Tantalus Unbound: Government Policy and Innovation in Canada

Abstract:     
The future of the western industrialized economies, including Canada, depends on healthy and innovative high-tech sectors. In 2010, this realization spurred the Canadian government to commission a blue-ribbon panel charged with assessing the state of programs designed to support business and commercially oriented research and development. The resultant Jenkins Report contains many useful recommendations aimed at consolidating disparate offerings, measuring existing initiatives’ performance and fostering federal-provincial cooperation to improve programs’ impact on the tech sector. However, the Report erred in overlooking the squandering of government resources on tax subsidies to investors in Labour-Sponsored Venture Capital Corporations (LSVCCs) — union-sponsored specialized mutual funds meant to promote the development of high-growth small and mediums-sized businesses — which are far outperformed by the private sector and often waste capital better used elsewhere. It is also unduly harsh on the federal Scientific Research and Experimental Development Tax Credit, which is critical to the early-stage start-ups that give rise to high-tech giants. In judiciously assessing the Jenkins Report’s recommendations and offering alternatives, this paper serves as a much-needed corrective, offering policy makers clear guidance in securing Canada’s economic future.

Number of Pages in PDF File: 49

Keywords: labour, labor, sponsored, venture, capital, tax, subsidy, subsidies, Jenkins, research, development, credit policy Canada, business, start up

JEL Classification: O31, O32, O38, O30, H2, H25, H20, G28, G24

working papers series