In our new paper, “Innovation for Jobs and Productivity,” the Business Council argues that innovation is the key to creating and sustaining more high-productivity, high-wage jobs in the province. One result of a stronger innovation performance would be the emergence of more significant-scale firms. Fostering business growth remains an ongoing challenge in BC (and indeed Canada). Government taxation, regulatory and industrial development policies have long been geared to nurturing entrepreneurial start-ups and supporting small businesses in general. Policymakers have given less attention to how to stimulate, and reward, the rapid growth that enables small local ventures to develop into larger-scale firms over time.
In Canada, academic and think thank studies of innovation often focus on the “inputs” that analysts believe are signposts of an advanced, sophisticated economy: the amount of private sector research and development spending, patenting activity, the employment of scientists and engineers, etc. Less attention is paid to the expected pay-offs from innovation – higher productivity and wages, rising exports, more fast-growing businesses, and more local firms evolving into larger companies. The latter is an area where BC continues to struggle given the prevailing “small business” flavour of our private sector.
Indeed, it is striking that an overwhelming majority of companies based in BC are tiny one-person shops or micro- firms with 1-4 employees. Out of almost 400,000 “businesses” in the province, just 7,600 have 50 or more paid staff. We estimate that around 2,000 of these have reached the 100 plus employee level, with fewer than 800 having at least 500 employees.
|Businesses in BC
|Total number of businesses
|1-4 employee businesses
|5-9 employee businesses
|10-19 employee businesses
|20-49 employee businesses
|50 and more employee businesses
|Source: BC Government, Small Business Profile 2015.
British Columbia would benefit from having more large, locally-based companies. The evidence – from Canada, but also many other developed countries – confirms that the presence of significant-scale businesses brings a number of advantages to a regional economy. Larger firms have at least three characteristics that enhance the prosperity of the jurisdictions where they operate:
- Employee earnings: There is a positive correlation between firm size and worker pay. In BC, average weekly earnings for employees of large companies are almost one-third higher than for workers at firms with fewer than 50 paid staff. And when non-wage benefits are added to the mix, the overall gap in average compensation is wider still.
- Propensity to participate in outside markets: As companies expand, they are more likely to engage in international commerce. In most countries, firms with 250 or more employees account for substantial majorities of exports – a pattern also found in Canada. Particularly for small economies like BC, a solid base of exporting firms is critical to prosperity. One way to boost exports is to create an environment that encourages more local companies to grow.
- Investments in the drivers of innovation: The international evidence shows that larger companies invest more, in absolute terms, in key assets and activities that drive innovation – R&D, up-to-date machinery and equipment, advanced process technologies, and employee training and management skill development.
The Business Council’s paper makes the case that harnessing the power of innovation is the best way to improve productivity and increase the number of significant-scale firms based in the province.