Protecting and supporting entrepreneurs as key drivers of economic recovery
As governments continue to adjust eligibility criteria and develop new programs and policies to provide immediate financial support, we need to explore what policies can be implemented in Canada that will support start-ups and scale-ups in the long-term without developing any overdependence on government stimulus packages.
Recent analyses of the Labour Force Survey in March and April conducted by our colleagues here at BII+E indicates that the current economic crisis caused by COVID-19 is disproportionately affecting workers at smaller firms. For this reason, it’s critical that the government acknowledge these differences in impact in order to more effectively design and target support. If not addressed, this crisis is likely to exacerbate the current trend in business dynamism, which has been largely declining over the last 30 years. Additionally, entrepreneurship will likely be seen as an even riskier pursuit post-pandemic, thereby fueling an even further reduction in business dynamism, hindering the overall competitiveness of the Canadian economy, and raising concerns surrounding increased market consolidation.
There is a greater risk of market consolidation than existed pre-crisis with smaller companies shuttering their business and larger companies looking to acquire struggling businesses and direct competitors. This could increase the barriers to entry for aspiring companies post-crisis. In Canada, there is potential for this to cause a wave of acquisitions of promising tech start-ups by larger domestic firms or foreign firms. In the case of the latter, these acquisitions could contribute to loss of home-grown talent and intellectual property (IP). This has been a long-standing challenge for the Canadian economy. Federal policymakers have begun to tighten restrictions on foreign investments in Canadian companies during the pandemic, but these restrictions are largely targeting firms in the public health sector.
To ensure a strong entrepreneurial ecosystem, Canadian policymakers must develop programs that explicitly target early-stage start-ups, scale-ups, entrepreneurs, and small businesses. Chris Rickett, Director of COVID-19 Business Mitigation and Recovery at City of Toronto, points towards the importance of entrepreneurship as a mechanism to maintain diversity within Canada’s economy while generating jobs, particularly following a period of significant job loss and business closures. Rickett also highlights the need for public sector investment, explaining that “relying on the private sector to fuel the start-up ecosystem is not going to work. This ecosystem has relied on a lot of government funding, and we need to maintain and grow that. Prior to COVID-19, those investments were being trimmed and cut. The [policy] gap right now is a commitment to ensure that those investments are ramped back up.”
As governments across Canada continue to refine and develop policies, there is much we can learn from other countries who are developing more robust measures to provide aid to smaller and younger companies, as well as mitigate corporate acquisitions during the pandemic. We are continuing to update our scan tracking COVID-19 start-up and scale-up support from around the world. If there’s a policy we have missed, please let us know using this form.
Thank you to Viet Vu and Steven Denney for their contributions to this piece.