However, 12% of Alberta startups say they have no competitors, the highest rate in Canada. So it looks as if there are a few very innovative startups among an overall pool of low innovations.
How supportive is the ecosystem? GEM measures ecosystem performance by polling 36 experts in nine separate areas of expertise. By these measures, Alberta is similar to Canada as a whole, except performance is a little lower in most measures. Alberta is equal to or better than Canada in 4 of the 9 measures used in the report.
What constraints do they face? According to the Expert opinion, the main constraints facing Alberta entrepreneurs are:
- Financial support;
- Government Programs and policies;
- Capacity for entrepreneurship.
GEM is the oldest and largest study of entrepreneurship in the world, covering 60+ countries every year.
The report contains the following recommendations:
- Continue to highlight opportunities for entrepreneurs in the province and develop tactics to mediate fears in future training initiatives.
- Consider ways to increase Employee Entrepreneurship?Intrapreneurship within Alberta.
- Aim to close the gender gap completely and investigate further why Alberta is more successful in this area than elsewhere across Canada.
- Provide support for burgeoning entrepreneurs with high growth expectations within the province in order to optimize their impact.
- Follow expert advice and look for improvements in Government Policies, Finance, and Education.
The full report is available at GEM Alberta 2017 Report.
8, January 2019 – Blog #18
Women’s Entrepreneurship in Alberta – World-beaters
Alberta has the highest rate of women’s entrepreneurship in Canada. The Global Entrepreneurship Monitor report on Women’s Entrepreneurship in Alberta shows that 15.5% of Alberta women aged 18-64 are involved in starting a business. This is higher than the rate for Canada as a whole (13.3%) and higher than all other innovation driven economies including the US, Australia and the UK.
Who are these entrepreneurs? They are highly educated, with most having a university or college education, many with graduate degrees. Their ages vary, with entrepreneurship rates peaking in the 18-34 and 55+ age categories.
What do they do? Most (almost 70%) of their businesses are service based, evenly split between business services and consumer services. The next largest category (at 19%) is “extractive” businesses, such as mining, oil, and gas and agriculture, and the balance is manufacturing. This profile is quite different from that of Canada as a whole, where consumer services is by far the largest sector (at 41%) and extractive businesses are half the Alberta rate. The top six sectors are government/education/health; agriculture; professional services; manufacturing; retail; and finance/insurance/real estate.
Why do they do it? Most women entrepreneurs state that their business is to purse an opportunity, although 25% do so out of necessity. The necessity rate is almost twice the Canadian average. The report also provides detailed information on motivation. The main reasons women start a business are independence, a positive work environment, a flexible schedule, and the ability to work from home.
What impact do they have? Most women led businesses are smaller than businesses led by men. Over one quarter of women entrepreneurs operate as solo entrepreneurs with no employees. 7% of women led businesses have created more than 20 jobs. This compares with 10% of businesses led by men. In terms of future job growth, 17% of women led enterprises expect to create 20 or more jobs in the next five years.
How innovative are they? About 30% of women led businesses in Alberta claim to have a new product, process or new market, compared with 33% of businesses led by men. Both of these numbers are lower than the Canadian average.
Do they export? 26% of women led businesses in Alberta export, compared with about 30% for businesses led by men. Both of these numbers are lower than the Canadian average. Canada as a whole ranks highly by this measure, being #3 globally for exporting.
How satisfied are the entrepreneurs? Most women entrepreneurs in Alberta say they are satisfied with their work. The highest ratings for satisfaction are related to having decision making autonomy over how work is accomplished, and doing work that is personally meaningful. The lowest ratings for satisfaction relate the level of work stress, the growth trajectory of the business, levels of income and work related stress.
What challenges do they face? Women entrepreneurs face a number of challenges in Alberta, despite their overall very positive situation. Many women entrepreneurs report dissatisfaction with the annual growth rate of their businesses, and the degree of innovativeness. Although there are a number of programs aimed at growth oriented women entrepreneurs in Alberta, it would appear that more needs to be done. A quarter or women entrepreneurs are entrepreneurs because they have to be, not because they want to be (i.e. necessity based entrepreneurs). This suggests that other factors are involved, such as a weak labour market, difficulty accessing training, or problems finding flexible job opportunities. Women entrepreneurs are underrepresented in lucrative, innovation sectors such as knowledge intensive business services and scientific and technological sectors.
As report author Karen Hughes notes, in recent years Canada has become increasingly recognized as a leader in women’s entrepreneurship. This report provides plenty of evidence to support that conclusion.
The full report is available at THECIS GEM 2018
19, November 2018 – Blog #17
Youth Entrepreneurship in Canada.
Highly educated entrepreneurs see it as a good career choice.
The recently released Global Entrepreneurship Monitor report on Youth Entrepreneurship shows that youth entrepreneurship is alive and well in Canada. The Global Entrepreneurship Monitor (GEM) is the largest study of entrepreneurship in the world.
Highlights from the report include:
- Canadian Youth see entrepreneurship as good career choice and associate it with high status. Over 60% of Canadian youth saw entrepreneurship as a good career choice, and having high status, and three quarters saw it as having high status. Most also saw it portrayed positively in the media.
- They feel confident that they have the skills and experience needed to start a business. More than half felt they had the skills and experience need to start a business, although around 40% expressed a fear of failure. However this is about 10% less than expressed by the 18-64 age group. However, we found in other GEM reports than the experts are quite skeptical of these views.
- They want greater independence. There has been a pronounced shift in the last 4 years to increase the fraction of youth entrepreneurs who seek greater independence, rather than to increase income. More than twice as many of the youth entrepreneurs we interviewed valued independence more than increased income.
- They are highly educated. Over 60% of youth entrepreneurs have a post-secondary degree, while among the youngest youth entrepreneurs (ages 18-24) 16% have post graduate experience. This compares with 54% of the 18-64 age group in Canada who have a post-secondary qualification.
- Consumer services form the largest share of youth entrepreneur’s ventures. It is typical of most reports on entrepreneurship that consumer services are the largest single business category. There are low barriers to entry and frequently a relatively low need for capital to get started. 45% of youth entrepreneurs’ ventures are for consumer services, 32% for business services and 20% for manufacturing.
- Personal savings is the primary source of funding. 58% of youth entrepreneurs funded their ventures with personal savings, 19% by bank loans and 9% from family. The median value of the investment to start their business was $268,214.
- There is a gender gap, as female youth exhibit less confidence and a higher fear of failure than their male counterparts.
- The overall entrepreneurship rate for youth is slightly lower than the Canadian population. In 2016 14.1 % of youth were involved in entrepreneurial activity, compared with 16.7% of the total 18-64 population. This is perhaps not surprising as generally people need to accumulate money and experience before starting a business.
- An increasing number of Youth are running established businesses. In GEM, an established business is one that has been around for 3.5 years. The number of these headed by Youth has risen quite rapidly in the last four years.
- Ontario and Alberta are hubs of youth entrepreneurship. The rate of youth entrepreneurship varies quite a bit across Canada. Highest rates are found in Ontario, Alberta and Quebec, while lower rates are found in Newfoundland, New Brunswick and PEI.
The full report is available at www.gemcanada.org – look under 2017 (when the data was collected).
7, June 2018 – Blog #16
Measuring Entrepreneurship – Lies, damn lies and statistics.
British Prime Minister Benjamin Disraeli is reputed to have said that there were “three kinds of lies – lies, damn lies and statistics” as a sort of tongue in cheek way of advising caution when interpreting numbers. A case in point is entrepreneurship statistics.
Entrepreneurship is falling
There have been a series of reports in Canada (and around the industrialized world) deploring the decline of entrepreneurship. A recent one from the Fraser Institute compares the rate of entrepreneurship in a number of countries in the periods 2001-2007 and 2008-2014. For Canada the decline was 8.5%, for the US 18.6%, for Britain 7.5% and or Australia 20.3%. A long article in Forbes Magazine has the title ”Why US Entrepreneurship is dying.” It quotes reports from the National Bureau of Economic Research showing that start up activity has been slowing down in the US for three decades. A recent article in Aspire Canada has the title “ Is Canadian Entrepreneurship Vanishing?”
Various explanations for this decline have been put forward. The Forbes article places the blame on large student loans, making potential entrepreneurs more risk averse. A recent article in the Globe and Mail believes that demographics is to blame – the aging of the population and decline of the number of potential entrepreneurs in the prime age group of late 20’s to early 40’s. Another explanation is the lack of equity funding compared with the US.
Entrepreneurship is rising
On the other hand, data from the Global Entrepreneurship Monitor – the world’s largest study of entrepreneurship, tells a different story. In Canada, for example, the rate of entrepreneurship (measured as the TEA Index of total early stage entrepreneurship activity) has increased from an average of 8.6 (for 2002-2006) to 15.1 (for 2013-2017), almost doubling. In the US the numbers have gone from 11.2 (average of 2002-2006) to 12.9 (average of 2013-2017). That’s not such a big increase as Canada, but it’s definitely not a decline. Australia shows a similar increase from 11.9 (average for 2003-2006) to 13.2 (average for 2014-2017).
What’s going on?
The first thing to note is that the two groups are looking at different sources for their data. The “falling” group looks at company registrations, where a new company has been formed. The “rising” group look at actual activities, what percentages of the adult population are actually involved in entrepreneurial activity, whether the activity is part of a registered company or not.
But what could be behind this? A very likely explanation is the gig economy. A report by Randstat Canada (the largest staffing company in Canada) says that 30% of the Canadian workforce is already in “non-traditional” jobs, including part time work, temporary work, contract work, and freelance work, self-employed or unpaid work. This number has increased significantly in recent years, and is expected to rise to 45% by 2020 according to Intuit Canada. A report from Ryerson University found that over 50% of all new Canadian jobs involve “non-standard” work arrangements. Very similar numbers are predicted for the US.
One of the problems with dealing with this issue is the lack of an accepted terminology. Many almost similar terms are used, including gig economy, sharing economy, digital platform economy, and others. The Organization of Economic Cooperation and Development (OECD) has resorted by defining non-traditional work arrangements by what it is NOT – “It is not full time, dependable employment with a contract of indefinite duration.”
There is a theoretical underpinning to this change. Ronald Coase won the Nobel Prize in economics by explaining that firms exist to minimize transaction costs. It was cheaper for General Motors (for example) to assemble all the materials to make a car than to contract with others to do the same thing. That was then. Now the computer revolution has made it much easier and cheaper for firms to do work by contracting with freelancers, and outsourcing significant parts of their activities. Also, it is easier for people to find work using apps such as Uber, Airbnb, Handy and TaskRabbit that trying to find full time employment. And perhaps they value the flexibility as well.
It looks very likely that we will see further increase in entrepreneurial activity in Canada. It remains to be seen how much of this is done through registered companies and how much of it is done on a freelance or sole proprietorship basis.
25, April 2018 – Blog #15
Dr. Cooper Langford
Most of you know that Dr. Cooper Langford passed away on March 11th, 2018. His Celebration of Life will be at the Best Western Village Park Inn, 1806 Crowchild Trail, Calgary, T2M 3Y7, on April 30th from 2:00-5:00.
We dedicate this blog to him, a review of his huge contribution to THECIS over the years by looking at some of the projects he contributed to.
Cooper was co-founder of THECIS in 2001, and was a Board member and active Fellow right up to the end. He made many contributions to THECIS. This is just a brief summary of some of his project involvement.
Global Entrepreneurship Monitor (GEM) 2013- February 2018
Since 2013 Cooper authored numerous GEM reports, including the Canada 2013, 2014, 2015 and 2016 reports. At the time of his passing he was working on the GEM Canada 2017 report. He also wrote the GEM Alberta reports for 2013-2016. His work on these reports set the standard for the other GEM reports that were written in Canada since 2013. Cooper also attended the GEM Annual meeting in Monterey, Mexico in 2014.
InnoWest 2004, 2005, 2006, 2007, 2009 and 2010
InnoWest is the western Canadian Innovation Conference. THECIS has organised this event since 2004, and it has become an annual event, with steadily increasing attendance from across western Canada and beyond. Cooper was a mainstay at organizing these events.
Science to Society Workshop 2004, 2005, 2006, 2007, 2008, 2009 and 2010
This event is organised to provide business information to 50- 70 graduate students in science, engineering ICT, health and agriculture. It takes place at a weekend on October in Banff. Support has come from iCORE, Alberta Ingenuity, AHFMR, the Alberta Agricultural Research Institute, NSERC Prairies and the governments of Alberta, Saskatchewan and Manitoba. Cooper attended all the workshops and led many of the sessions.
Ingenuity 601 [Graduate Innovation Course], 2007, 2008, 2009 and 2010
This project, carried out for Alberta Ingenuity, was to develop and deliver a learning experience to graduate students in Alberta to acquaint them with the basics of business concepts and give them experience working on a business related project in a multidisciplinary environment. Cooper led many of these sessions.
Health Research Translation Project, 2009
This course is modelled on Ingenuity 601 but targeted at graduate students in medical, health and biosciences and related fields such as medicine, nursing, rehabilitation, life sciences and biomedical engineering. Cooper designed and delivered the courses, and Anne Tyrie facilitated the sessions.
Second Banff Innovation Summit, 2008.
The theme of the second Banff Innovation Summit was “The resource industries as engines of economic diversification”. The Summit took place in September, with about 30 senior individuals from industry, government and university from the four western provinces. The Summit was supported by Western Economic Diversification, the Alberta government, iCORE and NSERC Prairies. Cooper actively participated in the planning and execution of this Summit.
Pathways Project, 2008
Industry Canada asked us to review the various pathways that knowledge travels from university to business in Canada, and provide examples of each type of pathway identified. Cooper led the project team and wrote the final report.
International Comparison Review, 2008.
This project developed an analysis of the policies being pursued in different countries to encourage industry-university collaboration; assessed the various strengths and weaknesses of various national approached; provided a critical assessment of the organizational structures of universities that underpin university-industry collaboration; and identified best practices and principles. This was for Industry Canada. The project team consisted of Cooper and Richard Hawkins.
ICT Sector Performance in Alberta, 2007/8
This project, supported by Alberta Advanced Education and Technology, is a follow on from the Alberta Innovation Scorecard project. It aims to answer two questions: How is the ICT sector performing in Alberta? How is the government doing supporting the sector? Cooper organized the workshop, along with Jeremy Hall.
Foresight Scoping Workshop, 2007
This was a foresight exercise to identify applications that may emerge from the convergence of nano-technology, biotechnology and ICT. It is initiated by the Office of the National Science Advisor and supported by Agriculture and Agri-Food Canada, the Canadian Biotechnology Secretariat and CMC Microsystems. Cooper was a mainstay of the project team, along with Richard Hawkins, Peter Josty, Ted Heidrick, and Jeremy Hall.
University Business Collaboration, 2007
This project is a critical review of the literature on how university researchers collaborate with industrial firms, and how those relationships can result in commercial products. Supported by Industry Canada. Cooper wrote this report.
First Banff Innovation Summit 2006
The goal of turning Western Canada into a dynamic, diversified and internationally competitive knowledge-based economy must be supported with policies and strategies that take account of both leading-edge ideas and local knowledge about how to assess and improve innovation performance.
The Banff Innovation Summit brought together 30-40 carefully selected industry, policy and academic stakeholders in economic diversification and innovation will interact with an elite international group of experts who are producing leading-edge ideas and knowledge concerning innovation policy and strategy. A speaker from the OECD in Paris provides the keynote address. The Summit was funded by a number of organizations, including the Governments of Canada, Saskatchewan, Alberta, and BC, and the University of Calgary. Cooper actively participated in the planning and execution of this Summit.
University Research Park Vision and Conceptual Masterplan, 2005.
THECIS worked with a consortium of firms of architects to develop a Vision and Conceptual master plan for the rejuvenation of the University Research Park. This was done for Calgary Technologies, the University of Calgary and Alberta Infrastructure. Cooper was a mainstay of this project.
Health Innovation 2005, 2006, 2007
This project was funded by a private Calgary based Foundation. It was a year long study of the health industry in Alberta, to identify the main characteristics of the industry and celebrate its successes. The results of this work were disseminated across Alberta by a series of workshops in major centres organised by THECIS. Cooper was Principal Investigator on this project.
Innovation System data Initiative 2005/6
Policy makers often need better and more timely information than is currently available from Statistics Canada. This project – supported by Alberta Innovation and Science, Western Economic Diversification and NRC-IRAP – addressed this need by sending a graduate student to Ottawa and supervising him to obtain information of value to the project sponsors. Cooper supervised the student who went to Ottawa for this project.
Return to Community – the Impact of the University of Calgary on its Community. 2004
The University of Calgary asked THECIS to prepare a report showing the impact the University has on the community. This report was subsequently used in discussions at the university Senate and by other bodies.
His presence will be missed for a long time to come at the THECIS office, on our board and future projects.
12, December, 2017 – Blog #14
Women’s entrepreneurship in Canada
Women’s entrepreneurship continues to attract a great deal of attention and interest around the globe, given growing evidence of its economic and social impact. Initiatives such as the World Bank’s Women’s Entrepreneurship Financing Initiative (WE-FI), and Goldman Sachs’ 10,000 Women Program , are just two examples of a growing range of initiatives aimed at supporting and encouraging women-led business. Within this global context, Canada has emerged as a leader in women’s entrepreneurship, with the highest levels of early-stage activity (TEA), and the fifth highest established business ownership (EBO), amongst innovation-based economies.
The GEM Canada Report on Women’s Entrepreneurship highlights the strength of women’s entrepreneurship in Canada. Some highlights from the report:
- In 2016, 13.3% of Canadian women engaged in some form of early stage business activity, involving a business that was 3.5 years old or younger. This was up from 10.0% in 2014, and marked the highest rate of women’s TEA in 2016 amongst comparable innovation-based countries.
- Comparing Canada to other G7 countries—such as the U.K. (5.6%), Germany (3.1%), France (3.4%), and Italy (3.3%)—helps to underline the striking and high level of Canadian women’s participation in early-stage business.
- 6% of Canadian women were engaged in established businesses – those more than 3.5 years old – the fifth highest rate among comparable countries.
- Canadian women entrepreneurs are found across all age groups, though start-up rates are highest among women aged 25-44, while the majority of established business owners fall between 55-64 years of age.
- Women entrepreneurs are highly educated, with 12% having a graduate degree and 53.8% having a college or university degree.
- 82% of women indicated they were motivated to start a new business by opportunities, up notably from 70% in 2014, while only 14.5 % were motivated by necessity.
- Early stage women entrepreneurs are heavily involved in consumer services (54.4%), followed by business services (28.2%) and manufacturing (14.6%)
- For established businesses, the pattern is different and much more evenly distributed between consumer services (41.2%) and business services (41.2%). This greater presence in business services is important and encouraging, given that business services is typically a much more profitable sector, one that is increasingly recognized as driving innovation and business growth according to research on the ‘knowledge-intensive business service’ sector (KIBS). 19.2%)
The Global Entrepreneurship Monitor (GEM) is the world’s largest study of entrepreneurship, and typically covers 60-70 countries each year with a standardized methodology allowing ‘apples to apples’ comparison between countries. In Canada GEM reports are carried out by the Centre for Innovation Studies (THECIS) based in Calgary. This report was written by Karen Hughes a Professor at the Alberta School of Business and the Department of Sociology at the University of Alberta. The full report is available at https://tinyurl.com/y94gxqpn
3 November, 2017 – Blog #13
By Guest – Richard Hawkins PhD, Professor, University of Calgary, and THECIS Senior Fellow
Let’s stop talking about innovation and start talking about what really matters
Following some 30 years of investigating “innovation” as a social and economic phenomenon, it is time for me to admit that I am getting fed up with this term. In the conversation about public policy for science, technology, industry, higher education or what have you, I fear that it is now so far adrift in a sea of mythology that has lost all touch with reality. Its usefulness began to be sabotaged long ago by waves of boffins, hucksters, on-the-make journalists, and political opportunists (aided and abetted by not a few like-minded academics), all of whom bought hook, line and sinker into a narrowly tech-centered vision of how economies work. But the term now obscures more than it illuminates. It is high time for us to reset the conversation. Because the existing one is taking us nowhere in terms of meeting the urgent new challenges Canada faces in sustaining prosperity in an increasingly uncertain world.
A good example of why we need to wipe the slate is the Innovation Supercluster Initiative (ISI) announced in the 2016 Federal Budget and now getting underway. “Innovation” appears 51 times in the terms of reference for this program. Except as part of the name of the sponsoring Ministry, it is hardly ever used once to refer to the same thing. So in a scant thirty pages we read about innovation, innovating, innovation superclusters, innovation eco-systems, innovation players, business-led innovation, innovation hotbeds, private-sector-led innovation, innovation partners, broader innovation ecosystems, gaps in the innovation eco-system, access to innovation, collaborations of innovation ecosystem players, dynamics of innovation ecosystems, innovation advantage, local innovation ecosystems, innovation assets, innovation spurs, innovation points of contact, innovation cluster regions, platform technology innovation, innovation funding environment … the list well exceeds my attention span. And when “innovation” is then linked up with science, R&D, IPR, skills and training, universities and so forth – well, calculating the national accounts in Roman numerals is easier than trying to make sense of this chaotic conceptual soup.
And here is the rub. The goal of the ISI is not really “innovation” at all. The goal is to stimulate sustainable growth and employment. The assumption is that this will follow from investments in something called innovation. But this is an extraordinarily simplistic view of how innovation might contribute to this outcome. To be sure, innovation affects jobs and growth. But the nature and extent of this contribution is notoriously difficult to isolate, map and measure. Doing so is reliant almost entirely on inferential proxies of mostly indirect and non-exclusive relationships. In less than careful hands they lead easily to completely wrong-headed conclusions.
But jobs and growth stem also from a host of other factors that are far easier to define, and that can be mapped, monitored and measured using far more robust and reliable economic and social indicators: factors like company formation, networking, human capital formation, technology adoption, spillovers, diversification and trade composition, to name but a few. Moreover, many of these factors are explicitly or implicitly contained in the ISI terms of reference already. So why focus a program on something you can’t even define, let alone assess, rather than on something you can?
Confronting this question is important because, in many respects, the ISI represents significant progress over the dreary parade of cookie-cutter programs that have over-populated the ‘innovation system’ real estate for so long, and to such minimal effect. The key difference is that the ISI is not just another set of tech-centered research subsidies, although it is not clear that the government fully realizes the implications of this difference. Rather, in the prosaic disguise of “clusters” (another slippery concept) – lurks what in most of our competitor jurisdictions would be immediately recognizable as industrial policy.
This is something we have seen practically none of in Canada since the heady days of Trudeau Père. For some reason the concept has become taboo – curious as we used to be rather good at it. But as I hear howls of protest swelling up, let me be clear that I am not referring here to PetroCan, or the Bricklin. I refer instead to the marshalling and coordination of public and private resources with the objective of stimulating the creation of new industries that are built specifically around the introduction of some significant new economic factor – like a new technology, process, practice or resource – that has the potential to transform how an economy creates wealth. This is not some radical new notion. Virtually no significant new wave of technology or industry has ever taken hold except through very close interaction between the public and private sectors. Get this wrong and you get the Great Newfoundland Cucumber Disaster. Get it right, and you sometimes get Silicon Valleys.
The positive thing about the ISI is that it is not just about inventing new stuff. Rather, it contains several specific mechanisms to build up key business infrastructures and networks, for example between public and private sector institutions, and between large and small companies. Unlike most existing policy measures, it appears to be focused on building industries rather than just supporting companies: essential if productive and competitive new domestic industries are to be sustained over the longer run.
OK, now for the downside. Such strategies only work if actively supported and financed in significant measure on very protracted time scales. Still no indication of much Canadian skin in that game. A budget of $950 million over five years divided up among five or more consortia is hardly going to incubate sustainable superclusters “at scale” as the bumf insists. This whole amount is roughly what a single company at the bottom end of the global R&D super-league would spend on that activity in any given year (Bombardier is currently Canada’s only placeholder in that league). It costs more than that to put a single new automobile model into production. What we have in the ISI is a small-scale demonstration project; a worthwhile experiment, not an economic strategy.
So how does this fit into my argument that we should kick “innovation” out of the policy discourse? Well, first recall that the main concern of governments is not science or technology, but growth and jobs. That is what gets them elected or defeated. The miscues set in when these outcomes become too directly associated with the production and exploitation of science and technology. For the simple reasons that these are among the most difficult factors to predict or control, and that many other more predictable and controllable factors also play into growth and jobs. It is worrisome that in his public statements about the ISI the Minister continues to see the technological elements of the program as the economic drivers, rather than the institutional, networking and business dimensions, which are far more critical for success.
And success is imperative. Currently, Canadian growth is leading the OECD region, and employment trends are positive. But these figures are not being driven by the emergence of dynamic new globally competitive domestic industries. They are driven by consumption, fueled by staggering amounts of consumer debt, and still underpinned largely by resource exports at very low levels of value added. So, the crucial issue for policy is not really creating growth and jobs as such, but sustaining them over the longer term.
Now consider how “innovation” became linked to this problem in the first place. It was introduced originally as a way of explaining economic development: how changes in the ways economic activities are conducted can yield new types and sources of economic value, over and above what would be produced with existing means. That in a nutshell is what our old friend Prof Schumpeter was on about with “creative destruction”. And this basic idea is still the only robust and empirically verifiable conceptual linkage between innovation and the economy. But all it predicts is the existence of a tractable process whereby new sources of wealth can be created through the introduction of new economic factors, and/or their combination with other factors, whether new or existing.
One would be hard pressed to explain growth unless one introduced some dynamic mechanism of this kind. Without it, all that happens is that existing wealth gets redistributed – until eventually the sources of that wealth are degraded or depleted. The problem is that this core observation eventually became associated almost exclusively with the invention and implementation of new technology.
Make no mistake, technical change is an enormously powerful phenomenon. The problems for economic policy start when the focus becomes technology itself, rather than what happens when some new factor combination is introduced. For growth and jobs to be created, it is never sufficient just to invent new stuff, or, for that matter, even to put it on the market. New technologies are commercialized every day and the dirty little secret is that few of them ever amount to anything. Individually, they create little if any wealth and sustain no employment. It is the cumulative long run dynamics of technical change at a whole economy level that does that.
So rather than focusing on producing more technology, or any other new factor, we should focus instead on how sustained economic value can be created both from transforming existing factor combinations, and from adding new ones. And to do this we must look more seriously at this mysterious phenomenon called entrepreneurship. Whether centered at an individual or organizational level, this refers to the very human-centered activity of fomenting change in the social, cultural, economic and even psychological environments in which life is lived, wants and needs are expressed, and the dynamics of supply and demand are played out.
Without entrepreneurship, no discovery will find expression in practice and no technology will have a chance to gain traction in the market. Indeed, it is typically entrepreneurship, and the new opportunities that it illuminates, that drives discovery, ingenuity and invention in the first place, not the other way around. And in the commercial arena, this depends not on the technology, or on any other factor, but on the business acumen of entrepreneurial firms, and on the milieu of institutions and rules in which they operate.
So really the task for governments in transforming their economies such that jobs and growth are not held hostage to declining industries is rather straightforward. First ensure that opportunities emerge for entrepreneurs to establish new kinds of economic activity in as many ways and in as many domains as possible. And then ensure that a fair number of them succeed – for example through many of the potentially industry-building measures contained in embryo in the ISI. But for the most part it simply involves ensuring that the rules governments make on many interconnected fronts allow for the kinds of new combinations discussed above to emerge, take root and prosper. And often this means getting out of the way, or not unduly favoring incumbent or legacy enterprises over new ones.
You can call this “innovation” if you want to, but you don’t have to. And there are huge downsides. First it is redundant. If the above scenario plays out, then, by definition, you have “innovated”. Job done – an innovation is an outcome, not an input. Second, it encourages governments to continue putting the cart before the horse: to divert attention from producing measurable results in terms of increased welfare, and to reinforce the myopic perception that this happens merely by producing more science and commercializing the result. And third, it lets governments off the hook. If the economy fails to grow and jobs decline in quantity or quality, blame can be cast on the lack of some nebulous ‘culture’ of innovation, rather than on the host of real factors that are much more likely to be directly related to that outcome and that fall much more directly within the competence and responsibility of governments to address.
If we fail to put these elements into perspective, promising experiments like the ISI have little chance of having much impact. Their objectives will become mired once again in actions aimed at achieving some abstract and intractable state of “innovation”, rather than on a concrete, tractable state of prosperity. In short, it is time to stop concerning ourselves with what governments are doing to promote innovation, and focus instead on what they really want to achieve and whether they achieve it. We should start imagining ways of designing policy that is predicated on definable welfare outcomes and on rigorous analysis of all the factors that might lead to it and how, including advances in knowledge and technology.
A ’cluster’ or ‘supercluster’ is never a prerequisite for creating new industry. It is something that you end up with once new industry begins to flourish and starts to create new value-chains, new supply networks and new pools of human capital. Let’s focus our efforts on making sure this can happen. Innovation will follow along soon enough.
17, October, 2017 – Blog #12
Another way to develop innovation policy?
At a meeting I was at recently, Gandeephan Ganeshalingam, the Chief Innovation Officer for GE Canada, described their view of the business environment using the acronym “VUCA”. This stands for volatile, uncertain, complex, and ambiguous. This is clearly a very challenging environment in which to operate.
Now think about how innovation policy has traditionally been developed. Often there is a commission (such as the Jenkins Report, that studied Federal support for research and development) that studies an issue, and issues a report with recommendation. This is often followed by extensive period of consultation with various stakeholders. Then a policy is announced, sometimes legislation is proposed, and then the policy is implemented. This process often takes many months if not years.
So how likely is it that an innovation policy will work for a company in a VUCA world? Good question!
There is another way to develop innovation policy. In recent years a movement has started (particularly in the UK) to use an experimental approach based on small randomized controlled trials. The approach is straightforward:
- Set up pilots to experiment with new programs. One randomly selected group gets the new program, another randomly selected group doesn’t.
- Evaluate them using rigorous methods.
- Scale up those that work, stop those that don’t work.
Randomized controlled trials (RCTs) have been used in a number of policy areas such as development (by the World Bank), education and social policy. They are the gold standard for evaluating new drugs and medical procedures. In all of these areas the link between an intervention and desired outcomes is uncertain because no adequate theory exists. RCT’s provide empirical evidence whether an intervention actually works or not, and provide a strong evidence base for a new policy. As one of the reports says, it replaces reliance on ‘eminence, charisma, and personal experience’ with evidence of what actually works.
RCTs haven’t been used much for developing innovation or entrepreneurship policy, but there is a large potential for exploring its use in those fields.
RCTs, like all new tools, have their strengths and limitations, and require expertise to be used effectively. They won’t be used across the board, just in a few selected areas. A key strength is that they can provide empirical evidence for a new policy, and minimize influences of ideology or history. One weakness is that they don’t explain why an intervention works, only if it does or not.
It is interesting to note that when randomized controlled trials were introduced in medicine, they were strongly opposed by some clinicians, many of whom believed that their personal expert judgement was sufficient to decide whether a particular treatment was effective or not. However randomized controlled trials are now regarded as the gold standard for medical evaluations.
Nesta – a UK charity that supports innovation – has developed an introductory guide for using randomized controlled trials. It is available at http://www.nesta.org.uk/publications/running-randomised-controlled-trials-innovation-entrepreneurship-and-growth
Governments at all levels in Canada spend a great deal of money supporting innovation and entrepreneurship. Randomized controlled trials can be another tool in the tool kit to make sure that we get the best possible outcomes. There is very significant expertise in the medical community to draw on to assist this endeavor.
26, September, 2017 – Blog #11
Entrepreneurship in Alberta
Entrepreneurship is alive and well in Alberta, according to the latest GEM (Global Entrepreneurship Monitor) report, just issued by THECIS. Over 17% of the adult population is engaged in early stage entrepreneurship, a higher rate than in the US, Australia and all other advanced countries. Women are very active in early stage entrepreneurship, at 80% of the men’s rate, also higher than the US.
Consumer services is the most popular field, with just more than 50% of ventures, followed by business oriented services at 30% and manufacturing at 20%. Age is an important determinant of entrepreneurial activity, with higher rates in the 18-24 and 25-34 age groups. Overall, however, about half of new ventures are led by people aged 18-34, and half by those aged 35-64. Above age 65 the rate drops off, but still 4% of older Albertans are active as entrepreneurs.
Education is also a key determinant of entrepreneurship. As people acquire more education they become more entrepreneurial. The highest rate of entrepreneurship is found among those with post graduate education.
The Alberta population is very supportive of entrepreneurship, with 60%–70% of respondents believe that entrepreneurship is a good career choice that successful entrepreneurs have high social status, and that media provide favorable coverage of entrepreneurship.
About 15% of startups are highly innovative, having no direct competitors. About 40% of startups are in sectors with many competitors.
Experts were asked to evaluate the Alberta ecosystem by rating nine relevant factors. The five with the best scores were: physical infrastructure, commercial infrastructure, social and cultural norms, government programs, and government policy at neutral. The lower five in decreasing order were post-secondary education at neutral, R&D transfer (to small and growing firms), internal market dynamics, finance, and primary and secondary education. The experts were also asked to rate to biggest constraints and fostering factors. The most mentioned constraints were finance as the top priority with capacity for entrepreneurship and government policy as next areas of priority.
The most mentioned fostering factors were cultural and social norms as highest priority with the economic climate and, surprisingly, the low rated question of education and training as second and third areas of priority.
The report had five recommendations:
- Creative government programs are needed to support entrepreneurship that has promise to create new directions. This needs to involve all departments of governments, not only those with responsibility for small business.
- School systems need to examine the opportunities to promote entrepreneurial thinking in the context of education aimed at encouraging independence and creativity.
- Despite the evidence that entrepreneurship by women in Alberta is stronger than in other parts of the country or in other developed countries, a gap remains and attitude and motivation data indicate that women still have less confidence in skills and knowledge and women entrepreneurs have more complex motivations. Information programs and mentorship for women remain a priority.
- With the low rate of seniors’ entrepreneurship and the expected increase in size of this demographic in better health in the future, consider targeting entrepreneurship programs at older Albertans.
- Data show rates of entrepreneurship rise with increase of educational experience. Education for entrepreneurial thinking should be promoted across all types of secondary and post-secondary programs.
The full report is available at www.gemcanada.org