Skip to main content
Welcome to
super saver spring
offer ends april 20
save over $140
save over 85%
$0.99
per week for 24 weeks
Welcome to
super saver spring
$0.99
per week
for 24 weeks
// //

Daniel Muzyka is chief executive officer and Glen Hodgson is senior vice-president and chief economist of the Conference Board of Canada.

With the federal election campaign in full swing, the Conference Board of Canada has prepared a series of primers for Globe readers on the top economic and social issues our next federal government must address.

One of the trickiest economic challenges for Canada is to create more large businesses – firms that grow to their full potential, compete internationally on the same scale as global businesses, make profits, pay taxes, create jobs and maintain and increase their presence in Canada.

Story continues below advertisement

It is both socially and politically popular to offer tax and other advantages that favour small business. The vast majority of the more than 1.2 million businesses in Canada, according to Startup Canada, are small and medium enterprises. SMEs employ more than 5.1 million people and produce about 30 per cent of our gross domestic product.

Yet, while small business sustains up to a third of overall employment and economic growth in Canada, most small businesses remain small. Furthermore, small businesses launch and fail at a high rate of turnover. The real engine for creating high-wage jobs is sustained high-growth businesses, firms that happened to have been small at one point. The challenge for the next Canadian government is not just how to sustain small enterprises but how to create more high-growth businesses that become large enterprises.

Canada is good at creating startups. Compared with other advanced developed countries, Canada has relatively few regulatory barriers for opening new businesses. When combined with a high level of entrepreneurial ambition that Canadians exhibit, as identified in the Conference Board of Canada's How Canada Performs: Innovation report card, it means an annual "birth rate" for SMEs of about 100,000 businesses.

However, the churn rate for these new businesses is high. Up to half of SMEs go out of business in their first five years of operation. SMEs are often limited in their ability to grow by insufficient access to private investment capital and limited management skills and experience to expand their operations, implement technology and commercialize innovations. Even for the many firms that stay in business, too few ever grow to become large regional, national or global leaders.

Small businesses benefit from significantly lower corporate income tax rates and often enjoy reduced regulatory compliance. There is little evidence, however, that further reducing the tax and regulatory burden on SMEs will help them grow taller and stronger, especially if the full scale of taxation and regulation rises rapidly on those who grow. Preferential tax rates and reduced regulatory barriers can distort market forces, create financial and psychological barriers to growth, and inadvertently encourage businesses to stay small.

The economic evidence shows that SMEs are both a necessity and a challenge for the Canadian economy. Productivity growth is the surest way to create enduring wealth in an economy. On that score, Canadian SMEs are being outperformed by firms that are larger and more committed to growth and innovation. The Bank of Canada and other analysts have demonstrated that firm-size differences between Canada and the United States play a significant role in explaining the productivity gap between the two countries, now approximately $7,000 per capita. Similarly, firms that are committed to growth invest much more of their revenue in research and development than SMEs. This enables them to grow larger, which creates additional employment, as well as higher employee compensation and benefits.

Rather than basing business policy on current size, let's broaden our focus to support for firms based on additional business attributes. These criteria include:

Story continues below advertisement

– Sustained high growth rates;

– Investment in innovation;

– Increasing and accelerating employment;

– The willingness and demonstrated expertise to pursue business sales and growth internationally.

In short, Canada is a good place to start a small business. The focus of Canadian policy needs to shift toward helping more small businesses become growth businesses.

It leads to questions for the parties: How will your platform encourage the formation and continued growth of larger new enterprises? How would your policies encourage more successful SMEs to grow to their full potential? How would your government's policies ensure that more Canadian enterprises grow to compete globally?

Your Globe

Build your personal news feed

  1. Follow topics and authors relevant to your reading interests.
  2. Check your Following feed daily, and never miss an article. Access your Following feed from your account menu at the top right corner of every page.

Follow the authors of this article:

View more suggestions in Following Read more about following topics and authors
Report an error
Due to technical reasons, we have temporarily removed commenting from our articles. We hope to have this fixed soon. Thank you for your patience. If you are looking to give feedback on our new site, please send it along to feedback@globeandmail.com. If you want to write a letter to the editor, please forward to letters@globeandmail.com.

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff. Non-subscribers can read and sort comments but will not be able to engage with them in any way. Click here to subscribe.

If you would like to write a letter to the editor, please forward it to letters@globeandmail.com. Readers can also interact with The Globe on Facebook and Twitter .

Welcome to The Globe and Mail’s comment community. This is a space where subscribers can engage with each other and Globe staff.

We aim to create a safe and valuable space for discussion and debate. That means:

  • Treat others as you wish to be treated
  • Criticize ideas, not people
  • Stay on topic
  • Avoid the use of toxic and offensive language
  • Flag bad behaviour

If you do not see your comment posted immediately, it is being reviewed by the moderation team and may appear shortly, generally within an hour.

We aim to have all comments reviewed in a timely manner.

Comments that violate our community guidelines will not be posted.

UPDATED: Read our community guidelines here

Discussion loading ...

To view this site properly, enable cookies in your browser. Read our privacy policy to learn more.
How to enable cookies