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Is entrepreneurship waning in Canada? Add to ...

This week, Startup Canada’s national tour began in Nova Scotia and will make stops in every province across the country from now until September. Startup Canada is an entrepreneur-led, national movement with the objective of enhancing “the nation’s competitiveness and prosperity by supporting and celebrating Canadian entrepreneurship.”

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Stepping out to start your own business is certainly one of the main indicators of entrepreneurship.

A relatively high level of self-employment has always been an important feature of the Canadian economy. According to the OECD, Canada has one of the highest concentrations of entrepreneurs within its working population (as measured by the level of self-employment).

However, in recent years, the relative impact of self-employment in Canada has been waning. According to Statistics Canada’s Labour Force Survey, the ratio of self-employed persons to those working for someone else steadily increased from 13.8 per 100 in 1976 to 21 per 100 in 1998 (a 50 per cent increase). However, by 2011 the ratio had dropped back to 18.2 self-employed persons for every 100 persons working as an employee in a business or other organization.

By a wide margin, the industry with the highest level of self-employment is agriculture which, in 2011, had a ratio of 159 self-employed persons for every 100 persons employed by someone else. However, this is down by 35 per cent from the peak of 246 self-employed persons per 100 employed in 1997.

Almost every other industry group has also witnessed declines in the relative weight of self-employment in recent years across Canada. Other primary industries (forestry, fishing, etc.), trade (i.e. mom-n-pop retailers), health care and the accommodation and food services sectors have seen the largest declines.

The finance, insurance, real estate and leasing industry is one of the few that continues to expand its self-employment level (relative to employees). In 1987 there were only 9.4 persons self-employed per 100 employees. By 2011 that had increased to 22.4 per 100. Other industries with moderate increases in self-employment relative to employees include education as well as the industry group information, culture and recreation.

Backing out agricultural self-employment (which dramatically skews the levels in the Prairies), all provinces have witnessed a relative decline in self-employment since 1998 with Prince Edward Island, New Brunswick, Manitoba and Saskatchewan witnessing the biggest relative declines.

On an absolute basis, British Columbia, Alberta and Ontario have the highest ratios of self-employment to employees (excluding agriculture). Newfoundland and Labrador and New Brunswick have the lowest.

Another disquieting trend is the decline in the number of self-employed persons that have paid employees. In 1989, more than 44 per cent of persons who said they were self-employed also said they had paid employees. Since then, the percentage of self-employed persons who have other employees on the payroll declined steadily to 31.3 per cent in 2011.

There are good reasons to encourage entrepreneurship in our society. New startups keep industry incumbents and the large companies on their toes. Entrepreneurs exploit niche opportunities and are always finding new and better ways of doing things. They are critically important to the process of creative destruction that makes for a more efficient and innovative economy.

One of my favorite examples is the pizza industry. Almost every community with a few thousand people will have multiple pizza restaurants. There are large national and international chains, regional brands and local mom-n-pop restaurants. There are high cost, mid-range and low-priced pizza providers. The industry is viciously competitive and firms are constantly trying to out flank their competitors on price, quality and service. It is the ultimate example of Joseph Schumpeter’s process of creative destruction.

Imagine a world where there were only one or two pizza chains and that was it. Likely our pizza would be bland, overpriced and would definitely not arrive at the door within 30 minutes.

In a dynamic economy, new startups and entrepreneurship brings this kind of dynamism to a broad range of industries.

The Startup Canada initiative is a great reminder of just how important entrepreneurs are to our economy and our way of life.

David Campbell is an economic development consultant and columnist based in Moncton, New Brunswick. He also authors a daily blog on economic issues in Atlantic Canada which can be found at www.davidwcampbell.com.

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