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Stalling startups stretch Canada’s productivity gap: report

Forget the conventional wisdom that Canadian companies are less productive because they are smaller and too concentrated in resource extraction.

A report to be released Monday by Deloitte Canada concludes that the real cause of the productivity gap is that too many Canadian startups stall and stop growing before they are five years old.

And because fast-growing companies are more productive, the problem permeates the entire economy, according to report,

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titled "The Future of Productivity: Clear choices for a competitive Canada." Forty-three per cent of new jobs are created by the fastest growing 5 per cent of companies.

"Regardless of size, sector, business type or location, our productivity performance lags the U.S. in virtually every instance," the 55-page report points out.

The productivity conundrum is partly cultural and partly structural, explained Bill Currie, Deloitte Canada's vice-chairman.

"We have some historical constraints to being competitive globally because of how we put our country together," Mr. Currie said in an interview. "They made sense 150 years ago. We have to sit down and go after those really hard things."

Those constraints include lingering protectionism, the absence of a national energy policy, balkanized securities regulation, a lack of venture capital, and too few companies exporting.

Too many business people shun risk, a feature apparently ingrained in the the Canadian corporate psyche. Roughly half are risk averse – a far greater share than their counterparts in the United States.

"Canada's productivity performance has been declining for many years, in part because Canadians appear to be more concerned about protecting and preserving what they have than creating something new," said Frank Vettese, Deloitte Canada's managing partner and chief executive.

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Being risk averse means avoiding the kind of things that makes companies become more competitive, grow and create jobs. That includes investing in information technology, buying new machinery and tackling export markets, according to the report.

Canada thinks of itself as an exporting nation. But it is not, compared with many other developed countries, Mr. Currie said. Exports account for 29 per cent of gross domestic product in Canada, compared with 50 per cent or better for most Nordic countries, the report said.

Mr. Currie said government in Canada needs to do a much better job of encouraging companies to export, while encouraging foreign investment at home. "When we export, we're way better than when we stay at home," he said.

Governments should also scrap policies that discourage growth, he said.

Editor's note: Deloitte Canada's position on the elimination of the small business tax has been corrected in the online version of this story.

Join the conversation on Canada's competitiveness by following Canada Competes on Twitter: @CanadaCompetes

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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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