"Canada's Path to Prosperity"
from a speech by
Gordon M. Nixon
President and Chief Executive Officer
RBC Financial Group
Queen's Centre for Enterprise Development,
Queen's School of Business,
October 7, 2002
Leaders of industry, government and other key
stakeholder groups have a shared responsibility to work together
in creating the conditions necessary to grow successful, world-class
companies here in Canada, while they tap into markets across
North America and around the world. This mission is not only
critical to business; it is critical to the future prosperity
of our country, and to the future standard of living of all
Canadians. We all have a stake in the outcome.
One of our major challenges is that we are
a small country competing in a global marketplace, where the
ability to productively create and commercialize ideas is
a critical determinant of economic success. To be successful,
we need to create a culture of excellence through education,
innovation and business leadership. And we need to find ways
to capitalize on our competitive advantages. One of the most
important ways is through our small and medium-sized businesses.
Canada has made significant progress in
the past decade, and we can be proud of our recent achievements.
Despite these successes, our future prosperity is far from
Our failure to achieve better productivity
growth, and the widening gap with the United States, may well
be the single biggest threat to our long-term prosperity.
Clearly, we need a strategy that will help Canadians catch
up to Americans in terms of per capita income. And in time,
even surpass them.
The statistics on start-ups demonstrate
that we do a good job at getting new businesses up and running.
But we fall short in sustaining business success and growing
small companies into larger ones. On a per-capita basis, Canada
has many more micro-businesses than the United States, yet
fewer market or industry leaders. The distance from medium
to large seems greater in Canada.
To better understand this issue, RBC and
its partners conducted an extensive study of the challenges
facing small and medium-sized businesses as they attempt to
grow. The results were positive and quite surprising.
For example, contrary to popular belief,
Canadian entrepreneurs are far from timid when it comes to
taking risks. Furthermore, some 75 per cent of Canadian entrepreneurs
said they have a strategy to grow their business, which is
consistent with the United States.
Most striking of all, perhaps, is that American
and Canadian entrepreneurs agree on the same broad category
of barriers to growth. They include taxes, the overall market
environment, and a shortage of qualified personnel.
In terms of tax burden, many small businesses
in Canada have benefited from a variety of measures including
a $500,000 capital-gains exemption, and an accelerated rate
of reduction in corporate tax rates for business income between
$200,000 and $300,000. But a paradox remains. The "reward"
for growing your business and earning income of more than
$200,000 a year is a nine per cent increase in the rate of
taxation - a disincentive for growth. And Canada still has
punitively high rates of capital taxes and payroll taxes,
which our entrepreneurs rate as the biggest tax barrier to
growth SMEs on both sides of the border also say they find
it difficult to build a talented workforce, particularly in
the early stages of development. Designing solutions to the
human-resource challenges facing SMEs may be difficult, but
it is a challenge that we must address through both our education
and immigration policies.
Of course, identifying barriers is the first
step, but addressing them in a timely fashion is also important,
since a competitive advantage will accrue to the jurisdiction
that addresses them first. This is particularly important
to Canada for a couple of reasons.
First, Canada has proportionally more micro-business
than the United States, so the economic benefits of removing
barriers on a relative basis will be greater for us. Second,
since SMEs on both sides of the border tend to have lower
rates of productivity than larger firms, we can get a bigger
lift by helping our SMEs grow profitably and efficiently.
In other words, the payoff for removing these barriers is
much greater for Canada.
Productivity growth, as we know, drives
profitability and enables businesses to expand. Recent research,
including our survey suggests there are three primary ways
to help small businesses grow more productively. The first
is to facilitate access to capital through a wider scope of
partners. This is essential to foster investment in machinery
and value-added processes. The second is to encourage small
businesses to expand their marketplace and eventually become
more export oriented. As a country, we've done a great job
of capitalizing on NAFTA, but we still need to increase the
level of exports coming from the small business sector. And
the third way is to make it easier for SMEs to adopt new technology
and invest more in research and development.
The issue of R&D is a difficult one
because most small businesses can afford very little "research"
past their first product launch, and the tax definition of
"development" does not capture much of what they
This is where both educational institutions
and government can help. Universities undertake a great deal
of research, some of which might be very useful to small business.
On the government side, perhaps the rules governing R&D
tax credits are too narrow to accommodate the type of important
development work being undertaken by our entrepreneurs.
Our study shows that loan availability and
competitive pricing in Canada is strong, and that entrepreneurs
are accessing a wide variety of financial providers. However,
our analysis suggests that there is a shortage of higher-risk
debt and smaller scale equity financing in Canada. If SMEs
are to be encouraged to seek investment, then venture capital
must be made more accessible, and angel investing in emerging
enterprises must become more coordinated.
There's another ingredient to business success,
and that is life-long learning. Our business leaders are bright,
energetic and open-minded. But they need solid information
and ongoing support. This is one area in which business schools
can play a greatly enhanced role.
Management at both small and large companies
must also do their part. Over the years, many academic studies
have offered the view that, given a decent set of macro-economic
fundamentals and generally free and open markets, what ultimately
counts in determining the international success of a nation's
business sector is the depth of managerial talent.
As a country, we have done an excellent
job in the last 20 years in creating new businesses. But now
it is important that we get more of them to the next level.
To help them grow into larger, more successful companies.
To remove the barriers to their growth. To ensure they have
the every competitive advantage. And to give them the opportunity
to become our next generation of market leaders.
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