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A Little Too Liberal In Spending
A bi-weekly column with timely, relevant and possibly irreverent insight into the BC technology industry.


Something Ventured:
July 7th, 2000

By Brent Holliday

"You never give me your money
All I get is your funny paper... "
The Beatles, You Never Give Your Money

Last Friday I got really mad. Steamed. I've calmed down now, enough to make a (hopefully) coherent column that may help some of us understand what we will have to do to drag the 80% of Canadians who still don't get it (some never will), kicking and screaming into the 21st Century.

What caused the high blood pressure and throbbing temples, you ask? Well, $700 million of vote grabbing, utterly misguided and soon to be hopelessly misdirected funds in Atlantic Canada, courtesy of the federal Liberals. Yes, $700M of the hopelessly misdirected Canada Jobs Fund that became the political albatross in April and May and Jane Stewart's undoing, is now headed only to Atlantic Canada to spur the "New Economy". The money was shoveled to Atlantic Canada because of an Atlantic Liberal Caucus report called "Atlantic Canada: Catching Tomorrow's Wave" that reportedly found broad regional consensus that the federal government needed to spur the move in Atlantic Provinces to knowledge based businesses. (Translation: we got our butts kicked in the last election, losing 19 of the 30 seats we had in 1993. We need votes. Send money. Love, the Atlantic Liberal Party)

Some choice quotes on the announcement:

Fred McMahon, National Post - "In Atlantic Canada, brute patronage and vote-buying beat out hapless sanity in government circles every day of the week -- and that may spell the death knell for Atlantic Canada's emerging high-tech sector. Government hubris in Atlantic Canada peaked last week when Prime Minister Jean Chrétien flew to Halifax to announce the latest installment of How-Ottawa-Will-Save-Atlantic-Canada. At least in the old days, government merely thought it could run things like coal mines ($3-billion-plus lost); steel mills ($3-billion-plus lost); and the fishery (tens of billions lost and an ecological disaster)."

Halifax Herald - "The fact ACOA is administering the fund made Ian Thompson, president of the Metropolitan Halifax Chamber of Commerce, suspicious the money might end up in bad investments like some other ACOA funds in the past. Brian Crowley, an economist with the Atlantic Institute for Market Studies, said the investment in research is a good idea, but government shouldn't be investing in businesses. "God knows their record in picking winners has been abysmal," he said, adding government should look at development strategies that include cutting taxes."

I picked up a book a few years back titled, "Everything Pierre Trudeau Did For Western Canada". It was 100 pages long... and every page was blank. I didn't live here when Trudeau was in power, but I'm starting to get the gist of why the authour of that book used invisible ink. This funding announcement really sucks for BC and Canada. On so many levels.

1. It's vote buying. As long as politicians worry more about their own political career more than what's good for the country, we will have this crap. We, in BC, apparently have enough Liberal votes, so we get donut. Don't even get me started about the disproportionate share of funding that Quebec gets.

2. Government should never, ever, ever step in where the market is already functioning. Some of the $700MM will go to education and some to basic research. Markets do fail in these areas and the government support will help create some knowledge workers and possibly some businesses based on leading edge research. That's good. But much of it is earmarked for "entrepreneurial development" directly into companies. That's dangerous. There exist many people that invest money into companies that do a far better job at it than salaried government workers. Throwing money into companies that are going nowhere under the guise of creating new knowledge based jobs is just plain wrong.

3. Any area where $700M would be better spent by the government? How about health care? The debt? Why spend it at all? Why not $700M in lost government revenue in the form of tax cuts, especially capital gains taxes? Why not tax holidays for new anchor companies in technology that an entire industry can grow around? Flip it around and let the business owners operate on a more level playing field with their US counterparts, rather than give them handouts. If the tech industry in Canada gets used to handouts on the level of the film industry here, we are in big trouble.

Now that I have whined about it, what can we actually do about it? The fundamental problem here is that most Canadians are blissfully unaware of where technology can really take them. It's more than the stock market and getting rich. It's all about productivity and world leading innovation. Everyone's quality of life goes up if the nation's economy grows. I could rattle off any number of statistics to support the theory that technology innovation has raised median incomes and disposable incomes of families, especially in the US. It was only 8 years ago when we feared Japan and Germany because of their industrial efficiency and massive economic surpluses. Remember Michael Crichton's book and movie Rising Sun? That was the peak of Japanese paranoia. Why is Japan an economic laughingstock now? Technology innovation and rapid commercialization. The US ran faster when the Internet came on line. Microsoft, Intel and Cisco smoked the world competition for the "new economy". Did you read anything about the US government spending millions and millions of dollars trying to make a technology backwater like South Dakota into a knowledge based economy? No, but I bet you did here about a company called Gateway that did that on its own, thank you very much. {The US is far from perfect. Ironic case in point: All three of the behemoths mentioned above, that have lifted the US economy and increased the tax base, and lowered the deficit, etc, etc, etc... are now all the target of government anti-trust zealousness. Weird, eh?}

Canadians need to understand that government spending (even if it is dressed up vote grabbing) does not instantly create a knowledge economy, especially one that kicks ass on a global stage. Canadians need to understand a path towards a sustainable "leg-up" in the world of technology. They need to understand that there is a plan. There is no silver bullet, but there is a plan.

Here's my five-point plan for the politicians, for what it's worth:

1. Invest tax dollars, almost beyond reasonable means, in basic research. This is where we shine on a world stage. We are the best place on the planet to do R&D, both basic (far out, chin-stroking stuff) and applied (near commercial or commercial applications of research). I have to go on a tangent here… Why? Because I have no word count limit. In 1992, TRIUMF (the Meson Accelerator at UBC for those of you unaware that we have one of a dozen or so of the world's leading particle physics labs right here) was spearheading an effort to get a massive particle accelerator called KAON funded. This accelerator would be a 20km circular pipe that would allow scientists to study particles as they approach the speed of light. The Liberals came into power and snuffed it out. They recently announced that TRIUMF would get $200M over 5 years, truly good news for upgrading the facility. But, the KAON project was never built and CERN was. CERN is near Geneva, Switzerland. It is the world's largest accelerator and its getting bigger and faster. Among other things, the world's best and brightest physicists will be able to gather evidence for the first time on ground-breaking science like supersymmetry, string theory and M theory. This is the world of Einstein, Hawking and Witten, the brains that create revolutions in scientific thought. In Switzerland. Not BC. Since 1992, the CERN facility has created many offshoot technologies that have been commercialized. None more famous than something totally unrelated to particle physics, the World Wide Web. Yes, folks, Tim Berners-Lee, the father of WWW was toiling at CERN when he developed a way to present information on the Internet using hyperlinks. He did this in Switzerland. Not BC. Now I can't argue with the tough choices that the Liberals had to make in 1993 regarding the deficit. But just imagine what could have been, right here in our own backyard.

Now, how do you tell the average Canadian that investing tax dollars in a bleeding edge research facility is a good idea? I love what John Maynard said to the British Parliament in the mid 1800's when a skeptical politician asked him why they should help him research this thing he was working on called electricity. "One day Sir" he said, "you may tax it." In a nutshell, the argument for basic research is just that. The economic effects of innovation are profound. It just takes time (and money) to do the job right.

2. Government, stay out of business! If we are going to grease the sled of a meaningful technology industry, especially one that is globally superior, we need to have government playing where they need to play (see #1 above). When it comes to investing in or creating knowledge based companies, stay away. Continue to support the Canadian companies that exist already with initiatives like the global consulates in touch with foreign businesses. Promote, promote, promote, but do it by hiring experts in promotion. Why are there government communications people creating marketing materials? Let the experts in industry do that. Stay out of the business. Look at all programs and ask if the private sector should be doing it instead. Then give them the incentives to help.

3. Aggressively attract foreign investment. This comes in the indirect and direct forms. Indirect is through fund managers like Canadian VCs (We, at Greenstone, were one of the first to attract foreign investors into a Canadian fund… but it wasn't easy). Australia recently threw open the doors to foreign investors in their VC funds. Israel and Scandinavia have been there for a few years already. Keeping the wall up will continue to hurt our financial stability and force great companies and people out of the country. Direct foreign investment can be investment in companies or building of anchor companies or research facilities (IBM lab here in Vancouver, Mosel Vitelic semiconductor fab in Montreal). Tax holidays are necessary to get the world leaders to play here, for now. The spin off effect here is the attraction of top talent in infrastructure. When the money starts flowing in big amounts, the lawyers, accountants, PR people, recruiting people etc. in foreign lands will sit up and take notice. They tend to follow the money. Then you get a rise in the level of competence of all of the players (those that don't learn fast, get cooked). This helps make commercializing technology much more efficient and likelihood of success much higher.

4. Very carefully study the education system. Take this a little slower and get it right. Listen to all of the pundits and look at what works worldwide. Think 30 years ahead and try to imagine how we create the best and brightest people. Moreso than health (which tends to be reactive, not proactive), education is the single most important thing a government needs to do right. Stop looking at stupid Stats Canada numbers on brain drain (which don't count the hundreds of thousands of NAFTA visas down there) and go and talk to the millions of dollars of Canadian trained gray matter creating wealth in the US. Ask them what it would take to have them stay in Canada when they graduate, because education must include where the opportunities are in Canada. This is so important. It feeds #1 above, which is equally important. Be prepared to throw out the status quo, turn the teachers on their ears and do the right thing for educating today and tomorrow's children. There is terrible inertia in the system and I think there will be much pain steering this boat.

5. Take Heritage Canada, rip it up and burn it in effigy. This abomination of making rules to protect Canadians from things not Canadian is actually a self-fulfilling prophecy… we Canadians get an inferiority complex when our government tells us what we must hear or see in order to define who we are as a people. And that inferiority complex makes us all wonder who we are as a people. It's mind boggling! Try this: Be the only country outside of the US to have enough confidence in its people to create their own cultural identity that they do not need a government department to do it for them. Instead, use education from day 1 to help promote great Canadians and great Canadian stories. Only a sense of history can help define a people, not whether Sports Illustrated is running enough Canadian content. In technology, we are all aware that borders do not exist for content. The Internet makes it moot. And we need far more promotion of our scientists and technologists to get people excited about being in this business. (OK, it's not directly in support of creating a technology advantage in the world for Canada, but it's gotta go. It's protectionist thought and it's bad. We need to celebrate and understand the successes to give everyone a sense of pride)

Anything missing? Oh, yeah, taxes. Actually, I think that Canadian governments are actually starting to get the point. No need to harp on that one.

As for BC getting the short shrift on the $700MM… I suggest a Liberal Party white paper showing wide consensus in BC that we don't think that we need handouts to create a vibrant knowledge economy here. Look at what we've done, the growth we've had, the successes of our anchor companies despite the fact that we have had next to no help, thank you very much. Instead, try all of the five above. Oh, and one more thing, we will not be bought!

Random Thoughts –
- Easily the most compelling, cynical and hilarious web site to emerge in months (apologies for using this word for the first time in my G-rated column, but I can't get around it) http://www.fuckedcompany.com It is the web site for headlines and rumours about the death of ridculous dotcom companies. The massive amount of attention and money invested in the dotcom world for 3 years has resulted in a lot of fat. As the fat gets peeled off, you can find out about it here. You can also play a twisted game where you guess which companies will get the worst news or rumours and win points based on the severity of their demise. There is not a lot of Canadian content there yet and I feel we have a ripe vine. Any Book4Golf.com layoff rumours? Many thanks to Steve Campbell for introducing this to me.

Letters From Last Week -

The incubator story drew many raves and no rebukes. Interesting. I figure that most people are far too busy to respond. I'm sure the issue will be debated and as time goes on, the incubators will find their place in the ecosystem.

What Do You Think? Talk Back To Brent Holliday


Something Ventured
is a bi-weekly column designed to supplement the T-Net British Columbia web site with some timely, relevant and possibly irreverent insight into the industry. I hope to share some of the perspective and trends that I see in my role as a VC. The column is always followed by feedback (if its positive or constructive. I'll keep the flames to myself, thanks).

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