Government: Picking winners, losers and champions

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As part of our ongoing series examining the ecosystem necessary to bring technology to market, we asked Andrew Fisher, executive vice-president at Wesley Clover, to share his insights on public policy issues and the culture of entrepreneurship. This is the second of his commentaries and we welcome your feedback.

By Andrew Fisher

As someone who engages with entrepreneurs, investors, bureaucrats and politicians on both sides of the Atlantic, it is clear to me that we don’t stimulate and nurture the entrepreneurial spirit in Canada and the U.K.

In my previous post, I questioned whether Canada’s rich buffet of government subsidies for technology companies, subsidies that focus far more on research than they do on commercialization, in fact weaken the entire eco-system. We need to support and encourage commercialization, an essential part of innovation, with tweaks to our current models that will also weed out those companies that use government subsidies as a crutch rather than doing what it takes to become a viable going concern.

On the flipside, it’s worth noting that a culture that nurtures and stimulates entrepreneurial spirit has less need of subsidy in any form. You don’t have to look any further than the U.S. for proof. There, the entrepreneurial spirit is so strong, it will survive regardless of what the government does or doesn’t do. When you are enabled, when you have the spirit, when you have the will, you don’t need these other subsidies, the government support. You just go about doing what needs to be done.

Canadian investors and, by default, Canadian entrepreneurs, are very risk adverse in comparison. The issue is that we are afraid to pick winners and losers.

Yes, there is risk there, but sometimes, even when you pick a loser, you learn something. Maybe you fail, but you learn something. You go out and you try again and hopefully you pick a winner this time. But Canadians as a whole balk at the idea of picking anything and the Conservative government has certainly led by example.

Finding fair winds

So how do we restructure SR&ED and other government programs in a way that puts a little more wind in the sails of the good businesses, and shuts off the tap to those bad businesses that are simply in the business of consuming resources that are funded out of the public purse?

We need to look at those sectors that offer the best opportunity for innovation. Healthcare is one. There is no shortage of Canadian innovation in healthcare that has been commercialized elsewhere with great results. However, here at home, the sector is fraught with politics, an aversion to change and processes that are hopelessly antiquated.

The better bet is oil and gas, where there is lots of capital, a huge tax base, and a large, diverse workforce. But how can we stimulate the sector to create other spinoff industries built around globally competitive technologies that proudly bear the “Made in Canada” stamp?

To its credit, government has been pushing somewhat on these traditional industries to adopt technologies that will advance the state of the art, or invest in green technologies that will clean up the environmental impact. We need to move beyond the lazy and greedy emphasis on making money hand over fist just from taking oil out of the ground. We need to stimulate investment in the research, development and commercialization of future technologies and future energy sources.

Champions with deep pockets

How do we stimulate these companies to adopt those behaviours? In a broader context, how do we incent the big guys in any industry to move beyond the status quo and provide a leg up to the startups that may be working on solutions to their industry’s most pressing challenges?

This is where policy change and reallocation of existing subsidies, such as SR&ED tax credits, could have a drastic impact on those big companies. We must encourage them to open their kimonos and become reference customers for these startups to build future technologies that could be exported around the world. A past post on this blog quoted Didier Leconte of MSBi Valorisation and Thomas Martinuzzo of Gestion Univalor on this idea of “champions” – decision makers within an established company who see the value in a new technology and support it by investing in it or adopting it within their own organization.

The problem is that, in an industry as rich as oil and gas, the big guys are making too damned much money to care. We need leadership at the federal policy level, perhaps in the form of higher taxes, with that additional revenue turned back into the system for a specific innovation program, to drive behavioural change.

In other words, we need to pick winners and stimulate the entire sector from top to bottom. All of our big competitors in energy and other sectors, such as Singapore, Brazil and China, are having these kinds of structured conversations between government and the private sector on how to dominate the global marketplace for entire industries. It isn’t just Canada; the entire western industrialized world is in the gun sights of these emerging economies. Nortel is the most obvious example. Its demise was due in part to a concerted Chinese effort to dominate the global telecom industry through companies such as ZTE and Huawei, companies that weren’t even heard of 20 years ago.

But the onus isn’t just on government to wake up and take notice. Canadian enterprise as a whole must move beyond the convenience of being adjacent to the U.S. market, a market that is flat or in decline. To be globally competitive, our companies need to establish a presence on the ground in emerging economies such as China and forge local partnerships. Government’s role here is to establish foreign policy that will help protect the interests of Canadian companies from whatever unscrupulous business practices may exist in these overseas markets.

As entrepreneurs and business leaders, we need to push ourselves out of our comfort zones and our time zones. We need to take advantage of emerging opportunities abroad. It isn’t easy, business seldom is, but it is the reality we live in today. It doesn’t matter if you make shoes, toilet paper or advanced telecommunications software.

Andrew Fisher manages a portfolio of ICT and digital media companies globally. In addition he also acts as a business prime for the Wesley Clover affiliate program, which connects teams of new graduates with tier-one network operator, service provider and communications equipment manufactures globally. These partnerships provide invaluable customer insight and a route to market for each of the affiliates.

/// COMMENTS

2 Comments »
  • Andrew Penny

    May 23, 2011 6:50 pm

    Good thinking however getting risk averse commodity firms to change behaviour – even with tax incentives is tough. A simple and highly effective policy change would be to amend the SR&ED program such that a portion of any tax credit must be spent on commercializing the innovation developed. 20% is probably a good place to start.
    A second SR&ED amendment would be that companies that are sold to non Canadian controlled entities would have to refund and SR&ED tax credits received in the prior five years – after all, Canadian citizens provided the subsidy so why should that benefit be shipped off shore?

  • Will Zaichkowski

    May 30, 2011 4:47 pm

    We Canadians have a healthy respect for the velvet coffin that is Government Subsidy. Whenever we start to discuss the subject then, the conversation turns to more and more complicated ways to regulate the involvement of said government. No-one thinks to ask: should we have the government directly involved in any capacity? You rightly point out that the environment in the US is much more dynamic than in Canada and there is very little in the way of government subsidies at all. Simply put a free market drives innovation where it is needed, and rewards it when it is created. A regulated or regimented market waits of V.2 of innovation and purchases it as needed. It frowns upon innovation because it is not market tested – it is a circular proposition that well suits our disposition as hewers of wood and drawers of water.

    Where governments can help is in regulating aspects of the marketplace. I know this seems like more regulation and contrary to previous arguments, but what I am suggesting is righting the wrongs of decades of entrenched regulation protecting industries form the realities of the world. Oil and gas, health care, telecommunications and financial services have been coddled by successive governments to the point where they are protected from the forces at play in the free market. If these industries are forced into the dynamic marketplaces that are typical of true free enterprise states they will suddenly acquire a taste for innovation, and on discovering that taste, also discover an entrepreneurial class – either her or elsewhere that is more than happy to address that taste.

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