Canadian Government R&D Benefits the US

This month, we are looking at how to move Canada beyond its weak financial support for early stage and technology firms.We will be discussing ideas about how to get beyond this problem of being the little market for American Private Equity to cherry pick our winners.
Canada is among the most generous countries in the world in its financial support of R and D for its emerging technology companies. Canadian government support for business R and D as a percentage of GDP is the second highest of any OECD country and ahead of that of the US.
But Canada is facing a dire shortage of the highly-specialized financing source, venture capital, that is dedicated to commercializing that R&D. In 2010, the Canadian venture capital industry experienced its worst fundraising in 16 years and is virtually moribund.
In the absence of venture capital, the R&D of emerging technology companies cannot be commercialized into products and services to be sold in the global market to create jobs, revenues and exports. Much of that R&D is going to waste. The Canadian government’s billions of dollars in annual support for R&D of its emerging technology companies is effectively a vast program for creating advanced aircraft when there is no fuel to fly them.
When Canadian emerging technology companies do obtain VC financing, it is often insufficient, and many find themselves at a serious competitive disadvantage. Canadian VC backed emerging technology companies currently receive on average only 36% of the funding of their VC-backed direct US competitors.
This underfunding of Canada’s emerging technology companies is a recipe for decline, as these undercapitalized companies must compete in the same fast-moving global market with their far-better financed US competitors (not to mention those from other countries). Hobbled by having only a fraction of the capital of their competitors, these Canadian companies also have little prospect of achieving VC follow-on financing when needed, which is in especially short supply in Canada. As a result, many promising Canadian emerging technology companies fail, or are sold early in their lifecycles long before they obtain industry leadership. These sales are frequently to large US companies, and often at low prices.
The Canadian government’s support for R and D of its emerging technology companies has become, in effect, a subsidy to US businesses which acquire the most promising of these capital-starved but R&D-rich Canadian companies cheaply, then reap the financial rewards by commercializing that R&D and bringing those companies to industry leadership. Worse still, these companies are often moved to the US, resulting in the loss of Canadian jobs, revenues and exports. The bottom line: Canada is losing much of the benefit of its billions of dollars in R&D funding for its emerging technology companies.

Running Your Own Business in 2011

Need inspiring for next week's business challenge?

Impressive mashup of music to get you inspired to work hard and smart next week.

Don't hold back, just push things forward from Ithaca Audio on Vimeo.

So Why Are We In A Recession, Business Owners?

A behavioral psychologist won the Nobel Prize in Economics. This is a first person not trained as an economist to scoop the award. Daniel Kahneman invented a new field in economics examining how rational the markets truly can be with human creatures and our emotions messing around. Kahneman explores the consumers' irrational decision making and, even more fascinating, studies Governments and discusses how their political agendas will interfere with rational, thought through decisions. 
When I did my MBA, the case studies and the theory are seductive because they make you believe you have power and control. Time and outside forces then put everything you learned on the MBA on hyper speed. It is never simple in the real world.
Kahneman does tackle why business owners are sitting on the sidelines:

Why are we in a recession? Taxes are too high, say conservatives and free-marketers; thus, entrepreneurs have no incentive to invest or create new jobs. Demand is too low, say liberals: if wages were higher—whether paid by private employers or subsidized by government—consumers would buy more, and entrepreneurs would then produce more and recruit new employees.

Well, as a business owner myself, I hire people and I do not want to fire them, ever. Over the past three years, my business bank balance has been swinging between having to close down and then being at over-capacity. Yes, it is that psycho right now and my bank manager is no longer caught up in the spirit of the 1990s. Every two weeks, I am responsible for my employees' pay checks, their families and homes. I had better have a full pipeline of great private equity projects for the next year. 
Why would I take on the awesome responsibility to ensure long term exciting employment for new people with the chaos going on with the governments in Europe and the US? (Thank goodness for our baking system and for our bland government.) When we talk about strategy planning, at first we think big which has driven our success in the past, but there are too many "what if's" to make growth a top objective. We are going down the rapids right now - not the time for anything fancy, just keep paddling through the rollers.
The uncertainty of government policy in the US is also having a huge impact on many company's business plans, not just my business strategy. The EPA changes has just removed $20M from one of my client's 1914 projections. The EPA change might happen, or not. Meanwhile, we plan for the worst. 
This is an interesting article because we are witnessing governments playing huge stakes with economic theory. If you need a brush up on the big themes, here you go:

 Kahneman does not contradict Smith’s self-love or Keynes’s animal spirits, but he elevates them from intuitions into something like hard scientific evidence. As his important new book Thinking, Fast and Slowdemonstrates, economic behavior can be better understood through scientific and psychological experiments. Most of the book describes the psychological experiments that Kahneman and his colleagues conducted to understand how people judge and decide. Kahneman concludes that our minds are divided into two very different operational systems: System One is fast, intuitive, and emotional, while System Two is slower, more deliberative, and more logical. The former can result in erratic decision-making and even in compulsive behavior, like buying what we don’t need; the latter leads to slow, deliberate choices. In daily life, we constantly and intuitively shift from one system to the other, depending on circumstances; but external incentives—well understood by marketing experts—can activate one system against the other.

Kahneman’s theory is in tension with another influential economic and psychological doctrine: rational-action theory, or RAT, whose leading proponent is University of Chicago economist Gary Becker. According to RAT proponents, people behave “as if” they were rational, whether in their personal lives or as economic actors. On this view, markets are generally rational and efficient, while government interference means less rationality, less well-being, and less happiness in society. Yet if RAT is true, behaviorists ask, how can we explain manias, bubble speculation, and self-defeating choices—none of which, moreover, depends on government? Becker and other RAT theorists accept that the market may not be fully rational, but they don’t believe that the government is any more so. 

Read More here

Read about Jacoline Loewen's opinion on quotas for females on Boards.

Name the top country to do business?

Can you believe it - Canada is #1 on the Forbes list for Best Countries to do Business. The way we talk about ourselves, you would not know it though. 
Kudos to the Conservatives for working so hard to make Canada far more competitive. They have been meeting with entrepreneurs and listening to their issues.

Canada moves up from No. 4 in last year’s ranking thanks to its improved tax standing. It ranks ninth overall for tax burden compared to No. 23 in 2010. Credit a reformed tax structure with a Harmonized Sales Tax introduced in Ontario and British Columbia in 2010. The goal is to make Canadian businesses more competitive. Canada’s tax status also improved thanks to reduced corporate and employee tax rates.

Contrary to the US government's speeches on raising taxes on their corporations, it does impact on their competitive standing.

The U.S. ranked No. 10, down from No. 9 in 2010. The world’s largest economy at $14.7 trillion continues to be one of the most innovative, ranking sixth in patents per capita among all countries (No.7 overall Sweden ranks tops for innovation).

What hurts the U.S. is its heavy tax burden. This year it surpassed Japan to have the highest corporate tax rate among developed countries. The U.S. also gets dinged for a poor showing on monetary freedom as measured by the Heritage Foundation. Heritage gauges price stability and price controls and the U.S. ranks No. 50 out of 134 countries.

Now would someone call Huffington Post and inform their blogging community as most of them do not have a clue about their taxes and economy.
Read more