Entrepreneurship by older adults in Canada – Blog #37

23, November 2022

Entrepreneurship by older adults in Canada.

While Canada mostly avoided the Great Resignation experienced in other jurisdictions,
we are in the midst of a Great Retirement, which is leading to staff shortages across
many industries and this is despite levels of employment engagement being back to
pre-pandemic levels1.  Will we need to entice these retirees back into the labour force
and is entrepreneurship a way to do it?

Source: Reference 1

Statistics Canada defines retirement as, “…a person who is aged 55 and over, who is
not in the labour force and receives 50% or more of his or her total income from retirement-like sources, such as the Canada Pension Plan and Old Age Security.”2

There are 7.3 million Canadians aged 65 and older, or about 18% of the population, most of whom are no longer working. This group is projected to grow to 12 million by 2051, representing about 25% of the population at that time. In addition, in 2021 almost 1 million people aged 55-64 are no longer working2. These older adults are healthier, richer and more educated than previous generations. An average 65 year old can
expect to live another 21 years. What this group does in “retirement” will have a major effect on the Canadian economy.
A report2 from Statistics Canada reveals more about older adults’ activities:

  • • In 2015, one in five Canadians aged 65 and older, or nearly 1.1 million seniors,
    reported working during the year. This is the highest proportion recorded since
    the 1981 Census.
    • Of the seniors who worked in 2015, about 30.0% did so full year, full time, and
    the majority were men.
    • The percentage of seniors who reported working nearly doubled between 1995
    and 2015, with most of the increase coming from part-year or part-time work.
    Increases in work activity were observed at all ages, for men and women alike.
    • Seniors with a bachelor’s degree or higher and those without private retirement
    income were more likely to work than other seniors.
    • Employment income was the main source of income for 43.8% of seniors who
    worked in 2015, up from 40.4% in 2005 and 38.8% in 1995.
    • Senior men who worked full year, full time were most commonly managers in
    agriculture; retail and wholesale trade managers; transport truck drivers; retail
    salespersons; and janitors, caretakers and building superintendents.
    • Senior women who worked full year, full time were most commonly administrative
    assistants, managers in agriculture, administrative officers, retail salespersons,
    general office support workers, and retail and wholesale trade managers.
    • Seniors in the territories as well as in Saskatchewan, Alberta and Prince Edward
    Island were the most likely to work. Those in Newfoundland and Labrador,
    Quebec, and New Brunswick were the least likely to do so.
    • Across the country, seniors living in rural areas were more likely to work than
    seniors living elsewhere.

Unfortunately, older adults do not show up in most policy reports on entrepreneurship
and one wonders why? One explanation is that the data is not collected since it is
assumed that after age 65 individuals are retired and no longer active in the labour
force. For the world’s largest study of entrepreneurship conducted by the Global
Entrepreneurship Monitor annually in over 70 countries this is the case. Thankfully,
GEM Canada is the exception, and data is collected on Canadian entrepreneurs aged
18-79.

The table below shows the trends in entrepreneurial levels by age group in Canada
from 2019-2021, based upon the Canadian Global Entrepreneurship Monitor (GEM)
data3.

Source: GEM Canada data 2019-2021

The vertical axis is the Total Early-stage Activity (TEA) rate, the percentage of the adult
population planning a new venture plus those operating one less than 42 months old.

Entrepreneurship rates among those older than 55 are lower than those aged 25-34, the
peak age to start a company in Canada. However, compared with many other countries
these are very high levels. For example, in Poland the TEA rate in 2021 for the 18-64
age group was 2.0, in Italy 4.8 and Japan 6.3, so by international standards older
Canadians are very entrepreneurial.

Another entrepreneurial activity older adults engage in is owning and managing an
existing company. The graph below shows the trend in the rate of owner managers by
age from 2019 to 2021.

Source: GEM Canada data 2019-2021

As you might expect, this shows a very different pattern to the startups, as older adults
own businesses at a much higher rate than younger adults. Older adults have had more
time to build up their businesses and make them sustainable in the long term.

Conclusion.
There is a lot of evidence4 that working past the traditional retirement age of 65 is
beneficial to mental and physical health. Being an entrepreneur is a significant part of
this. Having a focus on encouraging older adults to become entrepreneurs should be an
important part of a program to engage older adults in economic activity. This would
have many benefits for both the individuals involved and the economy as a whole.

Peter Josty & Chad Saunders

1. Gordon, Julie (2022). Canada’s real problem is not job losses, it’s the rush to retire. Reuters Business
News, Sept 12, 2022.
2. Statistics Canada (2017). Census in Brief: Working Seniors in Canada,
https://www12.statcan.gc.ca/census-recensement/2016/as-sa/98-200-x/2016027/98-200-x2016027-
eng.cfm
3. Global Entrepreneurship Canada data 2019, 2020 and 2021.
4. Baxter, S., Blank, L., Cantrell, A., Goyder, E. (2021). Is working in later life good for your health? A
systematic review of health outcomes resulting from extended working lives. BMC Public Health. 21,
1356. https://bmcpublichealth.biomedcentral.com/articles/10.1186/s12889-021-11423-2


Entrepreneurship in Canada: latest story – Blog #36

16, November 2022

Entrepreneurship in Canada: latest story

Entrepreneurship is alive and thriving in Canada, according to the latest report1 from the Global Entrepreneurship Monitor (GEM). This is the latest in an annual series of reports on the state of entrepreneurship in Canada.

Perception of skills

The Canadian population feels very positive about entrepreneurship. More than half know an entrepreneur personally; nearly 50% believe they have the skills to start a business and 23% have plans to start a business. However 53% say fear of failure would hold them back from starting a business, the second highest level in the G7 (Canada, US, UK, France, Germany and Japan). 7 out of 10 Canadians feel that they see good opportunities to start a business.

Activity

GEM measures two metrics for entrepreneurial activity – TEA (Total entrepreneurial activity) and EB (established businesses). TEA consists of the fraction of the adult population actively planning to start a new business plus those running a business less than 42 months old. EB are businesses older than 42 months.  The graph below shows how Canada compares with other G7 countries. Canada has the highest level of TEA in the G7, and the second highest EB level.

TEA and EB – Canada compared with the G7

 

 

 

 

 

 

 

Funding

Canada ranks 1st amongst G7 countries in identifying Business Angels as an important source of funds for new businesses, and was 1st in level of informal investment. Canada also had the highest average level of funds in the G7; a significant increase from 2020. One explanation for higher investment in 2021 was the need for

Angels to provide follow-on funding to help investee companies survive economic hardship during the height of the pandemic in 2020, with Angels now seeking new investment opportunities.

 

What kinds of business were started?

In common with all the G7 countries, consumer oriented services is the largest category of new businesses, representing 52 % of all new businesses. This is followed by business oriented services (26%), manufacturing (19%) and extractive industries (3%). This last category includes agriculture mining and oil and gas extraction.

What are their growth plans?

GEM has a number of growth measures and in 2021 all of them showed positive increases compared with 2020. 16% of startup entrepreneurs and 12% of established businesses expect to create 10 or more jobs in the next 5 years.

Export orientation

Canada has the highest level of export orientation among G7 countries. 4.3% of startups and 1.2% of established businesses have 50% or more of their revenue from outside the country.  This is a very good sign and is probably explained by the fact that Canada is a small export oriented economy.

Who are the entrepreneurs?

The most common age range for Canadian entrepreneurs is 25-34 with 30% of all startups.  Younger entrepreneurs (18-24) were not far behind at 28%. Older entrepreneurs have lower activity – 23% for the 35-44 age group; 12% for 45-54 and 9% for the 55-64 age group.

The gender ratio for startups varies quite a lot from year to year.  In 2021 the male TEA rate rose by 40% compared to 2021, while the female TEA rate rose by 14%. The female TEA rate was 65% of the male TEA rate.  The gender ratio for established businesses tends to be much more stable, the female EB rate being 68% of the male EB rate in 2021.  Both the male and female TEA rates were the highest in the G7.

Canadian entrepreneurs are highly educated. 22% of all TEA entrepreneurs have graduate experience, 21% have a post-secondary degree, 19% have high school diploma and 15% have some high school or lower. Canada’s entrepreneurs possessed the highest educational rates across three of the four educational levels.

How innovative are the entrepreneurs?

In common with other countries, most startups are not very innovative. In 2021, in Canada, 46 % of entrepreneurs said their product or service was not new. 30% said their product or service was new to people where they lived; and 15% said their product or service were new to the country. However 9% of entrepreneurs said their product or service was new to the world, and that is a very encouraging number as it demonstrates their strong competitive advantage.

What motivates the entrepreneurs?

GEM asks a series of questions to probe motivation, as shown in the table below.  There are significant differences between male and female entrepreneurs.

Motivation Male Female
To make  a difference in the world 16.3 12.0
To make great wealth 16.5 10.9
To follow  a family tradition 13.2 6.8
To earn a living because jobs are scarce 17.6 10.7

 

The biggest motivator for male entrepreneurs in 2021 was “to earn a living as jobs are scarce”, which probably reflects the turmoil caused by COVID. For female entrepreneurs the biggest motivator was “to make a difference in the world.”

Supports for entrepreneurs

GEM identifies 13 framework conditions that support entrepreneurs. Canada is mostly in the middle of the pack when compared with other G7 countries when ranked on these supports. Canada was ranked highest for “government policies bureaucracy and taxes”, and second highest, behind the US, for “cultural and social norms”. Canada ranked well for entrepreneurial education at primary and secondary schools but poorly for entrepreneurial activities at colleges and universities. Two areas where Canada is ranked poorly are R&D transfer and physical infrastructure

Conclusion

2021 was a difficult year for the economy because of COVID but despite that entrepreneurs in Canada were very active and in many cases led their G7 peers. The study revealed strengths and weaknesses in the entrepreneurial support system, with particular attention needed to improve R&D transfer and physical infrastructure

 

  1. GEM Canada report 2021/22 https://www.gemconsortium.org/file/open?fileId=51066

Peter Josty

 


What can we learn from Bavaria – Blog #34

27 October 2022

What can we learn from Bavaria

Bavaria is an interesting case study in economic growth. Its size is about the same as New Brunswick and its population is about 85% that of Ontario. After World War 2 it was a poor region of Germany with no natural resources, primarily agricultural, with poor transportation links and suffering severe damage from the war.

Today it is regarded as Germany’s economic engine, with a GDP per capita about 40% higher than the Canadian average. It is home to several major multinational companies such as Siemens, BMW, Adidas and Puma and a host of Mittelstand companies (small- and medium-sized family-owned concerns that create a wide range of high-quality specialized products).

How did they do this?

One key step was the establishment of the “social free market”. This idea was rooted in capitalism but while also allowing a role for government involvement to ensure that this system worked for as many people as possible. For instance, strong regulations would be put in place to prevent cartels or monopolies from forming. In addition, a large social welfare system would serve as a safety net for those who found themselves struggling. It also called for a strong central bank independent from government. Some of these ideas were similar to those later proposed by Milton Freedman.  These ideas seem commonplace today but were radical in the 1940’s.

A second key fact was the drive provided by the Finance Minister of Bavaria, (later of West Germany) Ludwig Erhard. He institute three key reforms – a new currency, large tax cuts, and removal of all price controls.

Following these reforms the German economy took off, in a development called the German economic miracle, or Wirtschaftswunder.  Germany also benefited significantly from American support through the Marshall Plan.

The Mittelstand, or Germany’s small and medium sized companies, are widely seen as the backbone of the economy. Today it produces about 52% of Germany’s GDP, roughly the same proportion as Canada’s SMEs. However, Mittelstand companies employ about 70% of the labour force in Germany, compared with about 88% for SMEs in Canada. So Germany has about a quarter more of the workforce in large companies than Canada does.

A recent webinar organized by the European-Canadian Centre for Innovation and Research (ECCIR) explained that today in Bavaria they identify 5 main clusters:

  1. Digitalization – Information and communication technologies, Mechatronics and automation, Power electronics and Sensor technologies.
  2. Energy – Energy technologies and Environmental technologies.
  3. Health – Bio-technologies, Medical technologies and the Food industry.
  4. Materials – Chemical industries, Forestry and wood, Nano-technology and New materials.
  5. Mobility – Railway technology, Aerospace and Automotive.

Bavaria prides itself on producing more patent filings in the European Patent Office than any other jurisdiction in Europe.

It also prides itself on having the best startup ecosystem in Germany, with 30 accelerators in Munich alone, along with free co-working space for 3 months, Business Plan Coaching and easy access to industry. They focus on business to business startups.

The Bavarian government [Bavarian State Ministry of Science and the Arts] invests quite heavily in research, planning to spend €3.5 (about $4.6 billion CDN) over the period 2020-2023. They also pay a lot of attention to university-industry relations, developing cooperation among ecosystem players and aiming to build international competitiveness.

It is interesting to note that this spending pattern appears to closely match the current industry structure in Bavaria. So it is focused on needs of existing companies in the region.

What can Canada learn from Bavaria?

In some ways the Bavarian approach is reminiscent of the “Define the Decade” strategy (recently put out by the Business Council of Alberta) in that it starts by identifying areas where Bavaria in already globally competitive and building on that. [See Blog 31 – a New Economic Strategy for Alberta]. Other areas where the two approaches are aligned are:

  • Ensuring that government, industry and post-secondary institutions work together
  • Working cross sectoral, ensuring cross industry collaboration.
  • Emphasis on a strong startup ecosystem

Where the Bavarian strategy goes well beyond “Define the Decade” is its explicit focus on public sector research spending and identifying new trends at an early stage. It also targets support to what it considers to be strategic sectors – artificial intelligence and cleantech; Renovation and Acceleration Programme for higher education institutions; Higher Education Innovation Act – Agility – Excellence – Innovation; and Booster for small and medium-sized enterprises (SME)

 

Of course there are substantial differences between the industry structure of Bavaria and Canada. Bavaria has a manufacturing and engineering based economy, while Canada’s is driven largely by energy and other commodities. Replicating approaches that work somewhere else has a sorry history of failure. (How many Silicon Valleys are there?). Nevertheless, examining what a successful jurisdiction like Bavaria does can provide useful insights into approaches that might work in Canada.

 

Peter Josty

 


The ones that got away – Blog #33

12 October 2022

The ones that got away – Blog #33

It is well recognized that innovations have been the main driver of economic progress and that items such as the internet, artificial intelligence and social media have transformed our lives.

We celebrate unicorns, make lists of the fastest growing companies and give awards to the entrepreneur of the year. But we usually don’t think much about the innovations that don’t make it – the failures. An exhibit called the “Museum of Failure” makes up for this. The idea was started in 2017 by Samuel West who is a Swedish psychologist. The exhibit has toured world-wide – in Asia (Shanghai and Taiwan), Europe (Paris and Helsingborg) and the US (Washington, Los Angeles and Minneapolis). It is in Calgary – its first stop in Canada – until the end of September and then possibly in Toronto and Montreal.

The Museum exhibits about 160 failures over quite a time span. The oldest exhibit shows the Vasa, a Swedish warship that sank spectacularly on its maiden voyage in 1628. More recently it highlights the Boeing 737MAX.

Some of the exhibits will be well known, such as the Ford Edsel and New Coke. Some are quite hilarious – Harley Davidson Cologne and Colgate Frozen Dinner. (Talk about mixed messages!)

The exhibits are organized according to a variety of themes such as Medical Mishaps, Bad Taste, Digital Disasters, Failure in Motion, etc. There is even a section on Donald Trump’s innovations, such as Trump University, Trump steaks, Trump Shuttle and Trump resorts, all of which ended in failure usually accompanied by illegal business practices and lawsuits.

The exhibit come with a handy app that you can view QR codes at all the exhibits to get more information.

There are inspiring quotations about failure:

  • Thomas Edison: I have not failed; I’ve just found 10,000 ways that won’t work.
  • Robert F. Kennedy: Only those who dare to fail greatly can ever achieve greatly.
  • Robert Kiyosaki: Failure is part of the process of success. People who avoid failure also avoid success.
  • Harvard University: Innovation is a risky business. Over 70% of all innovation initiatives fail.
  • Elon Musk: Failure is an option here. If things are not failing, you are not innovating enough.

Here are some of the more notable failures in the exhibit:

  • Lawn darts. These were outdoor game darts with heavy metal spikes. Over 6,000 children were injured by these darts, which also killed three children. They were eventually banned in 1988.
  • Seagrams Old Breed. The newly appointed CEO of Seagram’s, Edgar Bronfman, Jr., had the idea to add whisky to beer, and was convinced this was a winner. One of their employees said: “Lord it was awful. It smelled like the rug at a fraternity on the Sunday morning after a keg party. And it tasted even worse.” Bronfman then tried to turn the venerable producer of distilled spirits into an entertainment company that eventually destroyed it.
  • Apple. There are several Apple innovations that flopped, among them the Apple Newton (a device with handwriting recognition that was the precursor of the iPod.) and the Apple USB mouse (called the Hockey Puck due to its size. It was among the 10 worst Apple products of all time.)
  • Microsoft. Quite a few Microsoft products are in the exhibit including Windows 8, Microsoft Bob (a cartoon interface for beginners), and Microsoft Tay (an artificial intelligence based chatterbot that was shut down 16 hours after launch as it began giving inflammatory and offensive tweets.)
  • THERANOS. This is one of the few outright scams in the exhibit. THERANOS claimed to have developed a much improved blood test, but investigation revealed it was a scam. The inventor and CEO- Elizabeth Holmes – was convicted of defrauding investors and faces a fine of $500,000 and up to 20 years in jail.

Conclusion

The exhibit is a timely reminder that failures are an unavoidable part of innovation. Perhaps we should pay more attention to the failures and see what can be learned from them.

 

Peter Josty


Entrepreneurship is growing in Canada. Is that good? Blog #30

14 June, 2022

Entrepreneurship is growing in Canada. Is that good?

Entrepreneurship is a measure of economic dynamism. Over the last ten years the percentage of the population involved in entrepreneurship in Canada has increased by over 50%, according to the Global Entrepreneurship Monitor. In 2021 about 20% of the adult population was involved in planning or starting up a business.

The graph below shows the evolution in Canada since 2013 using the Global Entrepreneurship Monitor (GEM) database.

TEA (Total early stage entrepreneurship activity) is a combination of two numbers – nascent entrepreneurs, those actively starting up a business and owner managers of a business less than 3.5 years old.

EB (established businesses) are owner managers of a company more than 3.5 year old.

In both cases the numbers refer to the percentage of the adult population (age 18+) engaged.

The TEA rate has crept steadily upwards since 2013, with a dip in 2020 due to COVID, while the EB rate has remained fairly constant.

Statistics Canada data confirms that the number of firms, adjusted for population growth, has remained roughly constant since 2014.

Is this just a Canadian phenomenon?  If you look at the GEM data for several other countries you see exactly the same phenomenon. TEA has risen significantly from 2013 to 2021 – in the UK (by 80%), in France (by 70%), in Germany (by 40%) and in the US (by 30%), that compares with the rise in Canada of 70%.  So this is certainly not a uniquely Canadian situation.

The EB rate in the other countries has also remained fairly constant over the same period.

So what is going on?  The real answer is that at this point we don’t know for sure. There would appear to be several possibilities at least1:

  • More people are involved in each new startup. Might this be because startups are becoming more complex requiring more diversity of skills?
  • There may be more hybrid entrepreneurs – people who work for a large company and work to develop opportunities either for their employer or for themselves.
  • More business consolidations are happening early in the life cycle.

 

Does it matter?  The negatives.

The larger question is: does this really matter?  The hard facts are that from an economy wide perspective, large businesses are much more productive than small business. In Canada 2.4 million people (15.1% of the labour force) work for large companies, and produce 48.1% of the GDP, while 13.7 million people (84.9% of the labour force) work for small and medium sized companies and produce 51.9% of GDP. So, a person working in a large company, on average, produces 5 times as much GDP as a person working in a small or medium sized company.

Do we put too much effort into encouraging entrepreneurs?  Well-known American author Scott Shane thinks so – one of his papers is entitled ”Why encouraging entrepreneurship is bad public policy”. Shane argues that the typical start-up is not innovative, creates few jobs, and generates little wealth.

If entrepreneurship is such a good thing, then why is Canada a laggard in innovation and R&D spending?  [See Blogs 24 and 29]

 

Does it matter?  The positives

However, it has been well established that entrepreneurs and other outsiders are a main vehicle for introducing radical new technologies to the marketplace.  Just think why Tesla is the leader in electric cars rather than GM or Toyota. The current rise in tech startups in Canada is likely a manifestation of this.

Several large sectors of the Canadian economy, such as retail, construction and healthcare, rely on small and medium sized firms, and they make a significant contribution to the overall economy and provide valuable employment.

Also, in a period of economic turbulence, such as we seem to be entering now, having entrepreneurial skills is a valuable attribute, whether in a large company or a startup. The key role of the entrepreneur is to identify opportunities, and then generate the enthusiasm, vision and plans needed to create a successful venture.

 

Conclusion

Although most startups don’t generate much wealth, innovation or jobs, nevertheless some of them do, and this is a key driver of economic growth.

  1. Shane, S. Why encouraging more people to become entrepreneurs is bad public policy. Small Bus Econ 33, 141–149 (2009). https://doi.org/10.1007/s11187-009-9215-5
  2. I am indebted to Marc Duhamel and Étienne St-Jean for helpful discussion on this.

Innovation Policy in Canada – Blog #29

24, May 2022

Innovation Policy in Canada.

Canada is ranked poorly for innovation in most international comparisons. For example, it is ranked #16 globally in the WIPO Global Innovation Index, 6th of the seven G7 countries.

A recent book1 casts interesting light on this. It is a rare example of a non-partisan look at innovation policy in Canada at the provincial level. It has a chapter for each province and the territories and is written by 20 mostly academics from across Canada (including me). The value of a book like this is that it doesn’t provide “the answer” to Canada’s innovation problem but it documents approaches taken recently, assesses what worked and what didn’t and stimulates further discussion.

Here are some of the topics that caught my attention from the Chapter on “Conclusions and Lessons Learned”:

  • Canada’s innovation performance. The authors describe the conundrum that while Canada has numerous advantages, including a stable political situation, well-educated population, broad socio-economic advantages such as multiculturalism, a merit-based immigration system, broad social safety nets and good social mobility, etc., and yet it performs poorly on innovation. Companies underperform on R&D spending, companies are not scaling, entrepreneurs tend to move to other jurisdictions, and so on.
  • Evaluation of policies. One of the biggest weaknesses in the Canadian policy system is the almost complete absence of structured evaluation of any policy ideas. The authors note that there are established methods that exist around the world (for example, the Maryland Scientific Methods Scale) to support policymakers in delivering evidence-based policies. The provincial chapters show no evidence of any substantive assessments of programs to support innovation.
  • Natural experiments among provinces. The authors note that provinces have powers over many of the drivers of innovation, so comparing the performance of different Provinces – reflecting the different political differences and dynamics across the county – is a natural experiment to determine what works best. It is one of the aims of the book to document this. This can be seen as one of the advantages of a federal structure in Canada.
  • Drawbacks of the federal structure. The authors note that as powers influencing innovation are very diffuse across Canada not much happens unless two or three levels of government are aligned. Generally, the federal government sets the agenda, and the provinces and territories selectively respond.  This makes it hard to get support for Canada wide efforts.
  • Diffuse focus. A review showed more than ninety program streams to support business innovation, across twenty different federal organizations. Each province also has numerous support programs, so overall there are a vast number of support programs across the country, which spreads the support very thinly.
  • Broad-based support. The authors note that there is reluctance among provincial governments to pick winners, and as a result most support programs fall back on offering general support to whichever firms can access their programming. This leads to efforts that are more incremental than transformative.
  • Big bets can pay off. One example of a sustained long-term effort to support innovation citied in the book is AOSTRA (The Alberta Oil Sands Technology and Research Authority) that led to the development of the Alberta oil sands and made a material contribution to the Canadian economy. This was led by the provincial government. Other examples include ocean industries in the Atlantic region, digital industries in New Brunswick and PEI, aerospace and transportation in Quebec, and agri-food in Manitoba and Saskatchewan.
  • SME focus. The authors note that Canada’s private sector is dominated by SMEs (small and medium sized enterprises) and that many large companies are foreign owned. This explains why many innovation programs are aimed at SMEs and startups, and why success stories are usually about small businesses doing well, while reports of innovation among Ontario’s branch plant auto industry are seldom heard.
  • Bias towards technological innovation. The book notes that Canadian innovation support programs have a strong bias towards technological innovation at both the federal and provincial levels. “The evidence that a science and technology focused research funding strategy will generate innovation in a predictable fashion is slim to none.” This bias has a couple of consequences. 1. It mainly focuses on cities, and ignores rural areas and the territories, leaving out 98% of Canada’s geography and 40% of its people and 2.  it neglects the voluntary, cultural and creative sectors that generated $169.2 billion in 2017, 8.5% of the GDP.
  • Impact of resource industries. Despite the strong orientation of policy towards SMEs, the authors note that adoption of innovation by large resource based forms generated most of the improvements. This is not surprising, as a 1% increase in productivity in a $5 billion company has more impact than a 100% increase in a 30 person startup.
  • Challenge of implementation. While provinces and territories recognize the need to create the conditions that lead to innovation driven economic growth, their ability to implement policies and programs has been more challenging. Part of the reason for this, as the authors note, is the relatively low staffing levels of innovation specialists with sufficient experience and expertise in provincial governments.
  • Role of Universities. The authors note that universities, often seen as a significant source of ideas that lead to commercialization, are not evaluated provincially or federally in a way that would account for their net economic contribution. Contributions of universities are often overestimated. Research at universities costs about $13 billion a year but generate less than $75 million annually in commercial technology transfer activity.
  • Institutional gaps. The authors identify a number of institutional gaps in Canada with their recommendations:

 

  • Raise Canada’s research and development effort. This would require support at both federal and provincial levels.
  • Develop more targeted and sustained innovation efforts. These have been demonstrated to generate successful results, e.g. AOSTRA, mentioned above.
  • Improve threat identification and hazard mitigation that can produce dual use technologies for civilian security and defence applications.
  • Focus more on digitalization. This has been described by former Bank of Canada Governor David Dodge as an “absolute imperative”. It is an area where Canada has lagged behind other countries.
  • Avoid misalignment between federal and provincial innovation policies, particularly for energy and climate.

If any of this strikes a chord with you get a copy of the book to learn more.

Peter Josty

 

  1. “Ideas, Institutions and Interests” – The Drivers of Canadian Provincial Science, Technology and Innovation Policy – Edited by Peter Phillips and David Castle, University of Toronto Press, 2022, 398 pages.

Is Canada a hewer of wood and drawer of water? – Blog #28

3, May 2022

Is Canada a hewer of wood and drawer of water?

Canada is often described as a resource based economy, or, less kindly, as a hewer of wood and drawer of water. But is this really true?  As a resource based economy Canada is often compared to countries like Australia, Norway and Russia. But look at the graphic below.

This shows a measure for each country called the Economic Complexity Index.1 The Economic Complexity Index is a ranking of countries based on the diversity and complexity of their export basket. High complexity countries are home to a range of sophisticated, specialized capabilities and are therefore able to produce a highly diversified set of complex products. Low complexity countries export more undifferentiated commodities and simpler products. The reason this index looks at exports, rather than total production, is that exports are seen to be a measure of international competitiveness, and allow better international comparisons.

So, Canada is far from being a hewer of wood and drawer of water. We have a much more complex export mix than Australia, Norway and Russia.

Broadly speaking, richer countries usually have more complex exports.  The highest ranked countries according to this index are Japan, Switzerland, Germany, South Korea and Singapore. The US ranks #11 out of 133 countries.  The lowest ranked countries are Venezuela, Cameroon, Papua New Guinea, Liberia, Guinea and Nigeria.

The comparison with Australia is particularly interesting as Australia is often seen as a twin for Canada. Canada ranks #36 out of 133 countries in this ranking (and is growing more complex), and Australia ranks #88 (and is growing less complex.) That is a huge difference, and is explained by the fact that a much larger proportion of Australia’s exports are “simple” compared to Canada. Well over half of Australia’s exports are commodities such as iron ore, coal, petroleum and gold. The corresponding number for Canada is roughly half that, with exports of petroleum, gas, gold, lumber and wheat. Canada has significant exports of complex products such as cars, car parts, ICT, machinery, medications and plastics.

The researchers place the diversity of tacit knowledge—or knowhow—that a society has at the heart of its economic growth story. Research from the Growth Lab finds that countries whose exports are more complex than expected for their income level, grow faster. So, according to this approach Canada would be expected to grow faster than Australia.  This is true, with Canada’s growth to 2029 estimated to be 3.06% per year, compared with 2.17% for Australia. (These estimates were made before COVID-19, so take them with a grain of salt.)

The Harvard Growth Lab has an interesting view on economic development. They see that countries grow by diversifying into new products of increasing complexity. So the more complex your export mix the more opportunities you have to grow into adjacent areas. Some examples from Canada could be:

  • Oil and gas firms getting into other energy sources such as geothermal energy, that exploits their drilling and energy expertise;
  • Automobile firms getting into electric vehicles, that exploits their manufacturing expertise.
  • Forestry firms using drones for reforestation exploiting their expertise in forestry.
  • Energy firms getting into hydrogen production to exploit their expertise in natural gas and related technologies such a carbon capture and storage.
  • A historical example is Shell getting into GPS technology to know where they were drilling, and subsequently spinning off the business, that seeded the formation of the Calgary GPS cluster.

Conclusion.
Canada has a much more complex economy than we realize. The idea of using the diversity of tacit knowledge to diversify into adjacent areas is an interesting one that should receive more attention. It’s probably a much more robust approach that trying to attract unrelated businesses to set up here.

Peter Josty

  1. Harvard Atlas of Economic Complexity https://atlas.cid.harvard.edu/

Canada’s new Innovation Agency – Blog #27

18, April 2022

Canada’s new Innovation Agency

The Federal government announced that it will create a “Canada Innovation and Investment Agency” in the 2022 Budget.

This is how it was described:

  • It will proactively work with new and established Canadian industries and businesses to help them make the investments they need to innovate
  • Operationally independent
  • $1 billion over five years to support its initial operations.
  • Modeled on approaches that have been successful in Finland (TEKES) and Israel (Israel Innovation Authority).
  • With private sector leadership and expertise
  • It will also enable innovation and growth within the Canadian defense sector and boost investments in Canadian defense manufacturing.

This initiative has broadly been welcomed by the business community. It is one among a suite of measures in the budget aimed at improving Canada’s dismal performance in innovation, productivity and economic growth. (See Blog 22 and 24.) It also represents a change in thinking from a passive support role (SRED) to a more active investment approach.

A key point is that it is being modeled on approaches in Finland and Israel. What have these approaches been?

First of a couple of caveats:

  • Both Finland and Israel are very small unitary countries (populations of 5.6 million and 9.2 million). Canada is a much larger country with a federal structure.
  • Transferring ideas that work in one place to another place is notoriously difficult (think of the many failed attempts to replicate Silicon Valley).

TEKES

TEKES was founded in 1983 in response to recessions in the 1970s as a funding agency to promote technology development. TEKES merged with the Finnish export promotion agency in 2018 to form Business Finland. It currently has about 750 employees. Finland joined the European Union in 1995.

Business Finland functions as a funding agency for research and technology development as well as export promotion. Receivers of the funding are universities, polytechnics, research institutes such as VTT Technical Research Centre of Finland, the European Space Agency, startups, small and medium-sized enterprises (SMEs), large corporations and public bodies. In enterprise projects, funding is given to transform research-stage ideas into viable businesses, and may combine direct unconditional funding with guaranteed loans conditional on the success of the resulting business. It funds up to 50% of project costs.

In addition to funding, Business Finland provides companies with advice on networking, finding new markets and customers, help with joint offerings and connections with international investors.

Business Finland is well regarded by SME’s in Finland. According to a survey, 38% of SMEs considered this service to be central for their business activity.

Business Finland has some current weaknesses. The Confederation of Finnish Industries says it should focus more on companies with export potential.

In 2021, Business Finland’s R&D funding is estimated to be EUR 740.4 million ($1.01 Billion CDN) that included EUR 200 due to COVID expenses.

Israel Innovation Authority (IIA).

The IIA was founded in 1965 as the Office of the Chief Scientist of Israel’s Ministry of Economy, charged with fostering the development of industrial R&D within Israel. It became the IIA in 2016.  It currently has about 150 employees.

Its mission is to assist the advancement of Israel’s knowledge-based science and technology industries in order to encourage innovation and entrepreneurship while stimulating economic growth.

“The Israel Innovation Authority, an independent publicly funded agency, was thus created to provide a variety of practical tools and funding platforms aimed at effectively addressing the dynamic and changing needs of the local and international innovation ecosystems. This includes early-stage entrepreneurs, mature companies developing new products or manufacturing processes, academic groups seeking to transfer their ideas to the market, global corporations interested in collaborating with Israeli technology, Israeli companies seeking new markets abroad and traditional factories and plants seeking to incorporate innovative and advanced manufacturing into their businesses.”

The Israel Innovation Authority produces a comprehensive annual report: https://innovationisrael.org.il/en/sites/default/files/Israel%20Innovation%20Authority%20-%202021%20Innovation%20Report%20-%20English%2017.6.pdf

In 2019 Israel joined the network of Centers for the Fourth Industrial Revolution (C4IR), a body set up by the World Economic Forum to share knowledge, experience and best practices related to innovative technologies’ regulation by establishing collaborations between governments, leading corporations, private sector, and experts from around the world. The IIA is the focus.

Annual budget is 1.6 Billion NIS, or about $630 million CDN. It describes itself as “an independent publicly funded agency”

Comparison

TEKES and the IIA have some similarities:

  • They both provide grants and loans to businesses and universities as well as advice.
  • They both operate as “independent publicly funded agencies”. Business Finland is part of the Finnish Ministry of Employment and the Economy; and the Chair of the Board of the IIA is Israel’s Chief Scientist.
  • Both have a strong international focus. Business Finland has 42 offices abroad, and the IIA has an International Collaboration Division.
  • Both have a strong R&D and technology development focus.

But there are also differences:

  • Israel has had an influx of highly skilled immigrants from various countries, including Russia, that is not the case in Finland.
  • A factor affecting Israel’s innovation performance is military spending. Israel spends 5.6% of its GDP on military spending (about four times as much as Canada), and that includes significant R&D that has spillover to the civilian economy.

Conclusion

Whatever form the Innovation Agency takes, it will be one part of a complex innovation ecosystem. To improve innovation performance other aspects of the ecosystem need to be enhanced, in particular the supply of talent and the limited competitiveness in many sectors of the economy. And announced funding for the Agency is significantly less than in Finland or Israel, which are much smaller countries.

Peter Josty


What the Fourth Industrial Revolution means for Alberta – Blog #26

4, April 2022

What the Fourth Industrial Revolution means for Alberta

Alberta’s economy is going to be radically changed by the fourth industrial revolution, but not necessarily in ways you might expect.

First of all, some context:

The First Industrial Revolution (roughly from 1760 – 1830) started in Britain and involved the mechanization of many tasks done manually, initially using water power but then steam power became dominant. Many industries were affected including textiles, mining, agriculture and iron making.

The Second Industrial Revolution (roughly 1870-1914) involved the development of railway and telegraph networks and the spread of electrification through the whole economy. It also saw the beginning of mass production, and the rise of the automobile.

The Third Industrial Revolution (roughly 1960-2010) was driven by the development of computers and digital controls and communications and the adoption of digital controls in many manufacturing plants. It also saw the rise of the personal computer.

The Fourth Industrial Revolution, starting about 2015 ???  can be thought of as an extension of the Third Industrial Revolution, involves the use of  a bundle of technologies such as artificial intelligence, gene editing, nanotechnology, internet of things, data visualization, 3-D printing and quantum computing. These technologies can have the effect of further increasing automation and opening up entirely new fields such as self-driving vehicles and virtual reality.

Although the term “revolution” sounds as if it happened quickly, in fact these revolutions took 30-40 years to be fully adopted. This is illustrated in the graph below for the adoption of electrification and personal computers:

 

 

 

 

 

 

Percent of households with electric service and personal computers1

 

Effect in Alberta.

At first sight you might think that we would see two separate industries in Alberta – the traditional resource industries and a new high tech industry based on the new technologies. I believe nothing could be further from the truth. The resource sectors are taking the lead in many ways in adopting the Fourth Industrial Revolution. Some examples:

  • Suncor is introducing 150 autonomous electric trucks at its oil sands mines in Alberta
  • Willie Banack and Nick Banack help operate a 2,800-hectare (7,000-acre) grain farm in the Camrose area. They use new agricultural technologies, from light bar GPS guidance for machinery to auto-steering technology and more sophisticated apps that collect and analyze data from the field.
  • Flash Forests is a Canadian company that uses drone reforestation technology and hardware, aerial mapping software, automation, and biological seed pod technology to reforest boreal areas at a rapid pace. It plans to plant a billion trees by 2028.
  • At the Olds College Smart Farm, soil sensors precisely measure the moisture, temperature and pH balance of the soil, while drones equipped with multispectral cameras take detailed images that capture details invisible to the human eye. GPS and yield monitors attached to combines gather data that helps generate detailed yield maps. All this data can then be utilized by farmers to reduce the risk associated with decisions about when to start planting, how much to seed, where to apply fertilizer or pesticide, or to understand why one area is more productive than another.
  • Copperstone Technologies, founded by three graduate students from the University of Alberta in 2014, builds robots for hazardous site investigations. For mining, the robots can traverse waste areas called tailings ponds, which can be dangerous for humans to navigate. They recently won an international competition for new mining technologies.

So the fourth industrial revolution will have a major positive impact in Alberta.

However, not all impacts will be positive. It is possible that it will lead to a segregation of jobs into “low skill, low pay” and “high skill, high pay” segments that will exacerbate social tensions. The World Economic Forum has flagged this as the greatest societal concern associated with the Fourth Industrial Revolution.

So buckle your seat belts. The fourth industrial revolution is going to be interesting.

Peter Josty

  1. “The Power of Creative Destruction” by Philippe Aghion, Harvard University Press, 2021, page 47

Why are mid-sized companies so important in Alberta? – Blog #25

15, March 2022

Why are mid-sized companies so important in Alberta?

Mid-sized companies play a key role in the Alberta economy due to their stability, innovation, their exporting, and contribution to the community.
In December 2021 the size distribution of firms in Alberta is shown in the table below1:

Mid-sized companies employ about 20% of the workforce in Alberta. Mid-sized firms are active in most areas of the Alberta economy. The Table below shows the percentage active in the most frequent areas1:

But the main reason they are important is because of their characteristics. Several years ago we interviewed the CEOs of mid-sized firms in Alberta. A large majority of the firms interviewed displayed the following key characteristics:

  • They are very stable. We found most medium sized companies have been in existence for 10 years and many were 50 and 60 years old and more. They are almost always privately owned so are not subject to the influence of stock markets and the pressure to produce quarter to quarter improvements, and therefore can think much longer term
  • They have deep expertise. Frequently the founders had gained industry experience in a big company before branching out by themselves. This is a common but not universal experience. Almost all CEOs interviewed had a university education and many had graduate degrees.
    They respond positively to the challenges of finding skilled people. A frequently expressed barrier to growth was lack of qualified people. Alberta MSEs have responded in various ways. One found an Alberta Innovates program very valuable. It helped to subsidize new hires (engineers) for a year or two while they learned the business and could become productive.
    There is huge attention to employee wellbeing. Likely related to the challenges of finding qualified workers, most MSEs interviewed go to great lengths to keep employees happy. This results in employee loyalty and very low attrition rates. One company had a retention rate of 99%. Another was proud to be the recipient of many “Best Place to work in Alberta” awards. Most go to great lengths not to lay off employees in a downturn.
  • They focus. Most medium sized companies have a quite a narrow and sharp business focus. They know their niche very well and don’t want to stray outside it. They tend to be deep rather than broad.
  • They innovate. Although some of the MSEs interviewed were reluctant to describe themselves as ‘innovators’, most were observed to have made significant innovations in terms of new products, new processes or new business models.
  • Access to capital is not a huge issue. MSEs are stable, profitable businesses with good prospects, so many are prime candidates for accessing normal banking instruments – loans and lines of credit. None mentioned venture capital funding.
  • Growth is not in itself a high priority. Many MSEs see themselves as being an appropriate size to serve their niche; growing beyond that would be problematic. Some saw a tradeoff between high growth and survival. Many regarded aiming for high growth as a risky strategy.
  • Use of contractors is widespread. Many of the MSEs interviewed used contractors to supplement their workforce. One design firm employed hundreds of extra people for large projects. Others contracted with software developers abroad, where costs were lower than in Alberta. However, it was often stressed that this did not reduce employment in Canada as all the core personnel remained in Alberta.
  • Many export. One firm had no customers at all in Canada for the first eight years it existed. But some served local markets and did not export at all. A majority of the firms we interviewed exported more than 30% of their sales revenue.
  • They contribute to the community. Many companies are deeply involved in community affairs, supporting local cultural institutions, charities and industrial organizations. Such involvement was often described as a defining element of the company culture.
  • MSEs operate largely outside the milieu of targeted industry supports. Use of government support programs varied considerably, but no firm interviewed was dependent on such programs. Most expressed the view that MSEs were generally not on the radar of most of these programs.
  • Flight risks are mounting. Most MSEs seem happily embedded in Alberta, and have no plans to consider moving to another jurisdiction. However several expressed concern about increasing regulation and taxes compared with the US and were starting to look at relocating their business.
  • The overall business environment is critical. SMEs have structural relationships with many sectors throughout the Alberta economy, especially but not exclusively with the resource sector. They tend to thrive best when overall conditions are favorable for the economy as a whole and can be severely affected when legislation and regulation is not synchronous with up or downturns.

Conclusion

We need more medium sized businesses in Alberta,

Peter Josty

  1. Statistics Canada. Table 33-10-0493-01  Canadian Business Counts, with employees, December 2021
  2. Businesses are counted according to the number of “statistical locations” they have. For example, a retail business with 10 stores and a head office is counted 11 times in the Canadian business counts.