Government: The road to hell is paved with …

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This is the 16th article in a continuing series that examines the state of the ecosystem necessary to successfully bring technology to market. Based on dozens of interviews with entrepreneurs, venture capitalists, angel investors, business leaders, academics, tech-transfer experts and policy makers, this series looks at what is working and what can be improved in the go-to-market ecosystem in the United States, Canada and Britain. We invite your feedback.

By Francis Moran and Leo Valiquette

As we stated in last week’s post, government’s role in the commercialization eco-system should be to create that “supportive and normative framework.” The common sentiment among the various VCs, angel investors, accelerator and incubator executives, entrepreneurs and others we have interviewed is that government should stay out of the way as much as possible.

But before the big G steps back, what should it do to enable startups that are trying to get to market, or more established enterprises looking to break into foreign markets or migrate their product lines?

Taxes, taxes, taxes

Tax regimes intended to stimulate an innovation economy must go beyond R&D to foster commercialization and wealth creation. There must, of course, be some form of benchmarking and measurement to track the return on this investment of taxpayers’ dollars. Government money shouldn’t be a form of life support for private enterprises that can’t cut it.

We’ll say no more on this one and instead refer to recent guest posts The risks of being a nation of R&D junkies by Denzil Doyle and Tech companies need a hand up, not a hand out by Andrew Fisher. (We’ll be running a follow-up post from Andrew next week.)

Fresh off the boat

Skilled immigrants can be a rich resource for companies when specific skill sets are in short supply, and even when they’re not. Immigration and visa policies must facilitate this. Ronald Weissman, chair of the Software Special Industry Group at Band of Angels, said this has become an issue in the U.S., where the Obama administration has come to emphasize family reunification rather than intellectual capital.

This push-and-pull debate is by no means unique to the U.S. and is fueled by other issues, such as whether or not government policy should be embracing more skilled immigrants at periods of weak economic activity and high unemployment. The Wall Street Journal recently ran an interesting story on the issue from the U.S. perspective, Long-prized tech visas for U.S. entry lose cachet.

From Weissman’s perspective, emphasizing intellectual capital should be a priority, though the challenge is how to have these skilled immigrants contribute in some way to the domestic economy before taking whatever skills and experience they acquire back to their home country.

“We should not be hard-hearted against family reunification,” he said. “But we must balance it more and give both aspects (of immigration) a fair shake.”

Cooperation vs. competition

U.K.-born John Stokes, a partner at Montreal-based Real Ventures, stressed the importance of a co-ordinated innovation strategy and contrasted Canada with the U.K. to emphasize his point.

While U.K. government policy tends to favour a single multi-faceted innovation policy, in Canada there is a dog’s breakfast of programs with quite different philosophies and methodologies as one moves from province to province. Quebec, for example, is a big believer in venture capital and in supporting VC in various ways, such as through tax credits. Ontario, on the other hand, is less supportive of the VC community and more interventionist, putting money into specific entities and projects.

When efforts to support innovation and commercialization are fractured across a province, state or country, the inevitable competition for resources isn’t likely to foster a healthy eco-system. In a couple of weeks, we’ll be featuring Waterloo’s Accelerator Centre. Its success speaks to the emergence of that entire region of southern Ontario as Canada’s true Silicon Valley North (sorry, Ottawa) thanks to the high degree of cooperation between the Centre, Communitech, the University of Waterloo and area tech firms to make the most of available resources, including government programs.

Addressing the market need

We’re not talking about tech companies understanding their market, but about government bureaucrats and policy makers understanding what their customer base needs, and tailoring their efforts accordingly. In this instance, that customer base is made up of technology companies trying to commercialize competitive products and services. Mistakes here are going to be costly, even harmful, and it doesn’t matter if decisions were made with the best of intentions.

In a January 2010 report, Exploding the myths of U.K. innovation policy, the University of Cambridge nailed successive British governments for three decades of public policy blunders. One of the most damning conclusions was that government policy has been driven by a belief that the best way for government to support technology development in companies is by “funding multi-partner research collaborations between universities and private sector firms” instead of “R&D contracts to solve customer problems and develop new products” that are defined by the needs of the open market.

This is but one example demonstrating that public policy should be formulated with ample input from the entrepreneurs and executives on the front lines. Utilizing strategic marketing to know thy customer is just as important to bureaucrats and politicians as it is to private enterprise.

You can’t legislate an appetite for risk

As we explored a couple of weeks back, an entrepreneurial culture can’t be ordained by public policy. However, any government’s appetite for risk will most certainly colour its efforts to support innovation and be reflected in its public policy decisions. One could argue that less government involvement is invariably better because, no matter how well intentioned, intervention by bureaucrats who haven’t lived on the front lines of building a globally competitive business will always suffer for that lack of seasoned perspective. They will almost always favour the safe bet, the low-risk option, the choice that is most likely to secure votes. A risk-averse mindset such as this not only runs counter to true entrepreneurship, it can instil behaviours that act against it.

Are we taking an overly cynical position here? What do you think government should do, should not and how must it engage with the business community it is trying to serve to ensure it efforts are on the right track?

Next week, we look at how post-secondary education fits into the value chain of getting tech to market.


  • Ian

    May 18, 2011 7:54 pm

    Great post Francis … well researched.

    I learned some new stuff and will be taking the time to read some of the references you highlighted particularly “Exploding the myths of UK innovation policy”.

    IMHO government should take a more facilitative role in terms of innovation and less creationism. Examples of facilitative would be something like the Canadian Small Business Financing Loan and other programs that leverage the strength of the native ecosystem. Government (usually ones with innovation in their name) would do much less creating “Clusters”or similar such expensive endeavors.

    my 2c.

    Looking forward to the next installment.

  • Greg Richardson

    May 19, 2011 10:26 am

    Excellent post, and series.

    Maybe this is a different issue, but I think it’s always worth noting the important role gov has played in R&D. Those who argue that big G should just get out of the way need to remember that, were it not for government, we wouldn’t have nuclear fission (OK bad example right now), the Internet (DARPA) or hundreds of everyday technologies that were commercialized following their use at NASA. Heck, NASA was open source before it was cool — with a mandate to share openly technologies it developed for space exploration.

    As to gov’s role in commercializing these or any technologies, obviously their track record is less than stellar. Removing regulation (as the Clinton administration did to open the Internet for commercial use in the early 90s) would seem to be the most effective role they can play.

  • Francis Moran

    May 19, 2011 5:21 pm

    Thank you both, Ian and Greg, for weighing in.

    The proper role for government is something we set out to investigate when we launched this series, and the various pieces we have written about it are gaining a lot of commentary, suggesting there is a wide range of opinion.

    Certainly, often the best thing governments can do for entrepreneurs and innovation is simply get out of the way. But we live in a complex world where tax policies, regulations, funding for universities and government labs — all things that you and others have cited — can be helpful whilst simultaneously establishing the law of unintended consequences.

    We have more on this to come. Stay posted.

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