Insight For BC Technology
By Brent Holliday
I'm the taxman,
Yeah, Yeah, I'm the taxman
And you're working for nobody but me." - Beatles, Taxman
Paul Martin, Minister of Finance
Hon. John Manley, Industry Canada Minister
Hon. Sheila Copps, Heritage Minister
Cc: Rt. Hon. Jean Chretien, Prime Minister
Everybody else in technology products or
services in Canada (hell, why not everyone
I would like
to speak to you three on behalf of the
technology sector of our economy. To be
accurate, the technology sector did not ask
me to be their voice. I am assuming the role
for convenience, although I do expect that
some members of this sector will make their
own voices heard. This is a democracy, right?
I want to
take issue with your economic strategy and
the policies emanating from it. Actually, I
would like to think that you indeed have a
strategy. But it does not appear to be very
coherent. Most importantly, I believe that
you three are seriously underestimating the
impact of technology on our future.
I am a
venture capitalist. I have a unique
perspective on the technology sector from my
vantage point as a financier of early stage
technology companies (typically less than 50
employees with the goal of becoming the next
Newbridge Networks, Biochem Pharma, Cognos
Software or ATI Technologies). What I do is
risky because some of the companies I back
will fail completely. But by getting in early
and helping these companies grow, I can make
my backers get huge returns on their money.
It is exciting and exhilarating to
participate in the "start-up"
roller coaster ride with the real heroes: the
entrepreneurs and their employees that make
the sacrifices necessary for every small
business wanting to grow quickly. Most, if
not all of the companies I work with are on
the leading edge of technology innovation.
You might say that I have a window on the
primordial soup of the next economy.
In the soup
of the next economy, there are certain
You can have the best technology and still
not sell a damn thing.
Smart, effective, driven management with
experience in the chaotic world of start-ups
will usually win.
Access to a talent pool of brilliant
engineers and developers is a must.
Cash is the fuel... and all start-ups burn
through it faster than it can be printed.
Connections to financiers, customers,
partners and distributors can often be the
difference between billions and zilch.
Now, back to
you. The next economy will be the U.S.
economy if you don't get your collective act
together. You three could be senior managers
of a struggling company with massive
potential called Canada Inc. If I was on the
board of directors of this company
(representing the 30 million odd
shareholders), I would be pounding my fist on
the board room table, demanding some focus. A
clear strategy for moving forward in a new
global economy. Right now I'm completely
confused by your wanderings.
Let me see
if I have this straight:
Paul - You increase taxes (in every
imaginable form) from individuals to a point
where a full tax revolt is just around the
corner. You slash spending in health,
education and other essential services that
Canadians hold sacred. You get the books
balanced and preach stability. Then you take
50% of the new surplus and increase spending
again. And you do no
meaningful tax cuts in the latest budget. To
top it all off, you hold onto the 80/20 rule
on foreign investment that is tantamount to
you deciding where every last Canadian must
invest what scraps of savings they have.
have innumerable organizations aimed at
stimulating various industries. You, the
government, with political will clouding your
business judgement, actually invest in any
and all industry. You and your minions choose
which companies in Canada get money.
Unfortunately, way too much of it is going to
resource based industries (13% of R&D to
agriculture, forestry and fisheries, while
the US does 2.4%).
The WTO is
all over you about some of these programs,
because they see it as unfair trade practice.
You control the R&D funding and the tax
credits and refunds for the technology
industry (We have fallen behind the Americans
to the point that without these handouts to
Canadian technology firms, we could not be
competitive). In short, you are in the
business of giving money to business.
have damaged Canada's reputation as a good
trading partner by trying to protect two
industries that already get a pile of money
from John, media and film. All in the name of
culture. Now, the U.S. is looking at cutting
off your political legs by hitting your
hometown steel industry with sanctions. I
have news for you Sheila. The Internet makes
what you are crusading for irrelevant. Like
it or not, people now have the choice to
read, view and listen to what they want.
Cripes, you let Disney buy the rights to the
Mounties! Is anything sacred?
So, what we
have here in Canada is a government push
me-pull you. Squeeze more tax dollars out of
corporations and the individual employees in
order to put money back into the corporations
as R&D or protected markets (for culture)
or repayable loans (that are often defaulted)
or other subsidies in the name of increasing
their chances of success in a global economy.
Huh? Call me simplistic, but cutting the
taxes and giving every company more money
(that they can decide how to spend) makes
more sense than letting bureaucrats decide
who gets it and how that money is spent. And
explain to me again how protectionism helps
in the global economy? Long term, it clearly
government money was only needed when there
is something called "market
failure". In other words, when no free
enterprise will provide the service due to
necessary public standards, the government
would intervene. Makes sense for health,
education and employment insurance. But
investing in Bombardier? The political
corruption of such investments makes a cynic
of all of us. Hmmmm, wonder why John has
spent twice as much in Quebec than in the
rest of Canada? In a better world, we would
let these companies fight it out for market
share and profits on their own, with
competitve tax rates and less red tape!
I have to
say that I am not against subsidies, per se.
I just want consistency in their application.
The real reason that I suspect that John
needs to spend much of this money is the zero
sum game created by other countries
subsidizing their industries. Subsidies are
an ugly reality of our world economy in a
transition to a real global connected
economy. So we rationalize hundreds of
millions of dollars into direct private
industry investment through finger pointing.
"See, the Brazilians did it. It's not
fair!" And to be fair, Sheila, you can't
hold a candle to the French for coming up
with ridiculous cultural protection barriers.
What I am
saying to you three is that if you are going
to do subsidies, then do it right. Go all the
way. Your strategy then becomes to make
Canada, Inc. a reality. Buy up all of the big
manufacturers, media companies and resource
companies and then reinvest all profits into
R&D and training for your immense labour
force. You could corner world markets in
certain sectors and reap the monopoly
returns. Continued re-investment would keep
you at the leading edge of the curve in the
industries that you choose to be in. Build a
wall along the 49th while you're at it. We
could invest a small chunk back into the
National Hockey League teams and the Montreal
Expos, too! Build their stadiums and own the
teams. We'll show those stinking Americans!
No more dickering around. Run the whole
we are lagging behind the rest of the
industrialized world in transitioning to a
knowledge economy (my aforementioned
"next economy"). In BC, we are
acutely aware of the booms and busts of
commoditized resources. We must get
technology to the forefront. The National
Post talked today of the huge lag in growth
Canada has in technology industries, when
compared to the US and Japan. Yikes!
another way to stimulate growth, especially
of the next economy. Stop the vicious tax and
spend spiral right now! Cut taxes
dramatically and stop the majority of the
subsidies at the same time to offset the loss
in revenue. (We don't need government mega
projects in the name of jobs. Again, here in
BC, we will all collectively pack our bags if
there is another "fast ferry"
project announced!) This has enormous
political ramifications that the three of
you, ready to beat the hell out of each other
in a leadership fight, will not want to try.
I know that. I also know that we have a huge
workforce recieving paycheques from resource
industries. Instantly choking off their
subsidized air supply would be politically
you be creative, you three? Look at Ireland.
They chose to stimulate a technology-based
economy and kept the subsidies and incentives
(for technology and manufacturing only) along
with the massive across the board tax cuts.
Incentives are the key. Start thinking long
term. Instill the entrepreneurial culture.
fundamental tenets for creating the next
economy? Make cash come in from other places
to fuel the new companies. Lose the capital
gains tax for any gains made from a)
investment in early-stage, private technology
companies b) employee stock options c)
foreigners investing in any Canadian
companies (the withholding tax). Massive
capital intensive projects need a boost, not
through grants, but through tax avoidance.
All of this lowers your revenue today, Paul,
but happy investors and employees re-invest
in Canada and eventually much more tax
revenue comes in.
and keep brilliant employees through
education and work incentives. To keep the
Waterloo graduate from walking away with all
of his/her know-how, tell them that as long
as a qualified Canadian company is processing
their paycheck, they collect credits to be
used against student debt or for further
training programs. Most people in technology
are driven by what they can learn and who
they can learn it from. And right now, many
of the exciting and challenging opportunities
are south of us.
efforts to reward the self-starter and not
completely discourage failure. By making seed
capital available for early stage companies
to develop proper business plans and do
market research you are encouraging people to
get the necessary experience and knowledge
about starting business. For the first few
years a program like this would see little
success. But, as these entrepreneurs
"get it" through iterative
failures, they will collectively be a much
more savvy group for the next idea.
Eventually, they will start to hit it out of
the park, so to speak.
lots of things that you three cannot possibly
legislate. For instance, the conservative
nature of Canadians is not something that you
can declare unnacceptable tomorrow. Rampant
pessimism in business is a disease partly
incubated by horrific government decisions of
the past. I hate these two endemic
states-of-mind that Canadians now have. They
are so counter-productive. We have to get the
communities thinking that the glass is half
current slippery slope we find ourselves on
and get a clear economic strategy together.
Make a firm commitment to the future and stop
pandering to the old boys resource club and
cultural self-interest. And, for the love of
God, stay out of the business of doing
If you have any questions, you can reach me
P.S. for the rest of you that may want to
send your own version of a "call to
action" here are the various e-mail
addresses you will need:
Paul Martin: firstname.lastname@example.org
John Manley: email@example.com
Sheila Copps: firstname.lastname@example.org
Jean Chretien: email@example.com
- March 4,
1999 Globe and Mail had a superb article on
the chances of reversing the brain drain. My
comments above, notwithstanding, it held out
hope for the best and brightest returning to
help ignite the tech sector here. One
fortunate Canadian, Jeff Skoll, is worth $3.4
billion US, according to the article, through
his holdings in eBay. And Jeff Mallett of
Yahoo fame is from Vancouver! Either one of
you Jeffs can feel free to give me a call. I
can help you invest some of your millions...
- I wanted
to take a moment and pay tribute to two
members of the BC tech community that passed
away recently. We should all be thankful to
those that have helped pioneer technology
companies and investment in BC. David Bensted
and Alvin Fowler were two of those pioneers.
David was the principal of dba Telecom and a
past president of the TIA. I met him a few
times regarding new technologies and
companies that he was mentoring. He was a
pleasure to talk to and had an optimistic air
about him that was refreshing. Al Fowler was
involved with the University Liaison Office
at UBC, responsible for licensing and
commercializing technology. Al was also an
entrepreneur and was involved in many
companies through his years. From my meetings
with him it was clear that Al was fascinated
by technology. He worked diligently to
balance the protection of UBC's property and
the commercialization opportunities that
abound out there. They will be missed.
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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